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Item 1A. Risk Factors

2021-02-09 compared with 2020-02-12 · 318 added, 295 removed, 200 unchanged (75% of the section changed)

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The occurrence of the described risks could cause our results to differ materially from those described in our forward-looking statements included elsewhere in this report or in our other filings with the SEC and could have a material adverse impact on our business, financial condition or results of operations.

Merger-Related Risks

The consummation of the merger is contingent upon the satisfaction of a number of conditions, including shareholder and regulatory approvals, that may be outside of TCBI’s or IBTX’s control and that TCBI and IBTX may be unable to satisfy or obtain or which may delay the consummation of the merger or result in the imposition of conditions that could reduce the anticipated benefits from the merger or cause the parties to abandon the merger.

We face risks and uncertainties related to the proposed merger with Independent Bank Group, Inc.

Before the transactions contemplated in the merger agreement with IBTX can be completed, approvals must be obtained from regulatory authorities, including the Federal Reserve, the FDIC and the Texas Department of Banking, and from our stockholders, and all conditions to the closing of the transaction included in the merger agreement must have been satisfied or waived.

The required regulatory approvals may impose additional conditions, limitations, obligations or costs on the surviving entity, place restrictions on the conduct of the business of the surviving entity or require changes to the terms of the transactions contemplated by the merger agreement.

There can be no assurance that our or IBTX’s regulators will not impose any such additional conditions, limitations, obligations or restrictions, or that they will not have the effect of delaying or preventing the completion of the merger, imposing

additional material costs on or materially limiting the revenues of the surviving entity following the merger or otherwise reducing the anticipated benefits of the merger.

Uncertainties about the effects of the merger may impair our ability to attract, retain and motivate key personnel until the merger is consummated and for a period of time thereafter, and could cause customers and others who work with us to seek to change their existing business relationships with us.

It is not unusual for competitors to use mergers as an opportunity to target the merging parties’ customers and to hire certain of their employees.

Employee retention may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their roles with the surviving entity following the merger.

The merger agreement contains provisions that restrict each company's ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to its board of directors’ exercise of fiduciary duties, engage in any negotiations concerning, or provide any confidential information relating to, any alternative acquisition proposals.

These provisions, which include a $115.0 million termination fee payable under certain circumstances, may discourage any potential competing acquirer having an interest in acquiring us from proposing a transaction, or may result in the offer of a lower per share price to acquire us than might otherwise have been proposed.

We may fail to realize all of the anticipated benefits of the merger, or those benefits may take longer to realize than expected.

We may also encounter significant difficulties in integrating with IBTX.

We and IBTX have operated, and until the completion of the merger will continue to operate, independently, subject to terms of the merger agreement imposing specific limitations on certain actions of each party without the consent of the other party.

A significant portion of the anticipated benefit of the merger is attributable to anticipated cost savings from the integration of the two companies and elimination of duplicated costs and business functions.

There is no assurance that our businesses can be integrated successfully or that the expected cost reductions can be realized.

The integration process may result in the loss of key employees of each company, the loss of customers, the disruption of each company’s ongoing business, inconsistencies in standards, controls, policies and procedures, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

If we experience difficulties in the integration process, including those listed in the prior sentence, we may fail to realize the anticipated benefits of the merger in a timely manner or at all.

The success of the merger will depend on, among other things, the ability of the surviving entity following the merger to operate its businesses in a manner that facilitates growth and realizes cost savings.

The merger agreement may be terminated in accordance with its terms and the merger may not be completed.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger, including the approval of the merger agreement by TCBI’s stockholders and by IBTX’s shareholders;

the receipt of authorization for listing on the Nasdaq of the shares of IBTX common stock and IBTX Series B preferred stock to be issued in the merger;

the receipt of all required regulatory approvals;

the effectiveness of the registration statement on Form S-4 for the IBTX common stock and IBTX preferred stock to be issued in the merger;

the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger or making the completion of the merger illegal;

subject to certain exceptions, the accuracy of the representations and warranties under the merger agreement;

our and IBTX’s performance in all material respects of our and their respective obligations under the merger agreement;

and each of our and IBTX’s receipt of a tax opinion to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

The conditions to the closing of the merger included in the merger agreement may not be fulfilled in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.

We and IBTX may elect to terminate the merger agreement under certain circumstances.

Among other situations, if the merger is not completed by December 31, 2020, either we or IBTX may choose not to proceed with the merger (unless the failure of the closing to occur by such date was due to the failure of the party seeking to terminate the merger agreement to perform or observe the obligations, covenants and agreements of such party set forth in the merger agreement).

We and IBTX can also mutually decide to terminate the merger agreement at any time.

If the merger agreement is terminated, under certain circumstances, we may be required to pay a termination fee of $115.0 million to IBTX.

The value to be recognized by our stockholders from the merger is subject to material uncertainties .

The merger agreement provides that upon the closing of the merger our stockholders will receive 1.0311 shares of IBTX common stock for each share of our common stock that they own at that time.

The exchange rate for the conversion of our common stock into IBTX common stock was set in early December 2019 based upon information available to the boards of directors and financial advisors of each company at that time.

The market price of our common stock and of IBTX common stock is subject to substantial fluctuations in response to variety of factors that are inherently unpredictable and outside of our control, including changes in our and IBTX’s business, operations and prospects, and regulatory considerations, the historical and anticipated future financial results of our respective banking operations and general market and economic developments affecting Texas, United States and international businesses and financial markets.

The substantial differences between our business and the business of IBTX will subject our stockholders to new and different risks than those with which they are familiar.

months may transpire between the date that our stockholders are asked to approve the merger and the date that the merger is consummated, during which time the value of the merger consideration received by our stockholders will continue to fluctuate.

As a result, at the time of our special meeting of stockholders to vote to approve the merger agreement, our stockholders will not until the closing of the merger know the precise value of the merger consideration they will receive, which could be materially different than the market value at the time of the merger vote and the market value at the time the exchange ratio was set.

Failure to complete the proposed merger with IBTX could negatively impact our business, financial results and stock price.

If the proposed merger is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the merger, we would be subject to a number of related risks, including the following:

we may be required, under certain circumstances, to pay IBTX a termination fee of $115.0 million under the merger agreement, which may adversely affect the price of our common stock;

we will have incurred substantial expenses and will be required to pay significant costs relating to the merger, whether or not it is completed, such as legal, accounting, due diligence, financial advisor and printing fees;

the merger agreement places certain restrictions on the conduct of our business prior to completion of the merger, which may adversely affect our ability to execute certain of our business strategies and cause certain other initiatives to be delayed or abandoned;

matters relating to the merger require substantial commitments of time and resources by our management team that could have been and could be devoted to the pursuit of other opportunities beneficial to us as an independent company;

we may be subject to negative reactions from the financial markets and from our customers and employees that could materially affect our business, financial results and stock price;

the market price of our common stock could decline to the extent that current market prices of our common stock reflect a market assumption that the merger will be completed.

Litigation could prevent or delay the closing of the proposed merger or otherwise negatively impact our business and operations.

We may be subject to legal proceedings related to the agreed terms of the proposed merger, the manner in which the merger was considered and approved by our board of directors or any failure to complete the merger or perform our obligations under the merger agreement.

Such litigation could delay or block the consummation of the merger, have an adverse effect on our financial condition and impose material costs on us or the surviving entity.

Any delay in completing the merger could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the merger is successfully completed within its expected time frame.

Our future results will suffer if we do not effectively manage our expanded operations following the merger.

Following the merger, the size of our business will increase significantly beyond its current size.

The future success of the surviving entity depends, in part, upon the ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.

There can be no assurances the surviving entity will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.

Summary of Risk Factors

The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations.

In addition to the following summary, you should consider the other information set forth in this “Risk Factors” section and the other information contained in this report before investing in our securities.

• We must effectively manage our credit risks.

• A significant portion of our assets consists of commercial loans, which involve a high degree of credit risk.

• We are subject to risks arising from conditions in the real estate market, as a significant portion of our loans are secured by commercial and residential real estate.

• Our future profitability depends, to a significant extent, upon our middle market business customers.

• Our business is concentrated in Texas;

our energy industry exposure could adversely affect our performance.

• Our mortgage correspondent aggregation business subjects us to additional risks.

• We must effectively manage our counterparty risk.

• We must maintain an appropriate allowance for credit losses.

• Changes in accounting standards could materially affect how we report our financial results.

Liquidity Risks

• We must effectively manage our liquidity risk.

• Our growth plans are dependent on the availability of capital and funding.

• We are dependent on funds obtained from borrowing or capital transactions or from our Bank to fund our obligations.

• We must effectively manage our interest rate risks.

• We may be adversely affected by changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities.

Strategic Risks

• We must be effective in developing and executing new lines of business and new products and services while managing associated risks.

• We compete with many banks and other financial service providers.

• We must effectively execute our business strategy in order to continue our asset and earnings growth.

Operational Risks

• We, our vendors and customers must effectively manage our information systems risk which may experience disruption, failure or breach in security.

• Our operations rely extensively on a broad range of external vendors.

• We must continue to attract, retain and develop key personnel.

• Our accounting estimates and risk management processes rely on management judgment, which may prove inadequate or be adversely impacted by inaccurate assumptions or models.

• Our risk management strategies and processes may not be effective;

our controls and procedures may fail or be circumvented.

• Our business is susceptible to fraud.

Legal, Regulatory and Compliance Risks

• We are subject to extensive government regulation and supervision.

• We must maintain adequate regulatory capital to support our business objectives.

• We are subject to claims and litigation in the ordinary course of our business, including claims that may not be covered by our insurers.

Other Risks Affecting Our Business

• Our business faces unpredictable economic and business conditions.

• The COVID-19 pandemic is adversely affecting us and our customers, employees and third-party service providers, and the adverse impacts on our business, financial position, operations and prospects have been and are expected to continue to be significant.

• As a participating lender in the Small Business Administration’s PPP, we may be subject to additional risks regarding our Bank’s processing of PPP loans and are dependent on the federal government’s continuation and support of the program.

• The impact of the Tax Cuts and Jobs Act (the “Tax Act”) on us and our customers contributes to uncertainty and risk related to our customers’ future demand for credit and our future results.

• We are subject to environmental liability risk associated with lending activities.

• Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business.

Risks Relating to Our Securities

• Our stock price can be volatile.

• The trading volume in our common stock is less than that of other larger financial services companies.

• Our preferred stock is thinly traded.

• An investment in our securities is not an insured deposit.

• The holders of our indebtedness and preferred stock have rights that are senior to those of our common stockholders.

• We do not currently pay dividends on our common stock.

• Federal legislation and regulations impose restrictions on the ownership of our common stock.

• Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may make it more difficult for you to receive a change in control premium.

• Our Bank is subject to regulatory and contractual limitations on the payment of its subordinated notes.

Risk Factors Associated With Our Business

We must effectively manage our credit risk .

The risk of non-payment of loans is inherent in commercial banking.

Increased credit risk may result from many factors, including:

We must effectively manage our credit risks .

The risk of non-payment of loans is inherent in commercial banking, which may result from many factors, including:

• Adverse changes in local, U.S.

and global economic and industry conditions;

• Business and market disruptions as a result of the COVID-19 pandemic and governmental restrictions imposed in response to the pandemic;

• Declines in the value of collateral, including asset values that are directly or indirectly related to external factors such as commodity prices, real estate values or interest rates;

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Although we attempt to manage our credit risk by carefully monitoring the concentration of our loans within specific loan categories and industries and through prudent loan approval and monitoring practices in all categories of our lending, we cannot assure you that our approval and monitoring procedures will reduce these lending risks.

Our significant number of large credit relationships (above $20 million) could exacerbate credit problems precipitated by a

regional or national economic downturn.

Our significant number of large credit relationships (above $20 million) could exacerbate credit problems precipitated by a regional or national economic downturn.

Competitive pressures could erode underwriting standards, leading to a decline in general credit quality and increases in credit defaults and non-performing asset levels.

If our credit administration personnel, policies and procedures are not able to adequately adapt to changes in economic, competitive or other conditions that affect customers and the quality of the loan portfolio, we may incur increased losses that could adversely affect our financial results and lead to increased regulatory scrutiny, restrictions on our lending activity or financial penalties.

A significant portion of our assets consists of commercial loans.

If our credit portfolio management routines, policies and procedures are not able to adequately adapt to changes in economic, competitive or other conditions that affect customers and the quality of the loan portfolio, we may incur increased losses that could adversely affect our financial results and lead to increased regulatory scrutiny, restrictions on our lending activity or financial penalties.

A significant portion of our assets consists of commercial loans, which involve a high degree of credit risk.

We generally invest a greater proportion of our assets in commercial loans to business customers than other banking institutions of our size, and our business plan calls for continued efforts to increase our assets invested in these loans.

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Due to the greater proportion of these commercial loans in our portfolio and because the balances of these loans are, on average, larger than other categories of loans, losses incurred on a relatively small number of commercial loans could have a materially adverse impact on our results of operations and financial condition.

A significant portion of our loans are secured by commercial and residential real estate .

We are subject to risks arising from conditions in the real estate market, as a significant portion of our loans are secured by commercial and residential real estate .

At December 31, 2020, approximately 61% of our loans held for investment portfolio was comprised of loans with real estate as the primary component of collateral.

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Our future profitability depends, to a significant extent, upon revenue we receive from middle market business customers, and their ability to continue to meet their loan obligations.

Adverse economic conditions or other factors affecting this market segment, and our failure to timely identify and react to unexpected economic downturns, may have a greater adverse effect on us than on other financial institutions that have a more diversified customer base.

institutions that have a more diversified customer base.

Additionally, our inability to grow our middle market business customer base in a highly competitive market could affect our future growth and profitability.

We must maintain an appropriate allowance for loan losses .

Our experience in the banking industry indicates that some portion of our loans will become delinquent, and some may only be partially repaid or may never be repaid at all.

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense each quarter, that is consistent with management’s assessment of the collectability of the loan portfolio in light of the amount of loans committed and outstanding and current economic conditions and market trends.

When specific loan losses are identified, the amount of the expected loss is removed, or charged-off, from the allowance.

Our methodology for establishing the appropriateness of the allowance for loan losses depends on our subjective application of risk grades as indicators of each borrower’s ability to repay specific loans, together with our assessment of how actual or projected changes in competitor underwriting practices, competition for borrowers and depositors and other conditions in our markets are likely to impact improvement or deterioration in the collectability of our loans as compared to our historical experience.

Our business model makes our Bank more vulnerable to changes in underlying business credit quality than other banks with which we compete.

We have a substantially larger percentage of commercial, real estate and other categories of business loans relative to total assets than most other banks in our market and our individual loans are generally larger as a percentage of our total earning assets than other banks.

While we have substantially increased our liquidity in recent years, these funds are invested in low-yielding deposits with federal agencies and other financial institutions.

A substantially smaller portion of our assets consists of securities and other earning asset categories that can be less vulnerable to changes in local, regional or industry-specific economic trends, causing our potential for credit losses to be more severe than other banks.

Our business model has focused on growth in various loan categories that can be more sensitive to changes in economic trends.

We believe our ability to maintain an above-peer rate of growth in commercial loans is dependent on maintaining above-peer credit quality metrics.

The failure to maintain above-peer credit quality metrics would have a material adverse impact on our growth and profitability.

Historically, we have sought to take action prior to economic downturns by slowing growth rates and decreasing

the risk level of our assets by, among other things, allowing runoff of loans that we believe may not perform well during a weakening or declining economic environment.

If our assessment of inherent risk and losses in our loan portfolio is inaccurate, or economic and market conditions or our borrowers' financial performance experience material unanticipated changes, the allowance may become inadequate, requiring larger provisions for loan losses that can materially decrease our earnings.

Certain of our loans individually represent a significant percentage of our total allowance for loan losses.

Adverse collection experience in a relatively small number of these loans could require an increase in the provision for loan losses.

Federal regulators periodically review our allowance for loan losses and, based on their judgments, which may be different than ours, may require us to change classifications or grades of loans, increase the allowance for loan losses or recognize further loan charge-offs.

Any increase in the allowance for loan losses or in the amount of loan charge-offs required by our methodology or regulatory agencies could have a negative effect on our results of operations and financial condition.

Changes in accounting standards, including the implementation of Current Expected Credit Loss methodology for 2020, could materially affect how we report our financial results.

The Financial Accounting Standards Board adopted a new accounting standard for determining the amount of our allowance for credit losses (ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) that will be effective for our fiscal year ending December 31, 2020, referred to as Current Expected Credit Loss ("CECL").

Implementation of CECL will require that we determine periodic estimates of lifetime expected future credit losses on loans in the provision for loan losses in the period when the loans are booked.

Based on our fourth quarter parallel run, review of the portfolio, including the composition, characteristics and quality of the underlying loans, and the prevailing economic conditions and forecasts as of the adoption date, we believe that adoption of ASU 2016-13 will result in an immaterial increase of approximately 5-6% to our allowance for credit losses.

This is consistent with our expectations given that our current portfolio is of shorter duration and commercially focused.

The ongoing impact of CECL will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.

Should these factors materially change, we may be required to increase or decrease our allowance for loan losses, decreasing or increasing our reported income, and introducing additional volatility into our reported earnings.

Our business is concentrated in Texas;

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While the Texas economy is more diversified than in the 1980’s, the energy sector continues to play an important role.

At December 31, 2019 our outstanding energy loans represented 5% of total loans.

At December 31, 2020 our outstanding energy loans represented 3% of total loans held for investment.

Furthermore, energy production and related industries represent a significant part of the economies in some of the primary markets in which we operate.

Our energy loans consist primarily of producing reserve-based loans to exploration and production companies with a smaller portion of our loan balances attributable to royalty owners, midstream operators, saltwater disposal and other service companies whose businesses primarily relate to production, not exploration and development, of oil and gas.

These businesses have been significantly affected by volatility in oil and natural gas prices, reserve depletion curves, material declines in the level of drilling and production activity in Texas and in other areas of the United States and material fluctuations in investor interest in oil and gas exploration and production investments.

We experienced an increase in non-performing assets and higher charge-offs primarily related to energy loans during 2016, and while those levels have moderated over the last three years, they still remain elevated compared to the overall loan portfolio.

We experienced an increase in non-performing assets and higher charge-offs primarily related to energy loans during 2017, and they still remain elevated compared to the overall loan portfolio.

There is no assurance that we will not be materially adversely impacted by the direct and indirect effects of current and future conditions in the energy industry in Texas and nationally.

Our business faces unpredictable economic and business conditions .

Our business is directly impacted by general economic and business conditions in Texas, the United States and internationally.

The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we and our customers conduct our respective businesses.

Our continued financial success can be affected by other factors that are beyond our control, including:

national, regional and local economic conditions;

the value of the U.S.

Dollar in relation to the currencies of other advanced and emerging market countries;

the performance of both domestic and international equity and debt markets and valuation of securities traded on recognized domestic and international exchanges;

general economic consequences of international conditions, such as weakness in European and South American sovereign debt and currencies and the U.K.'s referendum to exit from the European Union, and the impact of those conditions on the US and global economies;

legislative and regulatory changes impacting our industry;

the financial health of our customers and economic conditions affecting them and the value of our collateral, including effects from continued price volatility of oil and gas and other commodities;

the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting our Bank and our customers;

structural changes in the markets for origination, sale and servicing of residential mortgages;

changes in governmental economic and regulatory policies, including the extent and timing of intervention in credit markets by the Federal Reserve or withdrawal from that intervention, generally as well as changes attributable to presidential and congressional elections;

changes in the availability of liquidity at a systemic level;

material inflation or deflation.

Substantial deterioration in any of the foregoing conditions can have a material adverse effect on our prospects and our results of operations and financial condition.

There is no assurance that we will be able to return to our historical rate of growth or our profitability.

Our Bank's customer base is primarily commercial in nature, and our Bank does not have a significant retail branch network or retail consumer deposit base.

In periods of economic downturn, business and commercial deposits may be more volatile than traditional retail consumer deposits.

As a result, our financial condition and results of operations could be adversely affected to a greater degree by these uncertainties than competitors having a larger retail customer base.

The impact of the Tax Cuts and Jobs Act (the "Tax Act") on us and our customers contributes to uncertainty and risk related to our customers' future demand for credit and our future results.

The extent to which increased economic activity expected to result from the Tax Act has spurred additional economic activity or affected the extent of borrowing by our customers is unclear, although the continuation of the current economic expansion provides some evidence of a positive effect.

At the same time, some of our customers may have elected to use their additional cash flow from lower taxes to fund their business, decreasing borrowing needs.

The elimination of the federal income tax deductibility of business interest expense for a significant number of our customers effectively increases the cost of borrowing and makes equity or hybrid funding relatively more attractive.

This could have a long-term negative impact on business customer borrowing.

We realized a significant increase in our after-tax net income available to stockholders attributable to the Tax Act beginning in 2018, but there is no guarantee that future years' results will have the same benefit.

The continued compression of net interest margin at our bank and for competitor banks indicates that some or all of the expected benefit from the Tax Act has been lost as the banks and financial services companies we compete with have elected to lower interest rates and fees and we have responded in order to remain competitive.

Additionally, the tax benefits could be repealed as a result of future political or regulatory actions.

There is no assurance that the current or anticipated benefits of the Tax Act will be realized in future periods.

Our growth plans are dependent on the availability of capital and funding .

Our historical ability to raise capital through the sale of capital stock and debt securities may be affected by economic and market conditions or regulatory changes that are beyond our control.

Adverse changes in our operating performance or financial condition could make raising additional capital difficult or more expensive or limit our access to customary sources of funding, including inter-bank borrowings, repurchase agreements and borrowings from the Federal Reserve Bank ("FRB") or the Federal Home Loan Bank ("FLHB").

Unexpected changes in requirements for capital resulting from regulatory actions could require us to raise capital at a time, and at a price, that might be unfavorable, or could require that we forego continuing growth or reduce our current loan portfolio.

We cannot offer assurance that capital and funding will be available to us in the future, in needed amounts, upon acceptable terms or at all.

Our efforts to raise capital could require the issuance of securities at times and with maturities, conditions and rates that are disadvantageous, and which could have a dilutive impact on our current stockholders.

Factors that could adversely affect our ability to raise additional capital or necessary funding include conditions in the capital markets, our financial performance, our credit ratings, regulatory actions and general economic conditions.

Increases in our cost of capital, including dilution and increased interest or dividend requirements, could have a direct adverse impact on our operating performance and our ability to achieve our growth objectives.

Trust preferred securities are no longer viable as a source of new long-term debt capital as a result of regulatory changes.

The treatment of our existing trust preferred securities as capital may be subject to further regulatory change prior to their maturity, which could require the Company to seek additional capital.

Our mortgage finance business has experienced, and will likely continue to experience, highly variable usage of our funding capacity resulting from seasonal demands for credit, surges in consumer demand driven by changes in interest rates and month-end “spikes” of residential mortgage closings.

These spikes could also result in our Bank having capital ratios that are below internally targeted levels or even levels that could cause our Bank to not be well capitalized and could affect liquidity levels.

At the same time managing this risk by declining to respond fully to the needs of our customers could severely impact our business.

We have responded to these variable funding demands by, among other things, increasing the extent of participations sold in our mortgage loan interests, as needed, and by maintaining a substantial borrowing relationship with the FHLB.

Our mortgage finance customers have in recent periods provided significant low-cost deposit balances associated with the borrower escrow accounts created at the time certain mortgage loans are funded, which have benefitted our liquidity and net interest

Due to the rising rate environment and in response to competitive pressures, we have found it necessary to pay interest on some of these accounts, as regulations allow or require and this trend may continue, materially increasing our costs of funds.

Individual escrow account balances also experience significant variability monthly as principal and interest payments, as well as ad valorem taxes and insurance premiums , are paid periodically.

While the short average holding period of our mortgage interests of approximately 20 days will allow us, if necessitated by a funding shortfall, to rapidly decrease the size of the portfolio and its associated capital and funding requirements, any such action might significantly damage our business and important mortgage finance relationships.

Our mortgage correspondent aggregation business subjects us to additional risks.

In 2015, we launched our mortgage correspondent aggregation (“MCA”) business, a correspondent lending program that complements our mortgage warehouse lending business, in 2015.

Volatility in the mortgage industry has caused uncertainty related to the pricing of the mortgage loans that we seek to purchase, as well as uncertainty in the pricing of those loans when they are sold or securitized.

Similar uncertainty exists with respect to volatility in the value of mortgage servicing rights ("MSRs") on our balance sheet.

This volatility may cause the actual returns on mortgage sales or securitization transactions to be less than anticipated, which could adversely affect our overall loans held for sale volumes and the profitability of this line of business.

Fluctuations in the value of MSRs that we hold on our balance sheet could require that we recognize impairments in the value of such assets and/or actual losses on the disposition of such assets.

Additionally, non-bank competitors may have a pricing advantage as they are not subject to the same capital maintenance requirements relative to mortgage loans and MSRs as our Bank.

Our MCA business subjects us to additional interest rate risk and price risk, which may have an adverse effect on our business.

The persistent low interest rate environment has in certain cases resulted in an increase in the value of MSRs, causing other market participants and competitors who are planning to hold MSRs for a longer term to be more aggressive in their pricing of the underlying loan purchases than a participant like our Bank that does not plan to hold MSRs on a long-term basis.

While we believe market and competitive conditions may improve in the future, a prolonged low interest rate environment could adversely affect the economics of our MCA business over a longer period of time.

Conversely, an environment of rising interest rates could have a significant effect on loan volumes in our MCA business if refinancing and home purchase activities are reduced.

We have entered into loan purchase commitments and forward sales commitments in connection with the MCA business, as well as interest rate swap futures and forward sale commitments of mortgage-backed securities in connection with holding MSRs.

While we believe that our hedging strategies will be successful in mitigating our exposure to interest rate risk associated with the purchase of mortgage loans held for sale and holding of MSRs, no hedging strategy can completely protect us.

Poorly designed strategies, improperly executed transactions, or inaccurate assumptions regarding future interest rates or market conditions could have a material adverse effect on our financial condition and results of operations.

We are from time to time required to hold or repurchase mortgage loans or reimburse investors as a result of breaches in contractual representations and warranties under the agreements pursuant to which we purchase and sell mortgage loans.

While our agreements with the originators and sellers of mortgage loans provide us with legal recourse against them that may allow us to recover some or all of our losses, these companies are frequently not financially capable of paying large amounts of damages and as a result we can offer no assurance that we will not bear all of the risk of loss.

We may incur other costs and losses as a result of actual or alleged violations of regulations related to the origination and purchase of residential mortgage loans.

The origination of residential mortgage loans is governed by a variety of federal and state laws and regulations, which are frequently changing.

We sell residential mortgage loans that we have purchased or that we have originated to various parties, including Ginnie Mae and GSEs such as Fannie Mae or Freddie Mac and other financial institutions that purchase mortgage loans for investment or private label securitization.

We may also pool FHA-insured and VA-guaranteed mortgage loans which back securities issued by Ginnie Mae.

Our accrued mortgage repurchase liability represents management’s best estimate of the probable loss that we may expect to incur for the representations and warranties in

the contractual provisions of our sales of mortgage loans, but there is no assurance that our losses will not materially exceed such amounts.

We must effectively manage our counterparty risk .

Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships.

Our Bank has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other financial market participants.

Many of these transactions expose our Bank to credit risk in the event of a default by a counterparty or client.

In addition, our Bank’s credit risk may be increased when the collateral securing its loans cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of its credit or derivative exposure.

Any such losses could have a material adverse effect on our business, financial condition and results of operations.

We must maintain an appropriate allowance for credit losses .

Our experience in the banking industry indicates that some portion of our loans will become delinquent, and some may only be partially repaid or may never be repaid at all.

We maintain an allowance for credit losses on loans, which is a reserve established through a provision for credit losses charged to expense each quarter, that is consistent with management’s assessment of the collectability of the loan portfolio in light of the amount of loans committed and outstanding and current and future economic conditions and market trends.

When specific loan losses are identified, the amount of the expected loss is removed, or charged-off, from the allowance.

Our methodology for establishing the appropriateness of the allowance for credit losses on loans depends on our subjective application of risk grades as indicators of each borrower’s ability to repay specific loans, together with our assessment of how actual or projected changes in competitor underwriting practices, competition for borrowers and depositors and other conditions in our markets are likely to impact improvement or deterioration in the collectability of our loans as compared to our historical experience.

Our business model makes our Bank more vulnerable to changes in underlying business credit quality than other banks with which we compete.

We have substantially increased our liquidity in recent years, and these funds have primarily been invested in low-yielding deposits with federal agencies and other financial institutions.

And, we have had a substantially smaller portion of our assets consists of securities and other earning asset categories that can be less vulnerable to changes in local, regional or industry-specific economic trends, causing our potential for credit losses to be more severe than other banks.

However, during 2020, we began deploying some of our excess liquidity into securities to improve income, but the most significant portion of earning assets still remains in loans.

Our business model has focused on growth in various loan categories that can be more sensitive to changes in economic trends.

We believe our ability to maintain an above-peer rate of growth in commercial loans is dependent on maintaining above-peer credit quality metrics.

The failure to maintain above-peer credit quality metrics would have a material adverse impact on our growth and profitability.

Historically, we have sought to take action prior to economic downturns by slowing growth rates and decreasing the risk level of our assets by, among other things, allowing runoff of loans that we believe may not perform well during a weakening or declining economic environment.

If our assessment of inherent risk and losses in our loan portfolio is inaccurate, or economic and market conditions or our borrowers' financial performance experience material unanticipated changes, including as a result of the COVID-19 pandemic, the allowance may become inadequate, requiring larger provisions for loan losses that can materially decrease our earnings.

Certain of our loans individually represent a significant percentage of our total allowance for credit losses.

Adverse collection experience in a relatively small number of these loans could require an increase in the provision for credit losses.

Federal regulators periodically review our allowance for credit losses and, based on their judgments, which may be different than ours, may require us to change classifications or grades of loans, increase the allowance for credit losses or recognize further loan charge-offs.

Any increase in the allowance for credit losses or in the amount of loan charge-offs required by our methodology or regulatory agencies could have a negative effect on our results of operations and financial condition.

Changes in accounting standards could materially affect how we report our financial results.

The Financial Accounting Standards Board and the SEC may change the financial accounting and reporting standards, or the interpretation of those standards, that govern the preparation of our external financial statements from time to time.

The impact of these changes or the application thereof on our financial condition and operations can be difficult to predict.

For example, we adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) on January 1, 2020 which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with the CECL model.

Implementation of CECL requires that we determine periodic estimates of lifetime expected future credit losses on loans in the provision for credit losses in the period when the loans are booked.

Our adoption of CECL resulted in an increase to the allowance for credit losses by $9.1 million.

The impact of CECL in future periods will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.

Should these factors materially change, we may be required to increase or decrease our allowance for credit losses, decreasing or increasing our reported income, and introducing additional volatility into our reported earnings.

Liquidity Risks

We must effectively manage our liquidity risk .

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By comparison, a substantial portion of our assets are loans, most of which, excluding our mortgage finance loans and mortgage loans held for sale, cannot be collected or sold in so short a time frame, creating the potential for an imbalance in the availability of liquid assets to satisfy depositors and loan funding requirements.

We hold smaller balances of marketable securities than many of our competitors, limiting our ability to increase our liquidity by completing market sales of these assets.

We have historically held smaller balances of marketable securities than many of our competitors, limiting our ability to increase our liquidity by completing market sales of these assets.

During 2020, we deployed some of our excess liquidity into marketable securities.

An inability to raise funds through deposits, borrowings, the sale of securities and loans and other sources, or an inability to access the capital markets, could have a substantial negative effect on our Bank’s liquidity.

We actively manage our available sources of funds to meet our expected needs under normal and financially stressed conditions, but there is no assurance that our Bank will be able to make new loans, meet ongoing funding commitments to borrowers and replace maturing deposits and advances as necessary under all possible circumstances.

Our Bank’s ability to obtain funding could be impaired by factors beyond its control, such as disruptions in financial markets, negative expectations regarding the financial services industry generally or in our markets or negative perceptions of our Bank, including our credit ratings and in connection with the proposed Merger.

See Merger-Related Risks for a discussion of risks related to the proposed merger.

Our Bank sources a significant volume of its demand deposits from financial services companies, mortgage finance customers and other commercial sources, resulting in a larger percentage of large deposits and a smaller number of sources of deposits than would be typical of other banks in our markets, creating concentrations of deposits that carry a greater risk of unexpected material withdrawals.

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See Management’s Discussion and Analysis of Financial Condition and Results of Operations below for further discussion of our liquidity.

We, our vendors and customers must effectively manage our information systems risk.

We, our vendors and customers all rely heavily on communications and information systems to conduct our respective businesses and work effectively together.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven

products and services.

Our ability to compete successfully depends in part upon our ability to use technology to provide products and services that will satisfy customer demands.

Many of our larger competitors invest substantially greater resources in technological capabilities than we do.

We may not be able to effectively protect, develop and manage mission critical systems and IT infrastructure to support strategic business initiatives, which could impair our ability to achieve financial, operational, compliance and strategic objectives and negatively affect our business, results of operations or financial condition.

Our communications and information systems and those of our vendors and customers remain vulnerable to unexpected disruptions, failures and cyber-attacks.

The frequency and intensity of such attacks is escalating.

Material failures or interruptions of these systems could impair our ability to serve our customers and to operate our business and could damage our reputation, result in a loss of business, subject us to additional regulatory scrutiny or enforcement or expose us to civil litigation and possible financial liability.

While we have developed extensive recovery plans, we cannot assure that those plans will be effective to prevent adverse effects upon us and our customers resulting from system failures.

We collect and store sensitive data, including personally identifiable information of our customers and employees and in the ordinary course of business must allow certain of our vendors access to that data.

Breaches of our systems or our vendors' or customers’ systems, thefts of data and other breaches and criminal activity may result in significant costs to respond, liability for customer losses if we or our vendors are at fault, damage to our customer relationships, regulatory scrutiny and enforcement and loss of future business opportunities due to reputational damage.

Breaches can be perpetrated by unknown third parties, but could also be facilitated by employees either inadvertently or by consciously attempting to create disruption or certain acts of fraud.

Although we, with the help of third-party service providers, will continue to implement information security technology solutions and establish operational procedures to protect sensitive data, there can be no assurance that these measures will be effective.

We advise and provide training to our customers and evaluate and impose security requirements on our vendors regarding protection of their respective information systems, but there is no assurance that these actions will have the intended positive effects or will be effective to prevent losses.

In some cases we may elect to contribute to the cost of responding to cybercrime against our customers, even when we are not at fault, in order to maintain valuable customer relationships.

Successful cyber-attacks on our Bank, vendors or customers may affect the reputation of our Bank, and failure to meet customer expectations could have a material impact on our ability to attract and retain deposits as a primary source of funding.

Our operations rely extensively on a broad range of external vendors.

We rely on a large number of vendors to provide products and services necessary to maintain our day-to-day operations, particularly in the areas of operations, treasury management systems, information technology and security.

This reliance exposes us to the risk that these vendors will not perform as required by our agreements as well as risks resulting from disruptions in communications with our vendors, cyber-attacks and security breaches at our vendors, failure of a vendor to provide services for other reasons and poor performance of services.

An external vendor’s failure to perform in any of these areas could be disruptive to our operations, which could have a material adverse impact on our business, financial condition and results of operations, as well as cause reputational damage.

External vendors who must have access to our information systems in order to provide their services have been identified as significant sources of information technology security risk.

While we have implemented an active program of oversight to address this risk, there can be no assurance that we will not experience material security breaches associated with our vendors.

Our growth plans are dependent on the availability of capital and funding .

Our historical ability to raise capital through the sale of capital stock and debt securities may be affected by economic and market conditions or regulatory changes that are beyond our control.

We cannot offer assurance that capital and funding will be available to us in the future, in needed amounts, upon acceptable terms or at all.

Increases in our cost of capital, including dilution and

increased interest or dividend requirements, could have a direct adverse impact on our operating performance and our ability to achieve our growth objectives.

Trust preferred securities are no longer viable as a source of new long-term debt capital as a result of regulatory changes.

The treatment of our existing trust preferred securities as capital may be subject to further regulatory change prior to their maturity, which could require the Company to seek additional capital.

At the same time managing this risk by declining to respond fully to the needs of our customers could severely impact our business.

In response to competitive pressures, we sometimes find it necessary to pay interest on some of these accounts, as regulations allow or require and this trend may continue, which can affect our ability to reduce our costs of funds.

Individual escrow account balances also experience significant variability monthly as principal and interest payments, as well as ad valorem taxes and insurance premiums , are paid periodically.

We are dependent on funds obtained from borrowing or capital transactions or from our Bank to fund our obligations.

We are a financial holding company engaged in the business of managing, controlling and operating our Bank.

We conduct no material business or other activity at the parent company level other than activities incidental to holding equity and debt investments in our Bank.

As a result, we rely on the proceeds of capital transactions, borrowings under our revolving line of credit, payments of interest and principal on loans made to our Bank and dividends on preferred stock issued by our Bank to pay our operating expenses, to satisfy our obligations to debtholders and to pay dividends on our preferred stock.

The profitability of our Bank is subject to fluctuation based upon, among other things, the cost and availability of funds, changes in interest rates and economic conditions in general.

Our Bank’s ability to pay dividends to us is subject to regulatory limitations that can, under certain adverse circumstances, prohibit the payment of dividends to us.

Our right to participate in any distribution from the liquidation or sale of our Bank’s assets is subject to the prior claims of our Bank’s creditors.

If we are unable to access funds from capital transactions, borrowing under our revolving line of credit or dividends or interest on loan payments from our Bank, we may be unable to satisfy our obligations to creditors or debtholders or pay dividends on our preferred stock.

Changes in our Bank’s operating results or capital requirements could require us to convert subordinated notes or preferred stock of our bank held by us into common equity, reducing our cash flow available to meet our obligations.

We must effectively manage our interest rate risk .

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Periods of unusually low or volatile interest rates have a material effect on our earnings.

The Federal Reserve began raising rates in late 2015 and continued through 2018 contributing to improvement in our net interest income as the increase in interest we receive on our assets exceeded the increase in interest we were required to pay our depositors.

The Federal Reserve began to decrease interest rates and made changes in its approaches to financial market liquidity management in 2019, which had a negative impact on our earnings.

Should interest rates remain unchanged or decline further in 2020, we expect a negative impact on our 2020 earnings to a greater degree than our peer group.

There is uncertainty regarding the extent to which interest rates may change in 2020 and future periods and what the future effects of any such changes will be on our interest income and expense.

Increases in market interest rates can negatively impact our business, including reducing our customers' desire to borrow money from us and their ability to repay their outstanding loans as their debt service obligations increase through the periodic reset of adjustable interest rate loans.

If our borrowers’ ability to pay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results.

Asset values, especially commercial real estate collateral, securities or other fixed rate earning assets, can decline significantly with relatively minor changes in interest rates.

During the first quarter of 2020, in response to the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%, and there is an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.

Increases in interest rates and economic conditions affecting consumer demand for housing can have a material impact on the volume of mortgage originations and refinancings, adversely affecting the profitability of our mortgage finance business.

Interest rate risk can also result from mismatches between the dollar amounts of repricing or maturing assets and liabilities and

from mismatches in the timing and rates at which our assets and liabilities reprice.

Interest rate risk can also result from mismatches between the dollar amounts of repricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities reprice.

We actively monitor and manage the balances of our maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions.

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There can be no assurance that we will not be materially adversely affected by future changes in interest rates.

We are subject to extensive government regulation and supervision .

We, as a bank holding company and financial holding company, and our Bank as a national bank, are subject to extensive federal and state regulation and supervision, and the potential for regulatory enforcement actions, that impact our business on a daily basis.

See the discussion above at Business - Regulation and Supervision .

These regulations affect our lending practices, permissible products and services and their terms and conditions, customer relationships, capital structure, investment practices, accounting, financial reporting, operations and our ability to grow, among other things.

These regulations also impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of our customers.

Congress, state legislatures, and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes.

Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways.

Material changes in regulation and requirements imposed on financial institutions, such as the Dodd-Frank Act, Basel III Capital Rules, European Union's General Data Protection Regulations ("GDPR") and California Consumer Privacy Act ("CCPA") result in additional costs, impose more stringent capital, liquidity and leverage requirements, limit the types of financial services and products we may offer and increase the ability of non-bank financial services providers to offer competing financial services and products, among other things.

Such changes could result in new regulatory obligations which could prove difficult, expensive or competitively impractical to comply with if not equally imposed upon non-bank financial services providers with whom we compete.

We are subject to a continuous program of examinations by our regulators concerning, among other things, lending practices, reserve methodology, compliance with changing regulations and interpretations, BSA/AML compliance, our management of interest rate, liquidity, capital and operational risk, enterprise risk management, regulatory and financial accounting practices and policies and related matters, which can divert management’s time and attention from focusing on our business.

We devote a significant amount of management time and expense to enhancing the infrastructure to support our compliance obligations, which can pose significant regulatory enforcement, financial and reputational risks if not appropriately addressed.

The Regulatory Relief Act passed on May 22, 2018 has provided a limited degree of regulatory relief for institutions of our size.

Uncertainty regarding how our regulators will evaluate capital and liquidity planning going forward remains a risk.

We continue to increase our capital and liquidity and expand our regulatory compliance staffing and systems in order to address continuing regulatory requirements.

There is no assurance that our financial performance in future years will not be similarly burdened.

We expend substantial effort and incur costs to maintain and improve our systems, controls, accounting, operations, information security, compliance, audit effectiveness, analytical capabilities, staffing and training in order to satisfy regulatory requirements.

We cannot offer assurance that these efforts will be accepted by our regulators as satisfying the legal and regulatory requirements applicable to us.

Failure to comply with relevant laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations.

While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

We must effectively execute our business strategy in order to continue our asset and earnings growth .

Our core strategy is to develop our business principally through organic growth by offering a premier and differentiated banking experience to companies in high-value business segments.

Our prospects for continued growth must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies.

In order to execute our business strategy successfully, we must, among other things:

continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally;

develop new products and services and execute our full range of products and services more efficiently and effectively;

attract and retain qualified bankers in each of our targeted market segments to build our customer base;

respond to market opportunities promptly and nimbly while balancing the demands of risk management and compliance with regulatory requirements;

expand our loan portfolio in an intensely competitive environment while maintaining credit quality;

attract sufficient deposits and capital to fund our anticipated loan growth and satisfy regulatory requirements;

control expenses;

acquire and maintain sufficient qualified staffing and information technology and operational resources to support growth and compliance with regulatory requirements;

consummate the proposed merger of equals with IBTX, which requires stockholder and regulatory approval.

Failure to effectively execute our business strategy could have a material adverse effect on our business, future prospects, financial condition or results of operations.

The merger agreement with IBTX restricts us from making certain acquisitions and taking other specified actions while the merger is pending without the consent of IBTX, and requires us to operate in the ordinary course of business.

These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the merger or may otherwise adversely affect our ongoing business and operations.

See Merger-Related Risks for a discussion of additional risks related to the proposed merger.

We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities .

We may be adversely affected by changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, for our variable rate loans, derivative contracts and other financial assets and liabilities .

Our business relies upon a large volume of loans, derivative contracts and other financial instruments which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value.

Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021.

It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.

It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several years.

The administrator of LIBOR has proposed to extend publication of the most commonly used U.S.

Dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021.

federal banking agencies have 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.

It is not possible to know whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may have on the financial markets for LIBOR-linked financial instruments.

While we have established a working group consisting of key stakeholders from throughout the company to monitor developments relating to LIBOR uncertainty and changes and to guide the Bank’s response, the impact of these developments on our business and financial results is not yet known.

The transition from LIBOR may cause us to incur increased costs and additional risk.

The transition from LIBOR may cause us to incur increased costs and face additional risks.

Uncertainty as to the nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans originated prior to 2021.

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Any failure to adequately manage this transition could adversely impact our reputation .

Strategic Risks

We must be effective in developing and executing new lines of business and new products and services while managing associated risks .

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Failure to successfully manage these risks, generally and to the satisfaction of our regulators, in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.

We must continue to attract, retain and develop key personnel .

Our success depends to a significant extent upon our ability to attract, develop and retain experienced bankers in each of our lines of business and markets as well as managers in operational areas, compliance and other support areas to build and maintain the infrastructure and controls required to support continuing loan and deposit growth.

Competition for the best people in our industry can be intense, and there is no assurance that we will continue to have the same level of success in this effort that has supported our historical results.

Factors that affect our ability to attract, develop and retain key employees include our compensation and benefits programs, our profitability, our ability to establish appropriate succession plans for key talent, our reputation for rewarding and promoting qualified employees and market competition for employees with certain skills, including information systems development and security.

The cost of employee compensation is a significant portion of our operating expenses and can materially impact our results of operations.

The unanticipated loss of the services of key personnel could have an adverse effect on our business.

Although we have entered into employment agreements with certain key employees, we cannot assure you that we will be successful in retaining them.

These risks may be exacerbated by the proposed merger with IBTX.

See Merger-Related Risks for a discussion of additional risks related to the proposed merger with IBTX.

We compete with many banks and other financial service providers .

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Failure to compete effectively for deposit, loan and other banking customers in any of our lines of business could cause us to lose market share, slow or reverse our growth rate or suffer adverse effects on our financial condition and results of operations.

We face the risk that our competitors may seek to use the proposed merger to target our customers.

See Merger-Related Risks for a discussion of additional risks related to the proposed merger.

Our mortgage correspondent aggregation business subjects us to additional risks.

We launched our mortgage correspondent aggregation business (“MCA”), a correspondent lending program that complements our mortgage warehouse lending business, in 2015.

Similar uncertainty exists with respect to volatility in the value of mortgage servicing rights ("MSRs") on our balance sheet.

Fluctuations in the value of MSRs that we hold on our balance sheet could require that we recognize impairments in the value of such assets and/or actual losses on the disposition of such assets.

Additionally, non-bank competitors may have a pricing advantage as they are not subject to the same capital maintenance requirements relative to mortgage loans and MSRs as our Bank.

Our MCA business subjects us to additional interest rate risk and price risk, which may have an adverse effect on our business.

Conversely, an environment of rising interest rates could have a significant effect on loan volumes in our MCA business if refinancing and home purchase activities are reduced.

We have entered into loan purchase commitments and forward sales commitments in connection with the MCA business.

While we believe that our hedging strategies will be successful in mitigating our exposure to interest rate risk associated with the purchase of mortgage loans held for sale, no hedging strategy can completely protect us.

We may incur other costs and losses as a result of actual or alleged violations of regulations related to the origination and purchase of residential mortgage loans.

The origination of residential mortgage loans is governed by a variety of federal and state laws and regulations, which are frequently changing.

We may also pool FHA-insured and VA-guaranteed mortgage loans which back securities issued by Ginnie Mae.

Our accrued mortgage repurchase liability represents management’s best estimate of the probable loss that we may expect to incur for the representations and warranties in the contractual provisions of our sales of mortgage loans, but there is no assurance that our losses will not materially exceed such amounts.

We must effectively execute our business strategy in order to continue our asset and earnings growth .

Our core strategy is to develop our business principally through organic growth by offering a premier and differentiated banking experience to companies in high-value business segments.

Our prospects for continued growth must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies.

In order to execute our business strategy successfully, we must, among other things:

• continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally;

• develop new products and services and execute our full range of products and services more efficiently and effectively;

• attract and retain qualified bankers in each of our targeted market segments to build our customer base;

• respond to market opportunities promptly and nimbly while balancing the demands of risk management and compliance with regulatory requirements;

• expand our loan portfolio in an intensely competitive environment while maintaining credit quality;

• attract sufficient deposits and capital to fund our anticipated loan growth and satisfy regulatory requirements;

• control expenses;

• acquire and maintain sufficient qualified staffing and information technology and operational resources to support growth and compliance with regulatory requirements.

Failure to effectively execute our business strategy could have a material adverse effect on our business, future prospects, financial condition or results of operations.

Operational Risks

We, our vendors and customers must effectively manage our information systems risk which may experience disruption, failure or breach in security..

We, our vendors and customers all rely heavily on communications and information systems to conduct our respective businesses, store sensitive data and work effectively together.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.

Our ability to compete successfully depends in part upon our ability to use technology to provide products and services that will satisfy customer demands.

Many of our larger competitors invest substantially greater resources in technological capabilities than we do.

Our communications and information systems and those of our vendors and customers remain vulnerable to unexpected disruptions, failures and cyber-attacks.

Any disruption, failure or breach in security of these systems could result in significant disruption to our operations.

Information security breaches and cyber-security-related incidents include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events.

These types of threats may derive from human error, fraud or malice on the part of external or internal parties or may result from accidental technological failure.

The risk, frequency and intensity of such attacks is escalating, including as a result of remote working arrangements implemented in response to the COVID-19 pandemic, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication of these threats.

While we have developed extensive recovery plans, we cannot assure that those plans will be effective to prevent adverse effects upon us and our customers resulting from system failures.

Cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing.

Service disruptions in cloud technologies may lead to delays in accessing, or the loss of, data that is important to our businesses and may hinder our clients’ access to our products and services.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk.

Breaches can be perpetrated by unknown third parties, but could also be facilitated by employees either inadvertently or by consciously attempting to create disruption or certain acts of fraud.

Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through "Trojan horse" programs to our information systems, the information systems of our merchants or third-party service providers and/or our customers' computers.

measures will be effective.

In some cases we may elect to contribute to the cost of responding to cybercrime against our customers, even when we are not at fault, in order to maintain valuable customer relationships.

A security breach or other significant disruption of our information systems or those related to our customers, merchants and our third party vendors, including as a result of cyber-attacks, could (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers;

(ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers;

(iii) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and exposing us to civil litigation, governmental fines and possible financial liability;

(iv) require significant management attention and resources to remedy the damages that result;

or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us.

The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our operations rely extensively on a broad range of external vendors.

External vendors who must have access to our information systems in order to provide their services have been identified as significant sources of information technology security risk.

While we have implemented an active program of oversight to address this risk, there can be no assurance that we will not experience material security breaches associated with our vendors.

We must continue to attract, retain and develop key personnel .

The cost of employee compensation is a significant portion of our operating expenses and can materially impact our results of operations.

The unanticipated loss of the services of key personnel could have an adverse effect on our business.

Although we have entered into employment agreements with certain key employees, we cannot assure you that we will be successful in retaining them.

Our accounting estimates and risk management processes rely on management judgment, which may prove inadequate or be adversely impacted by inaccurate assumptions or models.

The processes we use to estimate probable credit losses for purposes of establishing the allowance for loan losses and to measure the fair value of financial instruments, certain of our liquidity and capital planning tools, as well as the processes we use to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, all depend upon management’s judgment.

The processes we use to estimate expected credit losses for purposes of establishing the allowance for credit losses and to measure the fair value of financial instruments, certain of our liquidity and capital planning tools, as well as the processes we use to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, all depend upon management’s judgment.

Management’s judgment and the data relied upon by management may be based on assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances.

Additionally, the adoption of CECL methodology for determining our provision for credit losses and allowance for credit losses in 2020 is expected to increase the complexity, and associated risk, of the analysis and processes relying on management judgment.

Additionally, CECL requires the application of greater management judgment that is supported by new models and more data elements, including macroeconomic forecasts, than the previous allowance standard.

Our adoption of the CECL model is expected to increase the complexity, and associated risk, of the analysis and processes relying on management judgment, which could negatively impact our financial condition and results of operations.

Our risk management strategies and processes may not be effective;

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Any system of controls, however well designed and operated, is based in part on certain assumptions and management judgment and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

We must effectively manage our counterparty risk .

Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships.

Many of these transactions expose our Bank to credit risk in the event of a default by a counterparty or client.

Any such losses could have a material adverse effect on our business, financial condition and results of operations.

Any failure or circumvention of our controls and procedures or

failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

Our business is susceptible to fraud.

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Our lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of our services.

Our exposure and the exposure of our customers to fraud may increase our financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in our allowance for loan losses.

Legal, Regulatory and Compliance Risks

We are subject to extensive government regulation and supervision .

See the discussion above at Business - Regulation and Supervision .

The level of regulatory scrutiny that we are subject to may fluctuate over time, based on numerous factors, including as a result of the upcoming change in the U.S.

presidential administration.

In addition, Congress, state legislatures, and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes.

Material changes in regulation and requirements imposed on financial institutions, such as the Dodd-Frank Act, Basel III Capital Rules, European Union's General Data Protection Regulations and California Consumer Privacy Act CCPA result in additional costs, impose more stringent capital, liquidity and leverage requirements, limit the types of financial services and products we may offer and increase the ability of non-bank financial services providers to offer competing financial services and products, among other things.

The Regulatory Relief Act passed on May 22, 2018, has provided a limited degree of regulatory relief for institutions of our size.

Uncertainty regarding how our regulators will evaluate capital and liquidity planning going forward remains a risk.

We continue to increase our capital and liquidity and expand our regulatory compliance staffing and systems in order to address continuing regulatory requirements.

There is no assurance that our financial performance in future years will not be similarly burdened.

We cannot offer assurance that these efforts will be accepted by our regulators as satisfying the legal and regulatory requirements applicable to us.

While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

We must maintain adequate regulatory capital to support our business objectives .

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Our satisfaction of these requirements is subject to qualitative judgments by regulators that may differ materially from management’s and that are subject to being determined retroactively for prior periods.

Additionally, regulators can make subjective assessments about the adequacy of capital levels, even if our Bank's reported capital exceeds the “well-capitalized” requirements.

Additionally, regulators can make subjective assessments about the adequacy of capital levels, even if our Bank's

reported capital exceeds the “well-capitalized” requirements.

Our ability to maintain our status as a financial holding company and to continue to operate our Bank as we have in recent periods is dependent upon a number of factors, including our Bank qualifying as “well capitalized” and “well managed” under applicable prompt corrective action regulations and upon our company qualifying on an ongoing basis as “well capitalized” and “well managed” under applicable Federal Reserve regulations.

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We cannot predict the final form, or the effects, of these regulations on our business, but among the possible effects are requirements that we slow our rate of growth or obtain additional capital which could reduce our earnings or dilute our existing stockholders.

We are dependent on funds obtained from borrowing or capital transactions or from our Bank to fund our obligations.

We are a financial holding company engaged in the business of managing, controlling and operating our Bank.

We conduct no material business or other activity at the parent company level other than activities incidental to holding equity and debt investments in our Bank.

The profitability of our Bank is subject to fluctuation based upon, among other things, the cost and availability of funds, changes in interest rates and economic conditions in general.

Our Bank’s ability to pay dividends to us is subject to regulatory limitations that can, under certain adverse circumstances, prohibit the payment of dividends to us.

Our right to participate in any distribution from the liquidation or sale of our Bank’s assets is subject to the prior claims of our Bank’s creditors.

We are subject to claims and litigation in the ordinary course of our business, including claims that may not be covered by our insurers, and may be subject to stockholder litigation in connection with the proposed merger with IBTX.

We are subject to claims and litigation in the ordinary course of our business, including claims that may not be covered by our insurers.

Customers and other parties we engage with assert claims and take legal action against us on a regular basis and we regularly take legal action to collect unpaid borrower obligations, realize on collateral and assert our rights in commercial and other contexts.

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Litigation arises in a variety of contexts, including lending activities, employment practices, commercial agreements, fiduciary responsibility related to our wealth management services, intellectual property rights and other general business matters.

We may incur additional costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the proposed merger with IBTX.

Such litigation could prevent the consummation of the Merger.

See Merger-Related Risks for a discussion of additional risks related to the proposed merger.

Claims and legal actions may result in significant legal costs to defend us or assert our rights and may result in reputational damage that adversely affects existing and future customer relationships.

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We could be required to pursue legal actions against insurers to obtain payment of amounts we are owed, and there is no assurance that such actions, if pursued, would be successful.

Other Risks Affecting Our Business

Our business faces unpredictable economic and business conditions .

Our business is directly impacted by general economic and business conditions in Texas, the United States and internationally.

The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we and our customers conduct our respective businesses.

Our continued financial success can be affected by other factors that are beyond our control, including:

• national, regional and local economic conditions;

• the value of the U.S.

Dollar in relation to the currencies of other advanced and emerging market countries;

• the performance of both domestic and international equity and debt markets and valuation of securities traded on recognized domestic and international exchanges;

• general economic consequences of international conditions, such as weakness in European and South American sovereign debt and currencies and the U.K.'s referendum to exit from the European Union, and the impact of those conditions on the US and global economies;

• legislative and regulatory changes impacting our industry;

• the financial health of our customers and economic conditions affecting them and the value of our collateral, including effects from the COVID-19 pandemic and the continued price volatility of oil and gas and other commodities;

• the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting our Bank and our customers;

• structural changes in the markets for origination, sale and servicing of residential mortgages;

• changes in governmental economic and regulatory policies, including the extent and timing of intervention in credit markets by the Federal Reserve or withdrawal from that intervention, generally as well as changes attributable to presidential and congressional elections;

• changes in the availability of liquidity at a systemic level;

• material inflation or deflation.

Substantial deterioration in any of the foregoing conditions can have a material adverse effect on our prospects and our results of operations and financial condition.

There is no assurance that we will be able to return to our historical rate of growth or our profitability.

Our Bank's customer base is primarily commercial in nature, and our Bank does not have a significant retail branch network or retail consumer deposit base.

In periods of economic downturn, business and commercial deposits may be more volatile than traditional retail consumer deposits.

As a result, our financial condition and results of operations could be adversely affected to a greater degree by these uncertainties than competitors having a larger retail customer base.

The COVID-19 pandemic is adversely affecting us and our customers, employees and third-party service providers, and the adverse impacts on our business, financial position, operations and prospects have been and are expected to continue to be significant.

As a result of the unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity caused by the COVID-19 pandemic, business and consumer customers of the Bank are experiencing varying degrees of financial distress, which is expected to increase over coming months and will likely adversely affect their ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations.

This in turn has influenced the recognition of credit losses in our loan portfolios and has increased our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses.

Disruptions to our customers’ businesses could also result in declines in, among other things, wealth management revenue.

These developments as a consequence of the pandemic are materially impacting our business and the businesses of our customers and are expected to have a material adverse effect on our financial results, as evidenced by our results for the prior quarters in 2020.

In order to protect the health of our customers and employees, and to comply with applicable government directives, we have modified our business practices, including restricting employee travel, directing employees to work from home insofar as is possible, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary.

We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order.

These actions in response to the COVID-19 pandemic, and similar actions by our vendors and business partners, have not materially impaired our ability to support our employees, conduct our business and serve our customers, but there is no assurance that these actions will be sufficient to successfully mitigate the risks presented by COVID-19 or that our ability to operate will not be materially affected going forward.

For instance, our business operations may be disrupted if key personnel or significant portions of our employees are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic.

Similarly, if any of our vendors or business partners become unable to continue to provide their products and services, which we rely upon to maintain our day-to-day operations, our ability to serve our customers could be impacted.

COVID-19 does not yet appear to be contained and could affect significantly more households and businesses.

Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume.

For this reason, the extent to which the COVID-19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios and credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge concerning the scope, duration and severity of the COVID-19 pandemic, actions taken by governmental authorities and other parties in response to the pandemic, the scale of distribution and public acceptance of any vaccines for COVID-19 and the effectiveness of such vaccines in stemming or stopping the spread of COVID-19.

The adverse impact on the markets in which we operate and on our business, operations and financial condition is expected to remain elevated until the pandemic subsides.

As a participating lender in the Small Business Administration’s PPP, we may be subject to additional risks regarding our Bank’s processing of PPP loans and are dependent on the federal government’s continuation and support of the program.

Due to the short timeframe between the passing of the CARES Act and the beginning of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP.

Several other large banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP.

We may be exposed to the risk of

litigation, from both customers and non-customers who approached our Bank requesting PPP loans, regarding the process and procedures used by our Bank in processing applications for the PPP.

Any such litigation filed against the Company or the Bank may be costly, regardless of the outcome, and result in significant financial liability or adversely affect our reputation.

Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

In addition, while the PPP loans are fully guaranteed by the Small Business Administration (the “SBA”) and we believe that the majority of these loans will be forgiven, there can be no assurance that the borrowers will use or have used the funds appropriately or will have satisfied the staffing or payment requirements to qualify for forgiveness in whole or in part.

Any portion of the loan that is not forgiven must be repaid by the borrower.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by our Bank, which may or may not be related to an ambiguity in the laws, rules or guidance regarding operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if we have already been paid under the guaranty, seek recovery from us of any loss related to the deficiency.

The impact of the Tax Act on us and our customers contributes to uncertainty and risk related to our customers' future demand for credit and our future results.

At the same time, some of our customers may have elected to use their additional cash flow from lower taxes to fund their business, decreasing borrowing needs.

This could have a long-term negative impact on business customer borrowing.

Additionally, the tax benefits could be repealed as a result of future political or regulatory actions, including as a result of changes proposed by the new U.S.

presidential administration.

There is no assurance that the current or anticipated benefits of the Tax Act will be realized in future periods.

We are subject to environmental liability risk associated with lending activities.

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Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business .

Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism

and other adverse external events could have a significant impact on our ability to conduct business.

Severe weather, earthquakes, other natural disasters, pandemics (such as the COVID-19 pandemic), acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.

Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses.

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Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

actual or anticipated variations in quarterly and annual results of our operations or those of IBTX;

• actual or anticipated variations in quarterly and annual results of our operations;

• changes in recommendations by securities analysts;

delay or failure to close the pending merger of equals with IBTX, as well as failure to realize the expected benefits of the transaction;

• changes in composition and perceptions of the investors who own our stock and other securities;

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• new technology used, or services offered, by competitors;

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors, including the proposed merger with IBTX;

the stock price of IBTX (as a result of the proposed merger);

• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

• changes in government regulations and interpretation of those regulations, changes in our practices requested or required by regulators and changes in regulatory enforcement focus;

• impacts and disruptions resulting from the COVID-19 pandemic;

• geopolitical conditions such as acts or threats of terrorism or military conflicts.

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The trading volume in our common stock is less than that of other larger financial services companies.

Although our common stock is traded on the Nasdaq Global Select Market, the trading volume in our common stock is less than that of other larger financial services companies.

Although our common stock is traded on Nasdaq, the trading volume in our common stock is less than that of other larger financial services companies.

Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.

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Our preferred stock is senior to our shares of common stock in right of payment of dividends and other distributions.

We must be current on dividends payable to holders of preferred stock before any dividends can be paid on our common stock.

We must be current on dividends payable to holders of

preferred stock before any dividends can be paid on our common stock.

In the event of our bankruptcy, dissolution or liquidation, the holders of our preferred stock must be satisfied before any distributions can be made to our common stockholders.

We do not currently pay dividends on our common stock .

the payment of dividends by the combined company following the merger is subject to future events and determinations by the board of directors and applicable regulatory limitations .

We have not paid dividends on our common stock and we do not expect to do so for the foreseeable future.

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The ability of our Bank to pay dividends to us is limited by its obligation to maintain sufficient capital and by other regulatory restrictions as discussed above under the heading Supervision and Regulation - Restrictions on Payment of Dividends by Our Bank .

It is anticipated that following the merger of the Company and IBTX the combined company will pay dividends to stockholders at the rate of $1.00 per share annually;

however there is no assurance as to the amount and timing of any dividends that may be declared and paid by the combined company.

The board of directors of the combined company may change its dividend policy at any time without notice to stockholders.

Stockholders are entitled to receive only such dividends as the board of directors may declare out of funds legally available for such payments.

Any declaration and payment of dividends on will depend upon the earnings and financial condition, liquidity and capital requirements of the combined company, the general economic and regulatory climate, the ability of the combined company to service preferred stock and debt obligations and other factors deemed relevant by the board of directors at the time.

The board of directors of the combined company may make capital management decisions and adopt policies that could adversely impact the amount of dividends, if any, paid to the combined company’s stockholders.

Restrictions on ownership .

Federal legislation and regulations impose restriction on the ownership of our common stock .

The ability of a third party to acquire us is limited under applicable U.S.

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A holder of 25% or more of our outstanding Common Stock, other than an individual, is subject to regulation and supervision as a bank holding company under the BHCA.

In addition, under the Change in Bank Control Act of 1978, as amended, and the Federal Reserve’s regulations thereunder, any person, either individually or acting through or in concert with one or more persons, is required to provide notice to the Federal Reserve prior to acquiring, directly or indirectly, 10% or more of our outstanding common stock.

In addition, under the CIBC Act and the Federal Reserve’s regulations thereunder, any person, either individually or acting through or in concert with one or more persons, is required to provide notice to the Federal Reserve prior to acquiring, directly or indirectly, 10% or more of our outstanding common stock.

Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may make it more difficult for you to receive a change in control premium .

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These provisions include advance notice for nominations of directors and stockholders' proposals, and authority to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors.

corporation's outstanding voting stock, from engaging in a business combination with our company for three years following the date that person became an interested stockholder unless certain specified conditions are satisfied.

Limitations on payment of subordinated notes .

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an interested stockholder, defined generally as a person owning 15% or more of a corporation's outstanding voting stock, from engaging in a business combination with our company for three years following the date that person became an interested stockholder unless certain specified conditions are satisfied.

Our Bank is subject to regulatory and contractual limitation on the payment of its subordinated notes .

Under the FDIA, “critically undercapitalized” banks may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt (subject to certain limited exceptions).

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors