What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-10-21 compared with 2021-07-22 · 147 added, 137 removed, 730 unchanged (28% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands except share data) June 30, 2021 December 31, 2020

(in thousands except share data) September 30, 2021 December 31, 2020

Cash and due from banks $ 217,125 $ 173,573

1 unchanged sentence

Investment securities 3,663,874 3,196,970

Loans held for sale ($ 63.7 million and $ 239.1 million at June 30, 2021 and December 31, 2020, respectively, at fair value)

Loans held for sale ($ 8.4 million and $ 239.1 million at September 30, 2021 and December 31, 2020, respectively, at fair value)

9,660 283,165

21 unchanged sentences

Authorized shares— 10,000,000

Issued shares— 300,000 and 6,000,000 at June 30, 2021 and December 31, 2020, respectively

Issued shares— 300,000 and 6,000,000 at September 30, 2021 and December 31, 2020, respectively

300,000 150,000

1 unchanged sentence

Authorized shares— 100,000,000

Issued shares— 50,592,618 and 50,470,867 at June 30, 2021 and December 31, 2020, respectively

Issued shares— 50,606,043 and 50,470,867 at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,000,509 991,898

1 unchanged sentence

Treasury stock (shares at cost:

417 at June 30, 2021 and December 31, 2020)

417 at September 30, 2021 and December 31, 2020)

Accumulated other comprehensive income/(loss), net of taxes ( 40,712 ) 15,774

5 unchanged sentences

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(in thousands except per share data) 2021 2020 2021 2020

34 unchanged sentences

Total non-interest expense 152,987 165,741 452,363 553,493

Income/(loss) before income taxes 97,036 ( 41,922 ) 191,885 ( 63,240 )

Income tax expense/(benefit) 23,555 ( 7,606 ) 46,466 ( 12,237 )

Net income/(loss) 73,481 ( 34,316 ) 145,419 ( 51,003 )

Income before income taxes 57,328 72,176 249,213 8,936

Income tax expense 13,938 15,060 60,404 2,823

Net income 43,390 57,116 188,809 6,113

Preferred stock dividends 4,312 2,438 14,408 7,313

4 unchanged sentences

Other comprehensive income/(loss), net of tax ( 14,323 ) 6,361 ( 56,486 ) ( 2,113 )

Comprehensive income/(loss) $ 103,529 $ ( 38,609 ) $ 103,256 $ ( 59,477 )

Comprehensive income $ 29,067 $ 63,477 $ 132,323 $ 4,000

Basic earnings/(loss) per common share $ 0.77 $ 1.08 $ 3.45 $ ( 0.02 )

6 unchanged sentences

(in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total

Balance at March 31, 2020 6,000,000 $ 150,000 50,408,195 $ 504 $ 979,939 $ 1,637,392 ( 417 ) $ ( 8 ) $ 4,769 $ 2,772,596

Comprehensive loss:

Net loss — — — — — ( 34,316 ) — — — ( 34,316 )

Change in unrealized gain on available-for-sale securities, net of taxes — — — — — — — — ( 4,293 ) ( 4,293 )

Total comprehensive loss ( 38,609 )

Balance at June 30, 2020 6,000,000 $ 150,000 50,436,089 $ 504 $ 983,144 $ 1,600,639 ( 417 ) $ ( 8 ) $ 476 $ 2,734,755

Comprehensive income:

Net income — — — — — 57,116 — — — 57,116

Change in unrealized gain/(loss) on available-for-sale securities, net of taxes — — — — — — — — 6,361 6,361

Total comprehensive income 63,477

Stock-based compensation expense recognized in earnings

3 unchanged sentences

— — 19,880 — ( 189 ) — — — — ( 189 )

Balance at September 30, 2020 6,000,000 $ 150,000 50,455,969 $ 504 $ 987,754 $ 1,655,317 ( 417 ) $ ( 8 ) $ 6,837 $ 2,800,404

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

Balance at March 31, 2021 6,300,000 $ 450,000 50,558,184 $ 505 $ 984,207 $ 1,781,215 ( 417 ) $ ( 8 ) $ ( 56,437 ) $ 3,159,482

Comprehensive income:

Net income — — — — — 43,390 — — — 43,390

Change in unrealized gain on available-for-sale securities, net of taxes — — — — — — — — 30,048 30,048

Change in unrealized gain/(loss) on available-for-sale securities, net of taxes — — — — — — — — ( 14,323 ) ( 14,323 )

Total comprehensive income 29,067

4 unchanged sentences

— — 13,425 — ( 284 ) — — — — ( 284 )

Redemption of preferred stock ( 6,000,000 ) ( 150,000 ) — — — — — — — ( 150,000 )

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

Balance at September 30, 2021 300,000 $ 300,000 50,606,043 $ 506 $ 1,000,509 $ 1,887,457 ( 417 ) $ ( 8 ) $ ( 40,712 ) $ 3,147,752

See accompanying notes to consolidated financial statements.

6 unchanged sentences

Impact of adoption of new accounting standards, net of taxes(1) — — — — — ( 7,154 ) — — — ( 7,154 )

Comprehensive loss:

Net loss — — — — — ( 51,003 ) — — — ( 51,003 )

Comprehensive income

Net income — — — — — 6,113 — — — 6,113

Change in unrealized gain/(loss) on available-for-sale securities, net of taxes — — — — — — — — ( 2,113 ) ( 2,113 )

Total comprehensive loss ( 59,477 )

Total comprehensive income 4,000

Stock-based compensation expense recognized in earnings

3 unchanged sentences

— — 117,811 1 ( 1,799 ) — — — — ( 1,798 )

Balance at June 30, 2020 6,000,000 $ 150,000 50,436,089 $ 504 $ 983,144 $ 1,600,639 ( 417 ) $ ( 8 ) $ 476 $ 2,734,755

Balance at September 30, 2020 6,000,000 $ 150,000 50,455,969 $ 504 $ 987,754 $ 1,655,317 ( 417 ) $ ( 8 ) $ 6,837 $ 2,800,404

Balance at December 31, 2020 (audited) 6,000,000 $ 150,000 50,470,867 $ 504 $ 991,898 $ 1,713,056 ( 417 ) $ ( 8 ) $ 15,774 $ 2,871,224

10 unchanged sentences

Redemption of preferred stock ( 6,000,000 ) ( 150,000 ) — — — — — — — ( 150,000 )

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

Balance at September 30, 2021 300,000 $ 300,000 50,606,043 $ 506 $ 1,000,509 $ 1,887,457 ( 417 ) $ ( 8 ) $ ( 40,712 ) $ 3,147,752

(1) Represents the impact of adopting Accounting Standard Update (“ASU”) 2016-13.

See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information.

See Note 1 - Operations and Summary of Significant Accounting Policies to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information.

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2021 2020

Operating activities

Net income/(loss) $ 145,419 $ ( 51,003 )

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:

Net income $ 188,809 $ 6,113

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses ( 20,000 ) 226,000

17 unchanged sentences

Purchase of premises and equipment, net ( 2,619 ) ( 2,705 )

Net cash used in investing activities ( 74,669 ) ( 1,018,401 )

Net cash provided by/(used in) investing activities 223,015 ( 1,786,827 )

Financing activities

21 unchanged sentences

(the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998.

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Texas Capital Bank, National Association (the “Bank”).

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Texas Capital Bank (the “Bank”).

We serve the needs of commercial businesses and professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional or national clientele of commercial borrowers.

1 unchanged sentence

Our national lines of business provide specialized lending products to businesses throughout the United States.

In May 2021 the Bank applied to the Texas Department of Banking to convert from a national association to a Texas state-chartered bank.

The application was approved during the third quarter and the conversion was effective at open of business on September 15, 2021.

Effective as of the date of conversion, the Texas Department of Banking is the Bank’s primary regulator, the FDIC is the Bank’s primary federal regulator, and the Federal Reserve will continue to be the Company’s primary federal regulator.

Basis of Presentation

11 unchanged sentences

The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change.

(2) Earnings Per Share

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

Three months ended June 30, Six months ended June 30,

(2) Earnings/(Loss) Per Share

The following table presents the computation of basic and diluted earnings/(loss) per share:

Three months ended September 30, Nine months ended September 30,

(in thousands except share and per share data) 2021 2020 2021 2020

Net income/(loss) $ 73,481 $ ( 34,316 ) $ 145,419 $ ( 51,003 )

Net income $ 43,390 $ 57,116 $ 188,809 $ 6,113

Preferred stock dividends 4,312 2,438 14,408 7,313

6 unchanged sentences

Diluted earnings/(loss) per common share $ 0.76 $ 1.08 $ 3.41 $ ( 0.02 )

(1) SARs and RSUs outstanding of 98,079 at June 30, 2021 and 510,095 at June 30, 2020 have not been included in diluted earnings/(loss) per common share because to do so would have been antidilutive for the periods presented.

(1) SARs and RSUs outstanding of 208,813 at September 30, 2021 and 480,062 at September 30, 2020 have not been included in diluted earnings/(loss) per common share because to do so would have been antidilutive for the periods presented.

(3) Investment Securities

4 unchanged sentences

Losses Estimated

June 30, 2021

September 30, 2021

Available-for-sale debt securities:

9 unchanged sentences

Tax-exempt asset-backed securities 184,940 14,236 — 199,176

Credit risk transfer securities 14,713 — ( 3,296 ) 11,417

CRT securities 14,713 — ( 3,296 ) 11,417

$ 3,143,171 $ 25,803 $ ( 5,836 ) $ 3,163,138

(1) Excludes accrued interest receivable of $ 6.9 million and $ 6.0 million at June 30, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Excludes accrued interest receivable of $ 6.7 million and $ 6.0 million at September 30, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

The amortized cost and estimated fair value, excluding accrued interest receivable, and weighted average yield of available-for-sale debt securities are presented below by contractual maturity:

3 unchanged sentences

Ten Years After Ten

June 30, 2021

September 30, 2021

Available-for-sale:

45 unchanged sentences

(in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

June 30, 2021

September 30, 2021

government agency securities $ 24,348 $ ( 652 ) $ 97,572 $ ( 2,428 ) $ 121,920 $ ( 3,080 )

7 unchanged sentences

Total $ 452,975 $ ( 2,540 ) $ 11,417 $ ( 3,296 ) $ 464,392 $ ( 5,836 )

At June 30, 2021, we had 114 securities in an unrealized loss position, comprised of five U.S.

At September 30, 2021, we had 118 securities in an unrealized loss position, comprised of five U.S.

government agency securities, two CRT securities and 111 residential mortgage-backed securities.

Based upon our June 30, 2021 review of securities with unrealized losses we have determined that all losses resulted from factors not deemed credit-related.

Based upon our September 30, 2021 review of securities with unrealized losses we have determined that all losses resulted from factors not deemed credit-related.

We have evaluated the near-term prospects of each securities portfolio in relation to the severity of the unrealized losses and adverse conditions related to the securities among other factors.

Based on that evaluation management has determined that we have the ability and intent to hold the securities until recovery of fair value and have recorded the unrealized losses in accumulated other comprehensive income (“AOCI”).

Available-for-sale debt securities with carrying values of approximately $ 26.3 million and $ 1.3 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at June 30, 2021.

Available-for-sale debt securities with carrying values of approximately $ 24.0 million and $ 1.3 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at September 30, 2021.

The comparative amounts at December 31, 2020 were $ 31.7 million and $ 1.9 million, respectively.

1 unchanged sentence

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

At June 30, 2021 and December 31, 2020, we had $ 41.0 million and $ 33.8 million, respectively, in equity securities recorded at fair value.

At September 30, 2021 and December 31, 2020, we had $ 40.6 million and $ 33.8 million, respectively, in equity securities recorded at fair value.

The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income in the consolidated statements of income and other comprehensive income:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(in thousands) 2021 2020 2021 2020

6 unchanged sentences

Loans held for investment are summarized by portfolio segment as follows:

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Commercial $ 9,377,274 $ 8,861,580

6 unchanged sentences

Total loans held for investment, net(2) $ 23,527,760 $ 24,176,245

(1) Balances at June 30, 2021 and December 31, 2020 are stated net of $ 617.9 million and $ 1.2 billion of participations sold, respectively.

(2) Excludes accrued interest receivable of $ 53.8 million and $ 56.5 million at June 30, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Balances at September 30, 2021 and December 31, 2020 are stated net of $ 677.6 million and $ 1.2 billion of participations sold, respectively.

(2) Excludes accrued interest receivable of $ 50.3 million and $ 56.5 million at September 30, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

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

(in thousands) 2021 2020 2019 2018 2017 2016 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total

June 30, 2021

September 30, 2021

(1-7) Pass $ 919,405 $ 3,228,097 $ 572,505 $ 321,356 $ 194,921 $ 284,804 $ 3,535,016 $ 50,565 $ 9,106,669

73 unchanged sentences

(in thousands) Commercial Energy Mortgage

Six months ended June 30, 2021

Nine months ended September 30, 2021

Allowance for credit losses on loans:

5 unchanged sentences

Ending balance $ 93,861 $ 54,282 $ 6,428 $ 67,386 $ 221,957

Six months ended June 30, 2020

Nine months ended September 30, 2020

Allowance for credit losses on loans:

6 unchanged sentences

Ending balance $ 99,284 $ 112,941 $ 4,726 $ 73,214 $ 290,165

We recorded a $ 25.0 million negative provision for credit losses for the six months ended June 30, 2021, compared to a provision of $ 196.0 million for the same period in 2020.

The decreased provision resulted primarily from decreases in charge-offs and non-accrual loans, as well as improvement in the economic outlook as the economy continues to recover from the impacts of the COVID-19 pandemic.

We recorded $ 8.8 million in net charge-offs during the six months ended June 30, 2021, compared to $ 131.8 million during the same period in 2020.

Criticized loans totaled $ 891.6 million at June 30, 2021, compared to $ 1.0 billion at June 30, 2020.

We recorded a $ 20.0 million negative provision for credit losses for the nine months ended September 30, 2021, compared to a provision of $ 226.0 million for the same period in 2020.

The decreased provision resulted primarily from decreases in charge-offs and non-accrual loans during the nine month ended and as of September 30, 2021, as well as improvement in the economic outlook as the economy continues to recover from the impacts of the COVID-19 pandemic.

We recorded $ 11.9 million in net charge-offs during the nine months ended September 30, 2021, compared to $ 133.4 million during the same period in 2020.

Criticized loans totaled $ 728.9 million at September 30, 2021, compared to $ 1.1 billion at September 30, 2020.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:

Collateral Type

(in thousands) Real Property Total

June 30, 2021

Other $ 908 $ 908

Total collateral-dependent loans held for investment

There were no loans that met these criteria at September 30, 2021.

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

3 unchanged sentences

Due Non-Accrual Loans(2) Current Total Non-Accrual With No Allowance

June 30, 2021

September 30, 2021

Commercial $ 19,395 $ 18,313 $ 2,256 $ 39,964 $ 27,074 $ 9,310,236 $ 9,377,274 $ 10,899

12 unchanged sentences

The receipt of the refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

(2) As of June 30, 2021 and December 31, 2020, none of our non-accrual loans were earning interest income on a cash basis.

Additionally, no interest income was recognized on non-accrual loans for the six months ended June 30, 2021.

Accrued interest of $ 468,000 was reversed during the six months ended June 30, 2021.

As of June 30, 2021 and December 31, 2020, we did not have any loans considered restructured that were not on non-accrual.

Of the non-accrual loans at June 30, 2021 and December 31, 2020, $ 24.4 million and $ 45.4 million, respectively, met the criteria for restructured.

(2) As of September 30, 2021 and December 31, 2020, none of our non-accrual loans were earning interest income on a cash basis.

Additionally, no interest income was recognized on non-accrual loans for the nine months ended September 30, 2021.

Accrued interest of $ 674,000 was reversed during the nine months ended September 30, 2021.

As of September 30, 2021 and December 31, 2020, we did not have any loans considered restructured that were not on non-accrual.

Of the non-accrual loans at September 30, 2021 and December 31, 2020, $ 23.7 million and $ 45.4 million, respectively, met the criteria for restructured.

These loans had no unfunded commitments at their respective balance sheet dates.

We did not have any loans that were restructured during the six months ended June 30, 2021 or 2020.

As of June 30, 2021 and 2020, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.

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

The following table details the recorded investment at September 30, 2020 of loans restructured during the nine months ended September 30, 2020:

Extended Maturity Adjusted Payment Schedule Total

(in thousands, except number of contracts) Number of Contracts Balance at Period End Number of Contracts Balance at Period End Number of Contracts Balance at Period End

Nine months ended September 30, 2020

Commercial loans 2 $ 7,636 2 $ 14,663 4 $ 22,299

Energy loans 1 5,969 3 13,469 4 19,438

Total 3 $ 13,605 5 $ 28,132 8 $ 41,737

Restructured loans generally include terms to temporarily place the loan on interest only, extend the payment terms or reduce the interest rate.

We did not forgive any principal on the above restructured loans.

At September 30, 2020, all of the above restructured loans were on non-accrual.

The restructuring of the loans did not have a significant impact on our allowance for credit losses at September 30, 2020.

As of September 30, 2021 and 2020, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.

(5) Certain Transfers of Financial Assets

On April 20, 2021, we entered into an agreement to sell our portfolio of mortgage servicing rights (“MSRs”) and to transition the Mortgage Correspondent Aggregation (“MCA”) program to a third-party.

The sale of MSRs was completed on June 1, 2021, and the transfer of servicing on the underlying mortgage loans is expected to occur on August 1, 2021.

Transition activities began immediately following the execution of the agreement and are expected to be significantly complete by September 30, 2021.

The sale was completed on June 1, 2021 and the transfer of servicing on the underlying mortgage loans was completed on August 1, 2021.

Transition activities began immediately following the execution of the agreement and are significantly complete as of September 30, 2021.

At September 30, 2021, we have a remaining MSR balance of $ 1.2 million, which represents MSRs from loans sold after the cut-off date for the initial sale mentioned above.

The sale of this MSR portfolio and the transfer of servicing on the underlying mortgage loans was completed on October 1, 2021 and all related hedges were closed as of September 30, 2021.

The table below presents a reconciliation of the changes in loans held for sale:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2021 2020

9 unchanged sentences

Loans held for sale at fair value $ 9,660 $ 648,009

(1) Includes $ 44.1 million of loans held for sale that are carried at lower of cost or market as of December 31, 2020, as well as $ 5.8 million as of December 31, 2019.

No loans held for sale were on non-accrual as of June 30, 2021.

(1) Includes $ 1.3 million and $ 44.1 million of loans held for sale that are carried at lower of cost or market as of September 30, 2021 and December 31, 2020, respectively, as well as $ 9.0 million and $ 5.8 million as of September 30, 2020 and December 31, 2019, respectively.

No loans held for sale were on non-accrual as of September 30, 2021.

At December 31, 2020 we had $ 7.0 million in non-accrual loans held for sale, comprised of one loan previously reported in loans held for investment that was transferred to loans held for sale as of December 31, 2020 and subsequently sold at carrying value.

At June 30, 2021 and December 31, 2020, we had $ 2.7 million and $ 16.7 million, respectively, of loans held for sale that were 90 days or more past due.

The $ 2.7 million in loans held for sale that were 90 days or more past due at June 30, 2021 was comprised of loans guaranteed by U.S.

government agencies

that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet.

At September 30, 2021 and December 31, 2020, we had $ 3.8 million and $ 16.7 million, respectively, of loans held for sale that were 90 days or more past due.

The $ 3.8 million in loans held for sale that were 90 days or more past due at September 30, 2021 was comprised of loans guaranteed by U.S.

government agencies that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet.

Interest on these past due loans accrues at the debenture rate guaranteed by the U.S.

1 unchanged sentence

government agencies that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet and $ 13.4 million were loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not the obligation, to repurchase if defined delinquent loan criteria are met, and therefore must record as held for sale on our balance sheet regardless of whether the repurchase option has been exercised.

From time to time we retain the right to service the loans sold through the MCA program, creating MSRs which are recorded as assets on our consolidated balance sheets.

Through the MCA program we retain the right to service the loans after they are sold, creating MSRs which are recorded as assets on our consolidated balance sheets.

A summary of MSR activity is as follows:

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2021 2020

2 unchanged sentences

Amortization ( 18,663 ) ( 25,553 )

Direct write-down ( 279 ) —

Sales ( 127,281 ) —

6 unchanged sentences

MSRs, fair value $ 1,158 $ 95,323

At June 30, 2021 and December 31, 2020, our portfolio of MSRs was comprised of residential mortgage loans with outstanding principal balances of $ 129.3 million and $ 13.8 billion, respectively.

At September 30, 2021 and December 31, 2020, our portfolio of MSRs was comprised of residential mortgage loans with outstanding principal balances of $ 143.4 million and $ 13.8 billion, respectively.

In connection with the servicing of these loans, we hold deposits in the name of investors representing escrow funds for taxes and insurance, as well as collections in transit to such investors.

These escrow funds are segregated and held in separate non-interest-bearing deposit accounts at the Bank.

These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were insignificant at June 30, 2021 and $ 152.6 million at December 31, 2020.

To mitigate exposure to potential impairment charges from adverse changes in the fair value of our MSR portfolio, we enter into certain derivative contracts, as is further discussed in Note 11 - Derivative Financial Instruments.

The following summarizes the assumptions used by management to determine the fair value of MSRs:

June 30, 2021 December 31, 2020

These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were $2.4 million at September 30, 2021 and $ 152.6 million at December 31, 2020.

The following tables summarize the assumptions used by management to determine the fair value of MSRs and a sensitivity analysis of changes in the fair value of our MSR portfolio resulting from certain key assumptions.

The MSR balance at September 30, 2021 was valued utilizing the October 1, 2021 sale price, therefore only December 31, 2020 data is provided in the tables below.

December 31, 2020

Average discount rates 9.09 %

1 unchanged sentence

Weighted-average life, in years 4.9

A sensitivity analysis of changes in the fair value of our MSR portfolio resulting from certain key assumptions is presented in the following table:

(in thousands) June 30, 2021 December 31, 2020

(in thousands) December 31, 2020

50 bp adverse change in prepayment speed $ ( 12,203 )

5 unchanged sentences

In conjunction with the sale and securitization of loans held for sale, we may be exposed to liability resulting from repurchase, indemnification and make-whole agreements.

Our estimated exposure related to those agreements totaled $ 648,000 and $ 621,000 at June 30, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets.

$ 47,000 in make-whole obligation payments were made during the six months ended June 30, 2021 compared to $ 4.5 million during the six months ended June 30, 2020.

Our estimated exposure related to those agreements totaled $ 619,000 and $ 621,000 at September 30, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets.

$ 76,000 in make-whole obligation payments were made during the nine months ended September 30, 2021 compared to $ 7.8 million during the nine months ended September 30, 2020.

(6) Long-term Debt

From November 2002 to September 2006 various Texas Capital Statutory Trusts were created and subsequently issued floating rate trust preferred securities in various private offerings totaling $113.4 million.

For the three and six months ended June 30, 2021, the combined weighted-average interest rate on the trust preferred subordinated debentures was 2.14 % and 2.17 %, respectively, compared to 3.02 % and 3.41 %, respectively, for the same periods in 2020.

The details of the trust preferred subordinated debentures as of June 30, 2021 are summarized below:

For the three and nine months ended September 30, 2021, the combined weighted-average interest rate on the trust preferred subordinated debentures was 2.09 % and 2.14 %, respectively, compared to 2.28 % and 3.03 %, respectively, for the same periods in 2020.

The details of the trust preferred subordinated debentures as of September 30, 2021 are summarized below:

(dollar amounts in thousands) Texas Capital

25 unchanged sentences

The notes mature on September 30, 2024, and accrue interest at a rate equal to the higher of LIBOR plus 4.50 % or 4.25 %, payable quarterly on each of March 31, June 30, September 30 and December 31.

For the three and six months ended June 30, 2021, the weighted-average interest rate on the notes was 5.62 % and 5.60 %, respectively.

For the three and nine months ended September 30, 2021, the weighted-average interest rate on the notes was 5.54 % and 5.58 %, respectively.

The notes effectively transfer the risk of first losses on a $ 2.2 billion reference pool of the Bank’s mortgage warehouse loans to the purchasers of the notes in an amount up to $ 275.0 million.

13 unchanged sentences

This allowance is recorded in other liabilities on the consolidated balance sheets.

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(in thousands) 2021 2020 2021 2020

6 unchanged sentences

$ 18,211 $ 15,241 $ 18,211 $ 15,241

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Commitments to extend credit - period end balance $ 8,261,483 $ 8,530,453

14 unchanged sentences

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined in the regulations.

Management believes, as of June 30, 2021, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios.

As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of June 30, 2021 and December 31, 2020.

Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized.

The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios.

such change could reduce one or more capital ratios below well-capitalized status.

In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our condition and results of operations.

Management believes, as of September 30, 2021, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized based on total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios.

As shown in the table below, the Company’s and the Bank’s capital ratios exceeded the regulatory definition of well capitalized as of September 30, 2021 and December 31, 2020.

The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company and the Bank to changes in capital ratios.

Any such change could reduce one or more capital ratios below well-capitalized status.

In addition, a change may result in imposition of

additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our condition and results of operations.

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

3 unchanged sentences

(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio

June 30, 2021

September 30, 2021

Company $ 2,883,517 10.70 % $ 1,886,355 7.00 % N/A N/A

1 unchanged sentence

Total capital (to risk-weighted assets)

Company 3,978,147 14.77 % 2,827,845 10.50 % N/A N/A

Company 4,027,375 14.95 % 2,829,533 10.50 % 2,694,793 10.00 %

Bank 3,523,923 13.11 % 2,823,203 10.50 % 2,688,765 10.00 %

Tier 1 capital (to risk-weighted assets)

Company 3,245,896 12.05 % 2,289,208 8.50 % N/A N/A

Company 3,293,517 12.22 % 2,290,574 8.50 % 1,616,876 6.00 %

Bank 3,110,866 11.57 % 2,285,450 8.50 % 2,151,012 8.00 %

6 unchanged sentences

Total capital (to risk-weighted assets)

Company 3,498,737 12.08 % 3,039,600 10.50 % N/A N/A

Company 3,498,737 12.08 % 3,040,209 10.50 % 2,895,437 10.00 %

Bank 3,375,983 11.67 % 3,038,126 10.50 % 2,893,453 10.00 %

Tier 1 capital (to risk-weighted assets)

Company 2,968,150 10.25 % 2,460,628 8.50 % N/A N/A

Company 2,968,150 10.25 % 2,461,121 8.50 % 1,737,262 6.00 %

Bank 2,904,211 10.04 % 2,459,435 8.50 % 2,314,763 8.00 %

4 unchanged sentences

however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.

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

Our mortgage finance loan volumes can increase significantly at month-end, causing a meaningful difference between ending and average balances for any period.

3 unchanged sentences

The issuance of these notes decreases the required risk-weight on the $2.2 billion reference pool, which significantly improves our reported ratios.

Dividends that may be paid by banks are routinely restricted by various regulatory authorities.

The amount that can be paid in any calendar year without prior approval of our Bank’s regulatory agencies cannot exceed the lesser of the net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings.

The Basel III Capital Rules further limit the amount of dividends that may be paid by our Bank.

No dividends were declared or paid on our common stock during the six months ended June 30, 2021, or during the year ended December 31, 2020.

Dividends that may be paid by banks are routinely restricted by various regulatory authorities, including federal banking law requirements concerning the payment of dividends.

The Basel III Capital Rules further limit the amount of dividends that may be paid by us or our Bank.

No dividends were declared or paid on our common stock during the nine months ended September 30, 2021, or during the year ended December 31, 2020.

(9) Stock-based Compensation

3 unchanged sentences

The table below summarizes our stock-based compensation expense:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(in thousands) 2021 2020 2021 2020

4 unchanged sentences

Total $ 8,388 $ 5,035 $ 23,192 $ 12,064

(in thousands except period data) June 30, 2021

(in thousands except period data) September 30, 2021

Unrecognized compensation expense related to unvested stock-settled awards $ 39,463

6 unchanged sentences

(in thousands) Level 1 Level 2 Level 3

June 30, 2021

September 30, 2021

Available-for-sale debt securities:(1)

5 unchanged sentences

Loans held for sale(3) — 658 7,701

Loans held for investment(4) — — 908

Derivative assets(5) — 56,940 —

24 unchanged sentences

(in thousands) Balance at Beginning of Period Purchases / Additions Sales / Reductions Realized Unrealized Balance at End of Period

Three months ended June 30, 2021

Three months ended September 30, 2021

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 8,227 440 ( 870 ) — ( 96 ) 7,701

Three months ended June 30, 2020

Three months ended September 30, 2020

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 6,159 785 ( 170 ) 132 68 6,974

Six months ended June 30, 2021

Nine months ended September 30, 2021

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 6,933 2,125 ( 1,395 ) 5 33 7,701

Six months ended June 30, 2020

Nine months ended September 30, 2020

Available-for-sale debt securities:(1)

7 unchanged sentences

The fair value of tax-exempt asset-backed securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life.

At June 30, 2021, the discount rates utilized ranged from 2.29 % to 2.37 % and the weighted-average life ranged from 5.0 to 5.1 years.

On a combined amortized cost weighted-average basis a discount rate of 2.33 % and weighted-average life of 5.0 years were utilized to determine the fair value of these securities at June 30, 2021.

At September 30, 2021, the discount rates utilized ranged from 2.25 % to 2.37 % and the weighted-average life ranged from 4.8 to 4.9 years.

On a combined amortized cost weighted-average basis a discount rate of 2.30 % and weighted-average life of 4.8 years were utilized to determine the fair value of these securities at September 30, 2021.

At December 31, 2020, the combined weighted-average discount rate and weighted-average life utilized were 2.49 % and 5.5 years, respectively.

1 unchanged sentence

The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and a weighted-average life.

At June 30, 2021, the discount rates utilized ranged from 3.09 % to 7.97 % and the weighted-average life ranged from 5.4 years to 10.0 years.

On a combined amortized cost

weighted-average basis a discount rate of 4.72 % and a weighted-average life of 6.9 years were utilized to determine the fair value of these securities at June 30, 2021.

At September 30, 2021, the discount rates utilized ranged from 3.12 % to 7.99 % and the weighted-average life ranged from 5.0 years to 9.8 years.

On a combined amortized cost weighted-average basis a discount rate of 4.74 % and a weighted-average life of 6.6 years were utilized to determine the fair value of these securities at September 30, 2021.

At December 31, 2020, the combined weighted-average discount rate and combined weighted-average life utilized were 4.36 % and 7.5 years, respectively.

2 unchanged sentences

The fair value of such loans is generally based upon quoted prices of comparable loans with a liquidity discount applied.

At June 30, 2021, the fair value of these loans was calculated using a weighted-average discounted price of 99.2 %, compared to 97.2 % at December 31, 2020.

At September 30, 2021, the fair value of these loans was calculated using a weighted-average discounted price of 97.9 %, compared to 97.2 % at December 31, 2020.

Loans held for investment

Certain collateral-dependent loans held for investment are reported at fair value when, based upon an individual evaluation, the specific allocation of the allowance for credit losses that is deducted from the loan's amortized cost is based upon the fair value of the loan's underlying collateral.

The $ 908,000 fair value of loans held for investment at June 30, 2021 reported above includes loans with carrying values that, based on collateral valuations utilizing Level 3 inputs, equate to their fair value.

There were no collateral-dependent loans held for investment reported at fair value at September 30, 2021.

The $ 21.2 million fair value of loans held for investment at December 31, 2020 reported above includes loans with a carrying value of $ 25.3 million that were reduced by specific allowance allocations totaling $ 4.1 million based on collateral valuations utilizing Level 3 inputs.

1 unchanged sentence

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in thousands) Carrying

24 unchanged sentences

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

June 30, 2021 December 31, 2020

All derivative positions related to residential MSRs and loans held for sale were closed as of September 30, 2021 as a result of the sale of our MSR portfolio and transition of the MCA program to a third-party.

September 30, 2021 December 31, 2020

Estimated Fair Value Estimated Fair Value

29 unchanged sentences

The weighted-average received and paid interest rates for interest rate swaps outstanding were as follows:

June 30, 2021

September 30, 2021

Weighted-Average Interest Rate December 31, 2020 Weighted-Average Interest Rate

1 unchanged sentence

Non-hedging interest rate swaps 2.74 % 1.15 % 3.14 % 1.38 %

The weighted-average strike rate for outstanding interest rate caps was 2.68 % at June 30, 2021 and 3.41 % at December 31, 2020.

The weighted-average strike rate for outstanding interest rate caps was 2.67 % at September 30, 2021 and 3.41 % at December 31, 2020.

Our credit exposure on derivative instruments is limited to the net favorable value and interest payments by each counterparty.

In some cases collateral may be required from the counterparties involved if the net value of the derivative instruments exceeds a nominal amount.

Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 64.3 million at June 30, 2021, and approximately $ 102.7 million at December 31, 2020.

Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 56.9 million at September 30, 2021, and approximately $ 102.7 million at December 31, 2020.

Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap and cap values, as well as for changes in the value of forward sale commitments.

At June 30, 2021, we had $ 72.4 million in cash collateral pledged for these derivatives, of which $ 70.2 million was included in interest-bearing deposits in other banks and $ 2.2 million was included in accrued interest receivable and other assets.

At September 30, 2021, we had $ 62.1 million in cash collateral pledged for these derivatives that is included in interest-bearing deposits in other banks.

At December 31, 2020, we had $ 108.3 million in cash collateral pledged for these derivatives, of which $ 104.4 million was included in interest-bearing deposits in other banks and $ 3.9 million was included in accrued interest receivable and other assets.

1 unchanged sentence

The risk participation agreements entered into by us as a participant bank provide credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution.

We are party to nine risk participation agreements where we are a participant bank with a notional amount of $ 118.1 million at June 30, 2021, compared to nine risk participation agreements having a notional amount of $ 119.5 million at December 31, 2020.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 4.3 million at June 30, 2021 and $ 6.0 million at December 31, 2020.

The fair value of these exposures was insignificant to the consolidated financial statements at both June 30, 2021 and December 31, 2020.

We are party to eight risk participation agreements where we are a participant bank with a notional amount of $ 109.2 million at September 30, 2021, compared to nine risk participation agreements having a notional amount of $ 119.5 million at December 31, 2020.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 3.2 million at September 30, 2021 and $ 6.0 million at December 31, 2020.

The fair value of these exposures was insignificant to the consolidated financial statements at both September 30, 2021 and December 31, 2020.

Risk participation agreements entered into by us as the lead bank provide credit protection to us should the borrower fail to perform on its interest rate derivative contract with us.

We are party to 15 risk participation agreements where we are the lead

bank having a notional amount of $ 160.1 million at June 30, 2021, compared to 16 agreements having a notional amount of $ 165.9 million at December 31, 2020.

We are party to 16 risk participation agreements where

we are the lead bank having a notional amount of $ 167.4 million at September 30, 2021, compared to 16 agreements having a notional amount of $ 165.9 million at December 31, 2020.

(12) Material Transactions Affecting Stockholders' Equity

14 unchanged sentences

We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs.

We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.

The adoption of this ASU did not significantly impact our consolidated financial statements.

ASU 2021-05, “Leases (Topic 842) (“ASU 2021-05”) amends guidance to allow lessors to classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a day-one loss at lease commencement, provided that the lease includes variable lease payments that does not depend on an index or rate.

ASU 2021-05 will be effective for us on January 1, 2022 and is not expected to have an impact on our consolidated financial statements.

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-Q

Item 1. Financial Statements