What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-09 compared with 2021-02-09 · 410 added, 410 removed, 1134 unchanged (42% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm ( Ernst & Young LLP , Dallas, TX , Auditor Firm ID:

Consolidated Balance Sheets — December 31, 2021 and December 31, 2020

3 unchanged sentences

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Texas Capital Bancshares, Inc.

7 unchanged sentences

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for credit losses in 2020.

As explained below, auditing the Company’s allowance for credit losses, including adoption of the new accounting guidance related to the estimate of allowance for credit losses, was a critical audit matter.

Basis for Opinion

11 unchanged sentences

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments.

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

1 unchanged sentence

Description of the Matter The Company’s loans held for investment portfolio totaled $22.8 billion as of December 31, 2021, and the associated allowance for credit losses (ACL) was $229.1 million.

As discussed above and in Note 1 and Note 4 of the Company’s Form 10-K, the Company adopted new accounting guidance related to the estimate of the ACL resulting in a pre-tax cumulative-effect transition adjustment increasing the ACL by $9.1 million.

The ACL represents management’s best estimate of expected credit losses over the contractual life of loans and for off-balance sheet commitments.

2 unchanged sentences

The ACL also includes reserves for loans evaluated on an individual basis, such as certain loans graded substandard or worse.

Management applies judgment in the determination of the qualitative factors and reserves assigned on an individual basis to estimate the ACL.

Auditing management’s estimate of the ACL is complex due to the models utilized, and involves a high degree of subjectivity due to the judgment required in evaluating management’s determination of the qualitative factors and the reserve assumptions for loans evaluated on an individual basis.

Management applies judgment in the determination and usage of the qualitative factors, and in the use of a single or a blend of forecast scenarios used to calculate the reasonable and supportable forecast.

Auditing management’s estimate of the ACL is complex due to the models utilized and involves a high degree of subjectivity due to the judgment required in evaluating management’s determination and usage of the qualitative factors, and in the use of a single or blend of forecast scenarios used to calculate the reasonable and supportable forecast.

How We Addressed the Matter in Our Audit Our considerations and procedures performed included evaluation of the process utilized by management to challenge the model results and determine the best estimate of the ACL as of the balance sheet date.

We obtained an understanding of the Company’s process for establishing the ACL, including determination of the qualitative factors and reserve assumptions for loans evaluated on an individual basis.

We evaluated the design and tested the operating effectiveness of the controls associated with the ACL process, including controls around the reliability and accuracy of data used in the model, management’s review and approval of the selected qualitative factors, the reserve assumptions for loans evaluated on an individual basis, the governance of the credit loss methodology, and management’s review and approval of the ACL.

We performed specific substantive tests of the models utilized, qualitative factors and the reserve assumptions for loans evaluated on an individual basis.

We involved EY specialists to assist in testing management models including evaluating model methodology and key modeling assumptions, as well as the appropriateness of management’s qualitative framework, and reserve assumptions for loans evaluated on an individual basis.

We obtained an understanding of the Company’s process for establishing the ACL, including determination and usage of the qualitative factors and determination of a single or blend of multiple forecast scenarios used to calculate the reasonable and supportable forecast.

We evaluated the design and tested the operating effectiveness of the controls associated with the ACL process, including controls around the reliability and accuracy of data used in the model, management’s review and approval of the selected qualitative factors, the single or blend of multiple forecast scenarios used to calculate the reasonable and supportable forecast, the governance of the credit loss methodology, and management’s review and approval of the ACL.

We performed specific substantive tests of the models utilized, qualitative factors and the single or blend of forecast scenarios used to calculate the reasonable and supportable forecast.

We evaluated if the qualitative factors were applied based on a comprehensive framework and compared the adjustments utilized by management to both internal portfolio metrics and external macroeconomic data (as applicable) to support the adjustments and evaluate trends in such adjustments.

We searched for and evaluated information that corroborates or contradicts management’s reasonable and supportable forecast as well as identification and measurement of qualitative factors.

Within our reserve testing for loans evaluated on an individual basis, we evaluated management’s assumptions including collateral valuations.

In addition, we evaluated the Company’s estimate of the overall ACL, giving consideration to the Company’s borrowers, loan portfolio, and macroeconomic trends, independently obtained and compared such information to comparable financial institutions and considered whether new or contrary information existed.

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in thousands except per share data) 2020 2019

(in thousands except share data) 2021 2020

Cash and due from banks $ 180,663 $ 173,573

Interest-bearing deposits in other banks 7,765,996 9,032,807

Federal funds sold and securities purchased under resale agreements — 30,000

Investment securities 3,583,808 3,196,970

18 unchanged sentences

Other borrowings 2,200,000 3,000,000

Subordinated notes, net 282,490 282,129

Trust preferred subordinated debentures 113,406 113,406

Long-term debt 928,738 395,896

Total liabilities 31,522,122 34,854,872

2 unchanged sentences

Authorized shares— 10,000,000

Issued shares— 6,000,000 shares issued at December 31, 2020 and 2019

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

300,000 150,000

6 unchanged sentences

417 at December 31, 2021 and 2020)

Accumulated other comprehensive income, net of taxes 15,774 8,950

Accumulated other comprehensive income/(loss), net of taxes ( 47,715 ) 15,774

Total stockholders’ equity 3,209,616 2,871,224

9 unchanged sentences

Investment securities 42,820 17,475 8,654

Federal funds sold and securities purchased under resale agreements 693 1,529 3,792

Federal funds sold 1 693 1,529

Interest-bearing deposits in other banks 13,232 27,569 71,093

4 unchanged sentences

Other borrowings 4,482 20,923 58,393

Subordinated notes 16,764 16,764 16,764

Trust preferred subordinated debentures 3,199 5,026 4,715

Long-term debt 37,628 19,963 21,790

Total interest expense 107,748 188,086 385,592

7 unchanged sentences

Servicing income 15,513 27,029 13,439

Swap fees 5,182 4,387 5,625

Investment banking and trading income 24,441 22,687 14,876

Net gain/(loss) on sale of loans held for sale 1,317 58,026 ( 20,259 )

7 unchanged sentences

Communications and technology 75,185 103,054 44,826

FDIC insurance assessment 25,955 20,093 24,307

Federal Deposit Insurance Corporation (“FDIC”) insurance assessment 21,027 25,955 20,093

Servicing-related expenses 27,765 64,585 22,012

8 unchanged sentences

Other comprehensive income

Change in unrealized gain (loss) on available-for-sale debt securities arising during period, before tax $ 8,639 $ 10,674 $ 7

Change in unrealized gain/(loss) on available-for-sale debt securities, before tax $ ( 80,366 ) $ 8,639 $ 10,674

Income tax expense/(benefit) ( 16,877 ) 1,815 2,242

Other comprehensive income, net of tax 6,824 8,432 6

Other comprehensive income/(loss), net of tax ( 63,489 ) 6,824 8,432

Comprehensive income $ 190,450 $ 73,113 $ 320,447

6 unchanged sentences

Paid-in Retained Comprehensive

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

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

Balance at December 31, 2018 6,000,000 $ 150,000 50,201,127 $ 502 $ 967,890 $ 1,361,406 ( 417 ) $ ( 8 ) $ 518 $ 2,480,308

Impact of adoption of new accounting standards(1) — — — — — ( 82 ) — — 84 2

Comprehensive income:

7 unchanged sentences

Balance at December 31, 2019 6,000,000 $ 150,000 50,338,158 $ 503 $ 978,205 $ 1,663,671 ( 417 ) $ ( 8 ) $ 8,950 $ 2,801,321

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

Comprehensive income:

5 unchanged sentences

Issuance of stock related to stock-based awards — — 132,709 1 ( 1,988 ) — — — — ( 1,987 )

Issuance of common stock related to warrants — — 8,768 — — — — — — —

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

Impact of adoption of new accounting standards(2) — — — — — ( 7,154 ) — — — ( 7,154 )

Comprehensive income:

3 unchanged sentences

Stock-based compensation expense recognized in earnings — — — — 30,061 — — — — 30,061

Issuance of preferred stock 300,000 300,000 — — ( 10,277 ) — — — — 289,723

Preferred stock dividend — — — — — ( 18,721 ) — — — ( 18,721 )

Issuance of stock related to stock-based awards — — 148,044 2 ( 3,123 ) — — — — ( 3,121 )

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

Balance at December 31, 2021 300,000 $ 300,000 50,618,911 $ 506 $ 1,008,559 $ 1,948,274 ( 417 ) $ ( 8 ) $ ( 47,715 ) $ 3,209,616

(1) Represents the impact of adopting Accounting Standard Update ("ASU") 2018-02 and ASU 2016-01.

See Note 1 to the consolidated financial statements for more information.

(1) Represents the impact of adopting ASU 2016-13.

See Note 1 to the consolidated financial statements for more information.

See Note 1 - Operations and Summary of Significant Accounting Policies to the consolidated financial statements for more information.

See accompanying notes to consolidated financial statements.

6 unchanged sentences

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

Provision for credit losses 258,000 75,000 87,000

Provision/(benefit) for credit losses ( 30,000 ) 258,000 75,000

Deferred tax expense/(benefit) ( 20,253 ) ( 7,964 ) 10,796

11 unchanged sentences

Purchases of investment securities ( 1,059,897 ) ( 3,001,746 ) ( 113,233 )

Maturities and calls of available-for-sale securities — — —

Principal payments received on investment securities 569,931 52,609 6,185

1 unchanged sentence

Proceeds from pay-offs of mortgage finance loans 168,688,351 215,324,562 136,466,964

Net (increase)/decrease in loans held for investment, excluding mortgage finance loans 926,176 139,868 ( 1,402,068 )

Proceeds from sale of mortgage servicing rights 115,891 — —

Net decrease in loans held for investment, excluding mortgage finance loans 7,076 926,176 139,868

Purchase of premises and equipment, net ( 4,127 ) ( 2,796 ) ( 16,651 )

Proceeds from sale of MSRs — — 70,824

Proceeds from sale of other real estate owned, net — 79 13,645

Net cash used in investing activities ( 2,935,317 ) ( 2,276,077 ) ( 1,992,746 )

Net cash provided by/(used in) investing activities 1,232,786 ( 2,935,317 ) ( 2,276,156 )

Financing activities

Net increase in deposits 4,517,996 5,872,480 1,482,933

Net increase/(decrease) in deposits ( 2,887,224 ) 4,517,996 5,872,480

Costs from issuance of stock related to stock-based awards and warrants ( 3,121 ) ( 1,986 ) ( 1,459 )

Net proceeds from issuance of preferred stock 289,723 — —

Redemption of preferred stock ( 150,000 ) — —

Preferred dividends paid ( 18,721 ) ( 9,750 ) ( 9,750 )

Net proceeds from issuance of long-term debt 639,440 — —

Redemption of long-term debt ( 111,000 ) — —

Net increase/(decrease) in other borrowings ( 800,000 ) 600,000 ( 1,500,000 )

Net increase/(decrease) in federal funds purchased and repurchase agreements ( 30,015 ) ( 499,408 ) 276,134

Net cash provided by financing activities 5,076,245 3,861,863 2,846,935

Net increase in cash and cash equivalents 4,780,797 1,345,518 174,474

Net decrease in federal funds purchased and repurchase agreements ( 108,919 ) ( 30,015 ) ( 499,408 )

Net cash provided by/(used in) financing activities ( 3,149,822 ) 5,076,245 3,861,863

Net increase/(decrease) in cash and cash equivalents ( 1,259,721 ) 4,780,797 1,345,518

Cash and cash equivalents at beginning of period 9,206,380 4,425,583 3,080,065

7 unchanged sentences

Texas Capital Bancshares, Inc.

(the "Company” or "TCBI"), 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 Texas Capital Bancshares, Inc.

and its wholly owned subsidiary, Texas Capital Bank, National Association (the "Bank”).

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

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

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

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

We are primarily a secured lender, with the majority of our loans held for investment, excluding mortgage finance loans and other national lines of business, being made to businesses headquartered or with operations in Texas.

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

On December 9, 2019, the Company and IBTX entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions therein, the Company would be merged with and into IBTX.

On May 22, 2020, the Company and IBTX entered into an agreement pursuant to which the parties mutually agreed to terminate the Merger Agreement.

Neither party paid a termination fee in connection with the termination of the Merger Agreement.

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 Federal Deposit Insurance Corporation (“FDIC”) is the Bank’s primary federal regulator, and the Board of Governors of the Federal Reserve System (“Federal Reserve”).

Basis of Presentation

1 unchanged sentence

Certain prior period balances have been reclassified to conform to the current period presentation.

Revision of Prior Period Financial Statements

During the second quarter of 2020, the Company identified an error in our historical financial statements related to the accounting for certain share-based liabilities of a consolidated entity that contained put features, whereby the liabilities were not remeasured to their puttable value at each period end.

The aggregate amount of the errors at each period end represented 1% or less of our stockholders' equity in all prior periods.

In accordance with the guidance set forth in SEC Staff Bulletin 99, Materiality , and SEC Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financials , the Company concluded that the error was not material, individually or in the aggregate with other previously identified immaterial errors, to any prior periods, the current period or the trend in earnings from a quantitative and qualitative perspective.

However, correcting the cumulative effect of the errors in the current period would have resulted in a material misstatement in the current period and, as such, we have revised our previously reported financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2019 to correct the immaterial error, as well as other previously identified immaterial errors.

A summary of revisions to certain previously reported financial information is presented below:

Revised Consolidated Balance Sheets

December 31, 2019 December 31, 2018 December 31, 2017

In December 2021, the Company received approval from the U.S.

Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) for broker-dealer registration and FINRA membership of TCBI Securities, a wholly owned non-bank subsidiary of the Bank.

As a result, we are establishing a policy regarding the accounting for loan syndication fees and reclassifying prior period financial statements to conform to this policy.

Refer to the Revenue Recognition section of this footnote for this accounting policy.

Such reclassifications are immaterial, individually and in the aggregate, to both current and all previously issued financial statements taken as a whole and have no effect on previously reported consolidated net income.

December 31, 2020 December 31, 2019

( in thousands)

As Reported Adjustment As Revised As Reported Adjustment As Revised As Reported Adjustment As Revised

Other liabilities $ 287,157 $ 30,937 $ 318,094 $ 194,238 $ 20,086 $ 214,324 $ 182,212 $ 12,649 $ 194,861

Total liabilities 29,715,811 30,937 29,746,748 25,757,373 20,086 $ 25,777,459 22,872,924 12,649 22,885,573

Retained Earnings 1,694,608 ( 30,937 ) 1,663,671 1,381,492 ( 20,086 ) $ 1,361,406 1,090,500 ( 12,649 ) 1,077,851

Total Equity 2,832,258 ( 30,937 ) 2,801,321 2,500,394 ( 20,086 ) $ 2,480,308 2,202,721 ( 12,649 ) 2,190,072

Revised Consolidated Statement of Income and Other Comprehensive Income

Year Ended December 31, 2019 Year Ended December 31, 2018 Year Ended December 31, 2017

(in thousands) As Reported Adjustment As Revised As Reported Adjustment As Revised As Reported Adjustment As Revised

Salaries and employee benefits expense $ 315,080 $ 13,403 $ 328,483 $ 291,768 $ 9,131 $ 300,899 $ 264,231 $ 2,230 $ 266,461

Other non-interest expense 47,253 ( 2,552 ) 44,701 51,364 ( 1,694 ) 49,670 49,296 ( 1,248 ) 48,048

Total non-interest expense 589,999 10,851 600,850 525,096 7,437 532,533 465,876 982 466,858

Income before tax 407,161 ( 10,851 ) 396,310 380,788 ( 7,437 ) 373,351 325,708 ( 982 ) 324,726

Net income 322,866 ( 10,851 ) 312,015 300,824 ( 7,437 ) 293,387 197,063 ( 982 ) 196,081

Net income available to common stockholders 313,116 ( 10,851 ) 302,265 291,074 ( 7,437 ) 283,637 187,313 ( 982 ) 186,331

Comprehensive income 331,298 ( 10,851 ) 320,447 300,830 ( 7,437 ) 293,393 197,076 ( 982 ) 196,094

Revised Consolidated Statement of Stockholders' Equity

Year Ended December 31, 2019 Year Ended December 31, 2018 Year Ended December 31, 2017

(in thousands) As Reported Adjustment As Revised As Reported Adjustment As Revised As Reported Adjustment As Revised

Beginning balance retained earnings $ 1,381,492 $ ( 20,086 ) $ 1,361,406 $ 1,090,500 $ ( 12,649 ) $ 1,077,851 $ 903,187 $ ( 11,667 ) $ 891,520

Beginning balance total equity 2,500,394 ( 20,086 ) 2,480,308 2,202,721 ( 12,649 ) 2,190,072 2,009,557 ( 11,667 ) 1,997,890

Ending balance retained earnings 1,694,608 ( 30,937 ) 1,663,671 1,381,492 ( 20,086 ) 1,361,406 1,090,500 ( 12,649 ) 1,077,851

Ending balance total equity 2,832,258 ( 30,937 ) 2,801,321 2,500,394 ( 20,086 ) 2,480,308 2,202,721 ( 12,649 ) 2,190,072

The share-based liabilities relate to agreements with certain employees of a subsidiary of the Company that was acquired in 2005.

The terms of the agreements include a put feature that, when exercised, requires mandatory settlement by the Company of the share-based liability at a formulaic price.

The put feature causes the liability to be remeasured to current puttable value at each period end.

The impact of adjusting the liability to puttable value at each period end is recorded in salaries and employee benefits expense.

During the second quarter of 2020, put features were exercised on a portion of the outstanding liability.

As of December 31, 2020, the carrying value of these share-based liabilities totaled $ 7.8 million and is recorded in other liabilities on the consolidated balance sheets.

Accounting Changes

On January 1, 2020, we adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which replaces the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the Current Expected Credit Loss ("CECL") model.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASU 2016-02 "Leases (Topic 842)" .

In addition, ASU 2016-13 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit-related impairments to be recognized in the allowance for credit losses rather than as a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not more likely than not that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost, off-balance sheet credit exposures and net investments in leases.

Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Our accounting policies changed significantly upon the adoption of CECL on January 1, 2020.

Prior to January 1, 2020, the allowance for loan losses was based on incurred credit losses in accordance with accounting policies disclosed in Note 1 - Operations and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2019.

We adopted ASU 2016-13 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020.

As a result, the amortized cost basis remains the same before and after the effective date of ASU 2016-13.

The following table illustrates the impact of adopting ASU 2016-13 and details how outstanding loan balances have been reclassified as a result of changes made to our primary portfolio segments under CECL:

January 1, 2020

(in thousands) As Reported Under ASU 2016-13 Pre-ASU 2016-13 Impact of ASU 2016-13 Adoption

Loans held for investment (outstanding balance)

Commercial $ 9,133,444 $ 10,230,828 $ ( 1,097,384 )

Energy 1,425,309 1,425,309

Mortgage finance 8,169,849 8,169,849 —

Construction 2,563,339 ( 2,563,339 )

Real estate 6,008,040 3,444,701 2,563,339

Consumer 71,463 ( 71,463 )

Equipment leases 256,462 ( 256,462 )

Allowance for credit losses on loans ( 203,632 ) ( 195,047 ) ( 8,585 )

Total loans held for investment, net 24,442,630 24,451,215 ( 8,585 )

Net deferred tax asset 23,058 21,064 1,994

Allowance for credit losses on off-balance sheet exposures 9,203 8,640 563

Retained earnings 1,656,517 1,663,671 ( 7,154 )

In connection with our adoption of ASU 2016-13, changes were made to our primary portfolio segments to align with the methodology applied in determining the allowance under CECL.

These changes included segregating energy loans into a stand-alone portfolio segment and reclassifying consumer and equipment leases into the commercial loan portfolio segment.

Additionally, construction and real estate loans were combined into a single portfolio segment, referred to as real estate.

The real estate loan portfolio segment includes loans further categorized as commercial real estate, residential homebuilder finance, secured by 1-4 family and an "other" category.

See Allowance for Credit Losses below for further discussion of these portfolio segments.

As Reported Adjustment As Revised As Reported Adjustment As Revised

Interest and fees on loans $ 1,011,175 $ ( 17,505 ) $ 993,670 $ 1,284,036 $ ( 10,489 ) $ 1,273,547

Total interest income 1,056,912 ( 17,505 ) 1,039,407 1,365,312 ( 10,489 ) 1,354,823

Net interest income 868,826 ( 17,505 ) 851,321 979,720 ( 10,489 ) 969,231

Net interest income after provision for credit losses 610,826 ( 17,505 ) 593,321 904,720 ( 10,489 ) 894,231

Swap fees 5,182 ( 5,182 ) — 4,387 ( 4,387 ) —

Investment banking and trading income — 22,687 22,687 — 14,876 14,876

Total non-interest income 185,476 17,505 202,981 91,879 10,489 102,368

Use of Estimates

3 unchanged sentences

Basic and Diluted Earnings Per Common Share

Basic earnings per common share is based on net income available to common stockholders divided by the weighted-average number of common shares outstanding during the period excluding non-vested stock.

Diluted earnings per common share include the dilutive effect of non-vested stock-based awards granted using the treasury stock method.

A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 2 — Earnings Per Share.

Accumulated Other Comprehensive Income

Unrealized gains or losses on our available-for-sale debt securities (after applicable income tax expense or benefit) are included in accumulated other comprehensive income (loss), net ("AOCI").

AOCI is reported in the accompanying consolidated statements of stockholders’ equity and consolidated statements of income and other comprehensive income.

Diluted earnings per common share include the dilutive effect of non-vested stock-settled awards granted using the treasury stock method.

Accumulated Other Comprehensive Income/(Loss)

Unrealized gains or losses on our available-for-sale debt securities, net of applicable income tax expense or benefit, are included in accumulated other comprehensive income/(loss), net (“AOCI”) in the accompanying consolidated statements of stockholders’ equity.

Changes to AOCI are reported on the consolidated statements of income and other comprehensive income.

GAAP does not permit the adjustment of tax amounts in AOCI for changes in tax rates;

3 unchanged sentences

Cash and Cash Equivalents

Cash equivalents include amounts due from banks, interest-bearing deposits in other banks, federal funds sold and securities purchased under resale agreements.

Cash equivalents include amounts due from banks, interest-bearing deposits in other banks and federal funds sold.

Investment Securities

Investment securities include debt securities and equity securities at fair value.

Investment securities include debt securities and equity securities.

Debt Securities

Debt securities are classified as trading, available-for-sale or held-to-maturity.

Debt securities not classified as held-to-maturity or trading are classified as available-for-sale.

Management classifies securities at the time of purchase and re-assesses such designation at each balance sheet date.

however, transfers between categories from this re-assessment are rare.

All debt securities are available-for-sale as of December 31, 2020 and 2019.

Trading Account

Debt securities acquired for resale in anticipation of short-term market movements are classified as trading, with realized and unrealized gains and losses recognized in income.

Debt securities acquired for resale in anticipation of short-term market movements are classified as trading and recorded at fair value, with realized and unrealized gains and losses recognized in income.

Held-to-Maturity

1 unchanged sentence

Held-to-maturity securities are stated at amortized cost.

Debt securities not classified as held-to-maturity or trading are classified as available-for-sale.

Available-for-Sale

Available-for-sale debt securities are stated at fair value.

Unrealized gains are reported as a separate component of AOCI, net of tax.

Available-for-sale debt securities are recorded at fair value, with unrealized gains and losses, net of tax, reported as a separate component of AOCI.

For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more-likely-than-not that we will be required to sell, the securities before recovery of the amortized cost basis.

2 unchanged sentences

In making this assessment, we may consider various factors including the extent to which fair value is less than amortized cost, performance of any underlying collateral and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess of the amortized cost basis over the present value of expected cash flows is recorded as an allowance for credit loss, limited to the amount by which the fair value is less than the amortized cost basis.

Any impairment not recorded through an allowance for credit loss is recognized in AOCI, net of tax, as a non credit-related impairment.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit losses, limited to the amount by which the fair value is less than the amortized cost basis.

Any impairment not recorded through an allowance for credit losses is recognized in AOCI, net of tax, as a non credit-related impairment.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security.

Such amortization and accretion are included in interest income from securities.

Realized gains and losses and declines in value judged to be other-than-temporary are included in gain (loss) on sale of securities.

Such amortization and accretion are included in interest income from investment securities.

Realized gains and losses and declines in value judged to be other-than-temporary are included in other non-interest income on the consolidated statements of income and other comprehensive income.

The cost of securities sold is based on the specific identification method.

We have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in accrued interest and other assets in the consolidated balance sheets.

Available-for-sale debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

8 unchanged sentences

Equity Securities

Beginning January 1, 2018, upon adoption of ASU 2016-01 " Recognition and Measurement of Financial Assets and Financial Liabilities," equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of AOCI, net of tax.

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

Equity securities without readily determinable fair values are recorded at cost less any impairment, if any.

Loans Held for Sale

Through our mortgage correspondent aggregation ("MCA") program, we commit to purchase residential mortgage loans from independent correspondent lenders and deliver those loans into the secondary market via whole loan sales to independent third parties or in securitization transactions to third parties such as Ginnie Mae or to government sponsored entities such as Fannie Mae or Freddie Mac ("GSEs").

In some cases, we retain the mortgage servicing rights.

Once purchased, these loans are classified as held for sale and are carried at fair value pursuant to our election of the fair value option in accordance with Accounting Standards Codification ("ASC") 825, Financial Instruments .

At the commitment date, we enter into a corresponding forward sale commitment with a third party, typically Ginnie Mae or a GSE, to deliver the loans within a specified timeframe.

The estimated gain/loss for the entire transaction (from initial purchase commitment to final delivery of loans) is recorded as an asset or liability.

We transitioned our mortgage correspondent aggregation (“MCA”) program to a third party in 2021.

Prior to transition, we committed to purchase residential mortgage loans from independent correspondent lenders and delivered those loans into the secondary market via whole loan sales to independent third parties or in securitization transactions to third parties such as Ginnie Mae or to GSEs.

In some cases, we retained the mortgage servicing rights.

Once purchased, these loans were classified as held for sale and carried at fair value pursuant to our election of the fair value option in accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments .

At the commitment date, we entered into a corresponding forward sale commitment with a third party, typically Ginnie Mae or a GSE, to deliver the loans within a specified timeframe.

The estimated gain/(loss) for the entire transaction (from initial purchase commitment to final delivery of loans) was recorded as an asset or liability.

The fair value of loans held for sale is derived from observable current market prices, when available, and includes the fair value of the mortgage servicing rights.

Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as gain/(loss) on sale of loans held for sale in the consolidated statements of income and other comprehensive income.

Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as gain/(loss) on sale of loans held for sale on the consolidated statements of income and other comprehensive income.

Residential mortgage loans held for sale are subject to both credit and interest rate risk.

2 unchanged sentences

Pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not the obligation, to repurchase certain delinquent loans securitized in Ginnie Mae pools, if they meet defined delinquent loan criteria.

Once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, we account for these loans as if they had been repurchased and recognize the loans and a corresponding liability as held for sale and other liabilities, respectively, in the consolidated balance sheets.

Once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, we account for these loans as if they had been repurchased and recognize the loans and a corresponding liability as loans held for sale and other liabilities, respectively, on the consolidated balance sheets.

If the loans are actually repurchased, the liability is extinguished and the loans continue to be reported as held for sale.

2 unchanged sentences

Loans Held for Investment

Loans held for investment (including financing leases) are stated at the amount of unpaid principal reduced by deferred income (net of costs).

Loans held for investment (including financing leases) are stated at the amount of unpaid principal reduced by unearned income (net of costs).

Interest on loans is recognized using the simple interest method on the daily balances of the principal amounts outstanding.

2 unchanged sentences

This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, or a combination of the two.

Modifications of terms that could potentially qualify as a restructuring include reduction of contractual interest rate, extension of the maturity date at a contractual interest rate lower than the current rate for new debt with similar risk, a reduction of the face amount of debt or forgiveness of either principal or accrued interest.

Modifications of terms that could potentially qualify as a restructuring include reduction of contractual interest rate, extension of the maturity date at a contractual interest rate lower than the current rate for new debt with similar risk, an adjustment to payment terms, a reduction of the face amount of debt or forgiveness of either principal or accrued interest.

A loan continues to qualify as restructured until a consistent payment history or change in the borrower’s financial condition has been evidenced, generally for no less than twelve months.

5 unchanged sentences

If collectability is questionable, then cash payments are applied to principal.

A loan is placed back on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

Loans held for investment includes legal ownership interests in mortgage loans that we purchase through our mortgage warehouse lending division.

The ownership interests are purchased from unaffiliated mortgage originators who are seeking additional funding through sale of the undivided ownership interests to facilitate their ability to originate loans.

A loan is placed back on accrual status when both

principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

Loans held for investment includes legal ownership interests in mortgage loans that we purchase through our mortgage finance division.

The ownership interests are purchased from unaffiliated mortgage originators who are seeking additional liquidity to facilitate their ability to originate loans.

The mortgage originator has no obligation to offer and we have no obligation to purchase these interests.

The originator closes mortgage loans

consistent with underwriting standards established by approved investors, and, at the time of the sale to the investor, our ownership interest and that of the originator are delivered by us to the investor selected by the originator and approved by us.

The originator closes mortgage loans consistent with underwriting standards established by approved investors, and, at the time of the sale to the investor, our ownership interest and that of the originator are delivered by us to the investor selected by the originator and approved by us.

We typically purchase up to a 99% ownership interest in each mortgage with the originator owning the remaining percentage.

1 unchanged sentence

Because of conditions in agreements with originators designed to reduce transaction risks, under ASC 860, Transfers and Servicing of Financial Assets (“ASC 860”), the ownership interests do not qualify as participating interests.

Under ASC 860, the ownership interests are deemed to be loans to the originators and payments we receive from investors are deemed to be payments made by or on behalf of the originator to repay the loan deemed made to the originator.

Because we have an actual, legal ownership interest in the underlying residential mortgage loan, these interests are reported as extensions of credit to the originators that are secured by the mortgage loans as collateral.

2 unchanged sentences

Allowance for Credit Losses

The allowance for credit losses is an estimate of the expected credit losses in the loans held for investment and available-for-sale debt securities portfolio.

On January 1, 2020, we adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which uses the current expected credit loss ("CECL") model to determine the allowance for credit losses.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost, off-balance sheet credit exposures and net investments in leases.

Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The following is our discussion of the allowance for credit losses on loans held for investment.

See “ Investment Securities - Available-for-Sale ” above for discussion of the allowance for credit losses on available-for-sale debt securities.

ASU 2016-13 replaces the incurred loss impairment model, which recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

The CECL methodology recognizes lifetime expected credit losses immediately when a financial asset is originated or purchased.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

10 unchanged sentences

Each credit grade within each product type is assigned a historical loss rate.

These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor ("PLQF") and/or a Portfolio Segment Level Qualitative Factor ("SLQF").

These historical loss rates are then modified to incorporate our reasonable and

supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”).

These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.

A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in other liabilities.

The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process.

1 unchanged sentence

Even though portions of the allowance may be allocated to specific loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

We generally use a two-year forecast period, based on a single consensus forecast scenario, using variables we believe are most relevant to each portfolio segment.

We generally use a two-year forecast period, based on a single forecast scenario or a blend of multiple forecast scenarios, using variables we believe are most relevant to each portfolio segment.

For periods beyond which we are able to develop reasonable and supportable forecasts, we immediately revert to the average historical loss rate.

The forecast period and scenario used is reviewed on a quarterly basis and may be adjusted based on management's view of the current economic conditions and level of predictability the forecast can provide.

The forecast period and scenario(s) used are reviewed on a quarterly basis and may be adjusted based on management's view of the current economic conditions and level of predictability the forecast can provide.

Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses.

3 unchanged sentences

Our commercial loan portfolio also includes consumer loans because our small portfolio of consumer loans is largely comprised of accommodation loans to individuals associated with our commercial clients.

Our energy loan portfolio is primarily comprised of loans to exploration and production (“E&P”) companies that are generally collateralized with proven reserves based on appropriate valuation standards that take into account the risk of oil and gas price volatility.

Our energy loan portfolio is primarily comprised of loans to exploration and production companies that are generally collateralized with proven reserves based on appropriate valuation standards that take into account the risk of oil and gas price volatility.

The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest-risk form of energy lending.

31 unchanged sentences

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions.

Changes are reflected in the pool-basis

allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

As our portfolio has matured, historical loss ratios have been closely monitored.

10 unchanged sentences

When foreclosure occurs, the acquired asset is recorded at fair value less selling costs, generally based on appraised value, which may result in partial charge-off of the loan through a charge to the allowance for credit losses, if necessary.

Subsequent write-downs required for declines in value are recorded through a valuation allowance, or taken directly to the asset, and are recorded in allowance and other carrying costs for OREO in the consolidated statements of income and other comprehensive income.

Gains or losses on sale of OREO are recorded in other non-interest income in the consolidated statements of income and other comprehensive income.

Subsequent write-downs required for declines in value are recorded through a valuation allowance, or taken directly to the asset, and are recorded in other non-interest expense on the consolidated statements of income and other comprehensive income.

Gains or losses on sale of OREO are recorded in other non-interest income on the consolidated statements of income and other comprehensive income.

Mortgage Servicing Rights, Net

5 unchanged sentences

MSRs are amortized proportionally over the estimated life of the projected net servicing revenue and are periodically evaluated for impairment.

From time to time we may sell MSRs.

Gain/(loss) from the sale of MSRs is calculated as the difference between the amortized cost of the sold MSRs, adjusted for any valuation allowance, compared to the sales price.

Loan servicing fee income represents income earned for servicing mortgage loans owned by investors and includes mortgage servicing fees and other ancillary servicing income.

Servicing fees are recorded as income when earned and are reported in non-interest income on the consolidated statements of income and other comprehensive income.

MSR valuation allowance expense and servicing related expenses are recorded in servicing-related expenses in the consolidated statements of income and other comprehensive income.

Servicing fees are recorded as income when earned and are reported in non-

interest income on the consolidated statements of income and other comprehensive income.

MSR valuation allowance expense, gain/(loss) on the sale of MSRs and servicing related expenses are recorded in servicing-related expenses on the consolidated statements of income and other comprehensive income.

The estimated fair value of the MSR assets is obtained from an independent third party and reviewed by management on a quarterly basis.

10 unchanged sentences

Premises and Equipment, Net

Premises and equipment are stated at cost less accumulated depreciation.

Premises and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Furniture and equipment is generally depreciated over three to five years ,

while leasehold improvements are generally depreciated over the term of their respective lease.

Gains or losses on disposals of premises and equipment are included in other non-interest income in the consolidated statements of income and other comprehensive income.

Furniture and equipment is generally depreciated over three to five years , while leasehold improvements are generally depreciated over the term of their respective lease.

Gains or losses on disposals of premises and equipment are included in other non-interest income on the consolidated statements of income and other comprehensive income.

Costs incurred in connection with development or purchase of internal use software and cloud computing arrangements, including in-substance software licenses, are capitalized.

Amortization is computed on a straight-line basis over the estimated useful life of the asset, which generally ranges from one to five years .

Capitalized software is included in other assets in the consolidated balance sheets.

Capitalized software is included in other assets on the consolidated balance sheets.

Financial Instruments with Off-Balance Sheet Risk

3 unchanged sentences

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

These financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit risk in excess of the amount recognized in the consolidated balance sheets.

These financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit risk in excess of the amount recognized on the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.

5 unchanged sentences

The Bank evaluates each customer’s creditworthiness on a case-by-case basis.

Commitments to extend credit do not include our mortgage finance arrangements with mortgage loan originators through our mortgage warehouse lending division, which are established as uncommitted “guidance” purchase and sale facilities under which the mortgage originator has no obligation to offer and we have no obligation to purchase interests in the mortgage loans subject to the arrangements.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

2 unchanged sentences

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

If it is determined subsequent to our sale of a loan or its related servicing rights that a breach of the representations or warranties made in the applicable sale agreement has occurred, which may include guarantees that prepayments will not occur within a specified and customary time frame, we may have an obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest and related advances, (b) indemnify the purchaser against any loss it suffers or (c) make the purchaser whole for the economic benefits of the loan and its related servicing rights.

If it is determined subsequent to our sale of a loan or its related servicing rights that a breach of the representations or warranties made in the applicable sale agreement has occurred,

which may include guarantees that prepayments will not occur within a specified and customary time frame, we may have an obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest and related advances, (b) indemnify the purchaser against any loss it suffers or (c) make the purchaser whole for the economic benefits of the loan and its related servicing rights.

Our repurchase, indemnification and make-whole obligations vary based upon the terms of the applicable agreements, the nature of the asserted breach and the status of the mortgage loan at the time a claim is made.

1 unchanged sentence

The reserve will include accruals for probable contingent losses in addition to those identified in the pipeline of claims received.

The estimation process is designed to include amounts based on actual losses experienced from actual activity.

ASU 2016-02 "Leases (Topic 842)" ("ASU 2016-02") requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.

ASU 2016-02 became effective for us on January 1, 2019.

ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients.

We elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and have not restated comparative periods.

Of the optional practical expedients available under ASU 2016-02, we adopted all expedients except for the hindsight practical expedient.

As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use ("ROU") asset of $ 64 million and an operating lease liability of $ 74 million on January 1, 2019, with no impact on our consolidated statements of income or consolidated statements of cash flows compared to the prior lease accounting model.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease agreements may contain extension options which typically range from 5 to 10 years at the then fair market rental rates.

As these extension options are not

generally considered reasonably certain of exercise, they are not included in the lease term.

ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date, which is based on our collateralized borrowing capabilities over a similar term as the related lease payments.

Right of use (“ROU”) assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Lease agreements may contain extension options which typically provide for an extension of a lease term at the then fair market rental rates.

As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

Our operating leases relate primarily to real estate used for corporate offices and bank branches and our finance leases relate primarily to equipment.

We do not separate lease and non-lease components for our real estate leases.

For those leases with a term greater than one year, ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the date the lease is executed and signed, which is based on our collateralized borrowing capabilities over a similar term as the related lease payments.

ROU assets are further adjusted for lease incentives.

Our operating leases relate primarily to office space and bank branches.

Operating leases in which we are the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in other assets and other liabilities, respectively, on our consolidated balance sheets.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the consolidated statements of income and other comprehensive income.

See Note 6 – Leases for additional information.

Operating leases in which we are the lessee are recorded as operating lease ROU assets and operating lease liabilities, and are included in other assets and other liabilities, respectively, on our consolidated balance sheets.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense on the consolidated statements of income and other comprehensive income.

Finance leases in which we are the lessee are recorded as finance lease ROU assets and finance lease liabilities and are included in premises and equipment, net, and other liabilities, respectively, on our consolidated balance sheets.

Finance lease expense is comprised of amortization of the ROU asset, which is recognized on a straight-line basis over the lease term and recorded in net occupancy expense on the consolidated statements of income and other comprehensive income, and the implicit interest accreted on the operating lease liability, which is recognized using the effective interest method over the lease term and recorded in interest expense on the consolidated statements of income and other comprehensive income.

Revenue Recognition

4 unchanged sentences

• Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue.

Revenue is recognized when our performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer).

Payments for such performance obligations are generally received at the time the performance obligations are satisfied.

Revenue is recognized when our performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a stop payment).

Payments for these activities are generally received at the time the performance obligations are satisfied.

• Wealth management and trust fee income - this represents monthly fees due from wealth management customers as consideration for managing the customers' assets.

Wealth management and trust services include custody of assets, investment management, escrow services, fees for trust services and similar fiduciary activities.

Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.

Also included are fees received from a third party broker-dealer as part of a revenue-sharing agreement for fees earned from customers that we refer to the third party.

These fees are paid to us by the third party on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied.

These fees are typically paid to us on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied each month.

• Brokered loan fees - these represent fees for the administration and funding of purchased mortgage loan interests as well as facility renewal and application fees received from mortgage originator customers in our mortgage warehouse lending business.

2 unchanged sentences

Revenue related to our MCA business is recognized at the time a loan is purchased.

• Other non-interest income primarily includes items such as letter of credit fees, bank owned life insurance income, dividends on FHLB and FRB stock and other general operating income, none of which are subject to the requirements of ASC 606.

• Investment banking and trading income - these include fees for merger, acquisition, divestiture and restructuring advisory services, fees for securities underwriting activities, loan syndication fees, and swap fees.

Advisory fees are generally earned as performance obligations of the advisory service are satisfied.

Underwriting fees are generally recognized upon execution of the client’s issuance of debt or equity instruments.

Loan syndication fees are generally recognized upon closing of a loan syndication transaction.

• Other non-interest income includes items such as letter of credit fees, bank owned life insurance income, dividends on FHLB and FRB stock and other general operating income, none of which are subject to the requirements of ASC 606.

Also included in other-non-interest income are interchange fees earned when our commercial credit card clients process transactions through card networks.

Our performance obligations are generally complete when the transactions generating the fees are processed.

Stock-based Compensation

We account for all stock-based compensation transactions in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires that stock compensation transactions be recognized as compensation expense in the consolidated statements of income and other comprehensive income based on their fair values on the measurement date, which is the date of the grant.

We account for all stock-based compensation transactions in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires that stock compensation transactions be recognized as compensation expense on the consolidated statements of income and other comprehensive income based on their fair values on the measurement date, which is generally the date of the grant.

The Company and its subsidiary file a consolidated federal income tax return.

We utilize the liability method in accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in

effect for the year in which the differences are expected to be recovered or settled.

As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

A valuation allowance is provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized.

Deferred tax assets, net, are included in other assets on the consolidated balance sheets.

The tax effect of unrealized gains and losses on available-for-sale debt securities is recorded to other comprehensive income and is not a component of income tax expense/(benefit).

Unrecognized tax benefits for the uncertain portion of recorded tax benefits and related interest may result from the application of complex tax laws, rules, regulations and interpretations.

11 unchanged sentences

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

Those techniques are significantly affected by the assumptions

used, including the discount rate and estimates of future cash flows.

The disclosure of fair value information about financial instruments does not and is not intended to represent the fair value of the Company.

3 unchanged sentences

Investment Securities

Within the investment securities portfolio, we hold equity securities related to our non-qualified deferred compensation plan that are valued using quoted market prices for identical equity securities in an active market, and are classified as Level 1 assets in the fair value hierarchy.

We also hold Community Reinvestment Act equity securities that are valued using quoted market prices for identical equity securities in an inactive market that we classify as Level 2 assets in the fair value hierarchy.

Within the investment securities portfolio, we hold equity securities that 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.

Some of these equity securities are valued using quoted market prices for identical equity securities in an active market and are classified as Level 1 assets in the fair value hierarchy and others are traded in less active markets and are classified as Level 2 assets in the fair value hierarchy.

The fair value of our U.S.

8 unchanged sentences

Foreign currency forward contracts are valued based upon quoted market prices obtained from independent pricing services for similar derivative contracts.

As such, these financial instruments are characterized as Level 2 assets and liabilities in the fair

value hierarchy.

As such, these financial instruments are characterized as Level 2 assets and liabilities in the fair value hierarchy.

The derivative instruments related to the loans held for sale portfolio include loan purchase commitments and forward sale commitments.

6 unchanged sentences

Derivative Financial Instruments

All contracts that satisfy the definition of a derivative are recorded at fair value in other assets and other liabilities in the consolidated balance sheets.

All contracts that satisfy the definition of a derivative are recorded at fair value in other assets and other liabilities on the consolidated balance sheets.

We record the derivatives on a net basis when a right of offset exists with a single counterparty that is subject to a legally enforceable master netting agreement.

5 unchanged sentences

Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations.

We also enter into foreign currency forward contracts that are not designateed as hedging instruments.

These derivative instruments relate to transactions in which we enter into a contract with a customer to buy or sell a foreign currency at a future date for a specified price while at the same time entering into an offsetting contract with a financial institution to buy or sell the same currency at the same future date for a specified price.

We also enter into foreign currency forward contracts that are not designated as hedging instruments.

same currency at the same future date for a specified price.

These transactions allow our customers to manage their exposure to foreign currency exchange rate fluctuations.

Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative instruments substantially offset each other and do not have a material impact on our results of operations.

As part of our MCA program, we enter into loan purchase commitment contracts with mortgage originators to purchase residential mortgage loans at a future date, as well as forward sales commitment contracts to sell residential mortgage loans or to deliver mortgage-backed securities at a future date.

The objective of these transactions is to mitigate our exposure to interest rate risk associated with the purchase of mortgage loans held for sale.

Any changes in fair value are recorded in gain/(loss) on sale of loans held for sale in the consolidated statements of income and other comprehensive income.

To mitigate exposure to potential impairment losses from adverse changes in the fair value of our residential MSR portfolio, we enter into interest rate derivative contracts, primarily interest rate swap futures and forward sale commitments of mortgage-backed securities.

These derivative instruments are considered highly liquid and can be settled daily, which allows us to dynamically manage our exposure.

The derivative instruments are used to economically hedge the fair value of the residential MSR portfolio impacted by changes in anticipated prepayments resulting from mortgage interest rate movements and are classified as other assets and other liabilities on the consolidated balance sheets.

Any unrealized or realized gains/(losses) related to derivatives economically hedging the residential MSR portfolio are recognized in servicing-related expenses along with changes to the MSR valuation allowance.

Prior to the transition of our MCA program to a third party in 2021, we entered into loan purchase commitment contracts with mortgage originators to purchase residential mortgage loans at a future date, as well as forward sales commitment contracts to sell residential mortgage loans or to deliver mortgage-backed securities at a future date.

The objective of these transactions was to mitigate our exposure to interest rate risk associated with the purchase of mortgage loans held for sale.

Any changes in fair value were recorded in gain/(loss) on sale of loans held for sale on the consolidated statements of income and other comprehensive income.

Prior to the sale of our portfolio of MSRs to a third party in 2021, we entered into interest rate derivative contracts, primarily interest rate swap futures and forward sale commitments of mortgage-backed securities, in order to mitigate exposure to potential impairment losses from adverse changes in the fair value of our residential MSR portfolio.

These derivative instruments were considered highly liquid and could be settled daily, which allowed us to dynamically manage our exposure.

The derivative instruments were used to economically hedge the fair value of the residential MSR portfolio impacted by changes in anticipated prepayments resulting from mortgage interest rate movements and were classified as other assets and other liabilities on the consolidated balance sheets.

Any unrealized or realized gains/(losses) related to derivatives economically hedging the residential MSR portfolio were recognized in servicing-related expenses along with changes to the MSR valuation allowance.

Segment Reporting

We have determined that all of our lending divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting , since all offer similar products and services, operate with similar processes, have similar customers and are collectively reviewed by the chief operating decision maker.

We have determined that all of our lending divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting , as our current operating model is structured whereby divisions and subsidiaries serve a similar base of primarily commercial clients utilizing a bank-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the chief operating decision maker.

(2) Earnings Per Share

1 unchanged sentence

Year ended December 31,

(in thousands except per share data) 2020 2019 2018

(in thousands except share and per share data) 2021 2020 2019

Net income $ 253,939 $ 66,289 $ 312,015

3 unchanged sentences

Effect of employee stock-based awards(1) 560,314 152,653 132,904

Effect of warrants to purchase common stock — — 117,895

Denominator for dilutive earnings per share—adjusted weighted average shares and assumed conversions 51,140,974 50,582,979 50,419,204

12 unchanged sentences

Tax-exempt asset-backed securities 170,626 9,407 — 180,033

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

CRT securities 14,713 — ( 2,867 ) 11,846

Total $ 3,598,600 $ 9,563 $ ( 69,962 ) $ 3,538,201

December 31, 2020

government agency securities $ 125,000 $ 1 $ ( 1,412 ) $ 123,589

Residential mortgage-backed securities 2,818,518 11,566 ( 1,128 ) 2,828,956

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

Credit risk asset-backed securities 14,713 — ( 2,749 ) 11,964

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

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

(1) Excludes accrued interest receivable of $ 6.0 million and $ 1.6 million at December 31, 2020 and 2019, respectively, that is recorded in accrued interest receivable and other assets.

(1) Excludes accrued interest receivable of $ 6.6 million and $ 6.0 million at December 31, 2021 and 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:

(in thousands, except percentage data) Less Than

(dollars in thousands) Less Than

One Year After One

22 unchanged sentences

December 31, 2020

government agency securities:(1)

Amortized cost $ — $ — $ 125,000 $ — $ 125,000

Estimated fair value — — 123,589 — 123,589

Weighted average yield(3) — % — % 1.13 % — % 1.13 %

Residential mortgage-backed securities:(1)

25 unchanged sentences

December 31, 2020

government agency securities $ 98,588 $ ( 1,412 ) $ — $ — $ 98,588 $ ( 1,412 )

Residential mortgage-backed securities 354,387 ( 1,128 ) — — 354,387 ( 1,128 )

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

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

At December 31, 2021, we had 119 securities in an unrealized loss position, comprised of five U.S.

government agency securities, 112 residential mortgage-backed securities and two CRT securities .

Based upon our December 31, 2021 review of securities with unrealized losses we have determined that all losses resulted from factors not deemed credit-related.

4 unchanged sentences

Equity Securities

Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan.

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 December 31, 2021 and December 31, 2020, we had $ 45.6 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 and included in other non-interest income in the consolidated statements of income:

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

Year Ended December 31,

11 unchanged sentences

Gross loans held for investment(2) 22,871,961 24,501,830

Deferred income (net of direct origination costs) ( 70,970 ) ( 90,380 )

Unearned income (net of direct origination costs) ( 65,007 ) ( 70,970 )

Allowance for credit losses on loans ( 211,866 ) ( 254,615 )

Total loans held for investment, net(2) $ 22,595,088 $ 24,176,245

(1) Balances at December 31, 2020 and December 31, 2019 are stated net of $ 1.2 billion and $ 682.7 million of participations sold, respectively.

(2) Excludes accrued interest receivable of $ 56.5 million and $ 63.4 million at December 31, 2020 and December 31, 2019, respectively, that is recorded in accrued interest receivable and other assets.

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

(1) Balances at December 31, 2021 and December 31, 2020 are stated net of $ 1.0 billion and $ 1.2 billion of participations sold, respectively.

(2) Excludes accrued interest receivable of $ 50.3 million and $ 56.5 million at December 31, 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

35 unchanged sentences

Total loans held for investment $ 2,431,199 $ 4,606,457 $ 2,098,354 $ 1,602,034 $ 866,577 $ 5,939,419 $ 5,205,040 $ 122,881 $ 22,871,961

(in thousands) 2020 2019 2018 2017 2016 2015 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total

December 31, 2020

(1-7) Pass $ 1,259,949 $ 2,816,425 $ 543,438 $ 374,455 $ 192,060 $ 213,212 $ 3,020,353 $ 40,253 $ 8,460,145

(8) Special mention 2,664 115,015 38,751 26,423 1,983 290 19,971 22,797 227,894

(9) Substandard - accruing 15,773 15,854 18,068 32,241 15,297 19,639 22,932 1,641 141,445

(9+) Non-accrual 1,820 8,360 377 1,292 802 15,157 3,836 452 32,096

Total commercial $ 1,280,206 $ 2,955,654 $ 600,634 $ 434,411 $ 210,142 $ 248,298 $ 3,067,092 $ 65,143 $ 8,861,580

(1-7) Pass $ — $ 12,020 $ 7,598 $ 26,931 $ — $ 23,750 $ 553,970 $ — $ 624,269

(8) Special mention — — — — — 13,358 76,866 — 90,224

(9) Substandard - accruing — — — — — — — — —

(9+) Non-accrual — — — 5,705 1,972 8,009 36,038 — 51,724

Total energy $ — $ 12,020 $ 7,598 $ 32,636 $ 1,972 $ 45,117 $ 666,874 $ — $ 766,217

Mortgage finance

(1-7) Pass $ 755,309 $ 1,063,641 $ 821,122 $ 483,436 $ 106,013 $ 5,849,888 $ — $ — $ 9,079,409

(8) Special mention — — — — — — — — —

(9) Substandard - accruing — — — — — — — — —

(9+) Non-accrual — — — — — — — — —

Total mortgage finance $ 755,309 $ 1,063,641 $ 821,122 $ 483,436 $ 106,013 $ 5,849,888 $ — $ — $ 9,079,409

(1-7) Pass $ 352,688 $ 892,831 $ 923,762 $ 444,587 $ 208,426 $ 451,283 $ 62,336 $ 61,133 $ 3,397,046

(8) Special mention 3,475 11,170 6,485 88,633 11,153 17,623 — 1,247 139,786

(9) Substandard - accruing — 327 47,708 11,601 32,645 30,766 — 15,940 138,987

(9+) Non-accrual — — — — 5,749 4,852 — — 10,601

(1-7) Pass 162,397 60,077 65,271 3,727 5,888 8,483 551,703 — 857,546

(8) Special mention — 353 — — — — — — 353

(9) Substandard - accruing — — — — — — — — —

(9+) Non-accrual — — — — — — — — —

(1-7) Pass 190,995 150,787 119,696 120,817 82,465 113,105 16,630 39,129 833,624

(8) Special mention — 6,700 2,240 — 1,843 7,195 — 1,018 18,996

(9) Substandard - accruing — — 2,567 14,452 3,301 14,453 — — 34,773

(9+) Non-accrual — — — 927 5,524 6,403 — 14,496 27,350

Secured by 1-4 family

(1-7) Pass 58,515 63,031 46,623 54,096 72,527 31,880 4,697 — 331,369

(8) Special mention 646 — — 635 — 1,768 — — 3,049

(9) Substandard - accruing — — — 817 — 109 — — 926

(9+) Non-accrual — — — — — 218 — — 218

Total real estate $ 768,716 $ 1,185,276 $ 1,214,352 $ 740,292 $ 429,521 $ 688,138 $ 635,366 $ 132,963 $ 5,794,624

Total loans held for investment $ 2,804,231 $ 5,216,591 $ 2,643,706 $ 1,690,775 $ 747,648 $ 6,831,441 $ 4,369,332 $ 198,106 $ 24,501,830

The following table details activity in the allowance for credit losses on loans.

1 unchanged sentence

(in thousands) Commercial Energy Mortgage

Estate Additional Qualitative Reserve Total

Year ended December 31, 2021

Beginning balance $ 73,061 $ 84,064 $ 4,699 $ 92,791 $ 254,615

Impact of CECL adoptions ( 15,740 ) 24,154 2,031 ( 1,860 ) — 8,585

Provision for credit losses on loans 36,733 ( 27,045 ) 1,384 ( 40,903 ) ( 29,831 )

5 unchanged sentences

Beginning balance $ 102,254 $ 60,253 $ 2,265 $ 30,275 $ 195,047

Impact of CECL adoptions ( 15,740 ) 24,154 2,031 ( 1,860 ) 8,585

Provision for credit losses on loans 58,630 126,180 403 64,556 249,769

3 unchanged sentences

Ending balance $ 73,061 $ 84,064 $ 4,699 $ 92,791 $ 254,615

In the first quarter of 2020, we adopted ASU 2016-13, which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model.

Upon adoption, the allowance for credit losses was increased by $ 9.1 million, which included a $ 563,000 increase to the allowance for off-balance sheet credit losses, with no impact to the consolidated statement of income.

We recorded a $ 258.0 million provision for credit losses for the year ended December 31, 2020, compared to $ 75.0 million for the same period of 2019.

We recorded a negative $ 30.0 million provision for credit losses for the year ended December 31, 2021, compared to a $ 258.0 million provision for the same period of 2020.

The decreased provision resulted primarily from decreases in charge-offs and criticized loans during 2021, as well as improvement in the economic outlook as the economy recovered from the impacts of the COVID-19 pandemic during 2021.

We recorded $ 12.9 million in net charge-offs during the year ended December 31, 2021, compared to $ 198.8 million during the same period of 2020.

Criticized loans total $ 918.4 million at December 31, 2020 and $ 584.1 million at December 31, 2019.

Criticized loan levels have increased during 2020 as compared to 2019 due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic or that are in categories that are expected to be more significantly impacted by COVID-19.

Criticized loans totaled $ 582.9 million at December 31, 2021 and $ 918.4 million at December 31, 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) Business Assets Real Property Oil/Gas Mineral Reserves Rolling Stock Total

December 31, 2020

Commercial $ 3,361 $ — $ — $ 774 $ 4,135

Energy — — 5,156 — 5,156

CRE — 4,619 — — 4,619

Other — 11,372 — — 11,372

Total collateral-dependent loans held for investment

$ 3,361 $ 15,991 $ 5,156 $ 774 $ 25,282

There were no loans that met these criteria at December 31, 2021.

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

16 unchanged sentences

(2) As of December 31, 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 year ended December 31, 2020.

Accrued interest of $ 1.3 million was reversed during the year ended December 31, 2020.

On January 1, 2020, the date we adopted CECL, non-accrual loans totaled $ 225.4 million, and included $ 88.6 million in commercial loans, $ 125.0 million in energy loans, $ 9.4 million in CRE loans, $ 881,000 in real estate-other loans and $ 1.4 million in secured by 1-4 family loans.

Additionally, no interest income was recognized on non-accrual loans for the years ended December 31, 2021 and 2020.

Accrued interest of $ 1.2 million and $ 1.3 million was reversed during the years ended December 31, 2021 and 2020, respectively.

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

1 unchanged sentence

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

The following table details the recorded investment at December 31, 2020 and 2019 of loans that have been restructured during the years ended December 31, 2020 and 2019 by type of modification:

We did not have any loans that were restructured during the year ended December 31, 2021.

The following table details the recorded investment at December 31, 2020 of loans that were restructured during the year ended December 31, 2020 by type of modification:

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

Year Ended December 31, 2020

Commercial 2 $ 7,390 2 $ 14,496 4 $ 21,886

Energy loans 1 5,705 3 12,935 4 18,640

Total 3 $ 13,095 5 $ 27,431 $ 8 $ 40,526

(dollars in thousands) Number of Contracts Balance at Period End Number of Contracts Balance at Period End Number of Contracts Balance at Period End

Year Ended December 31, 2020

Commercial 2 $ 7,390 2 $ 14,496 $ 4 $ 21,886

Energy loans 1 3,935 — — 1 3,935

Energy 1 5,705 3 12,935 4 18,640

Total 3 $ 13,095 5 $ 27,431 $ 8 $ 40,526

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 December 31, 2020 and 2019, 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 December 31, 2020 or 2019.

The restructuring of these loans did not have a significant impact on our allowance for credit losses at December 31, 2021 or 2020.

As of December 31, 2021 and 2020, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.

In response to the COVID-19 pandemic, we implemented a short-term modification program in late March 2020 to provide temporary payment relief to borrowers who meet the program's qualifications.

This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis.

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan.

Through December 31, 2020, we granted temporary modifications on 483 loans with a total outstanding balance of $ 1.3 billion, resulting in the deferral of $ 7.7 million in interest payments.

As of December 31, 2020, 48 loans with a total outstanding balance of $ 90.2 million remain on deferral, of which $ 50.7 million have been granted a second deferral.

Under the applicable guidance, none of these loans were considered restructured as of December 31, 2020.

(5) Certain Transfers of Financial Assets

On April 20, 2021, we entered into an agreement to sell our portfolio of MSRs and to transition the MCA program to a third-party.

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

Transition activities began immediately following the execution of the agreement and were complete prior to December 31, 2021.

We sold the remaining MSR balance of $ 1.2 million, which represented 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 were completed on October 1, 2021, at which time all remaining MSR hedge positions were closed.

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

11 unchanged sentences

Loans held for sale at fair value $ 8,123 $ 283,165

(1) Includes $ 44.1 million and $ 5.8 million of loans held for sale that are carried at lower of cost or market as of December 31, 2020 and 2019, respectively, as well as $ 299,000 as of December 31, 2018.

At December 31, 2020, we had $ 7.0 million in 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 December 31, 2019 there were no non-accrual loans held for sale.

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

No loans held for sale were on non-accrual as of December 31, 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 December 31, 2021 and December 31, 2020, we had $ 4.0 million and $ 16.7 million, respectively, in loans held for sale that were 90 days or more past due.

The $ 16.7 million in loans held for sale that were 90 days or more past due at December 31, 2020 included $ 3.3 million of loans guaranteed by U.S.

The $ 4.0 million in loans held for sale that were 90 days or more past due at December 31, 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.

Also included in the $ 16.7 million were $ 13.4 million in 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.

At December 31, 2019, $ 6.0 million of the $ 8.2

million in loans held for sale that were 90 days or more past due were 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 and $ 1.9 million were loans that we have the unilateral right, but not the obligation, to repurchase if defined delinquent criteria are met.

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

At December 31, 2020, $ 3.3 million of the $ 16.7 million in loans held for sale that were 90 days or more past due were 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 and $ 13.4 million were loans, pursuant to Ginnie Mae servicing guidelines, that we have the unilateral right, but not the obligation, to repurchase if defined delinquent criteria are met, and therefore must record as held for sale on our balance sheet regardless of whether the repurchase option has been exercised.

Prior to the transition of the MCA program to a third party, we retained the right to service loans after they are sold, creating MSRs which were recorded as assets on our consolidated balance sheets.

A summary of MSR activity is as follows:

4 unchanged sentences

Amortization ( 18,663 ) ( 38,994 )

Direct write-down ( 279 ) —

Sales ( 128,439 ) —

Balance, end of period $ — $ 131,391

5 unchanged sentences

MSRs, fair value $ — $ 105,424

At December 31, 2020 and 2019, our servicing portfolio of residential mortgage loans had an outstanding principal balance of $ 13.8 billion and $ 6.7 billion, respectively.

In connection with the servicing of these loans, we hold segregated non-interested-bearing deposit accounts in the name of investors representing escrow funds for taxes and insurance, as well as collections in transit to the investors.

These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were $ 152.6 million at December 31, 2020 and $ 63.7 million at December 31, 2019.

At December 31, 2020, the estimated fair value of MSRs was negatively impacted by the increased prepayment speeds from continued low interest rates, which resulted in an impairment charge of $ 20.2 million being recorded for the year ended December 31, 2020, compared to a $ 5.8 million impairment charge for the year ended December 31, 2019.

To mitigate exposure to potential impairment charges from adverse changes in the fair value of our residential MSR portfolio, we enter into certain derivative contracts as are disclosed in Note 17 - Derivative Financial Instruments.

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

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

These escrow funds were 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 $ 152.6 million at December 31, 2020.

At December 31, 2020, our servicing portfolio of MSRs was comprised of residential mortgage loans with an outstanding principal balance of $ 13.8 billion.

At December 31, 2021, our entire portfolio of MSRs had been sold.

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.

Based on the 2021 sales of our MSR portfolio in its entirety, only December 31, 2020 data is provided in the tables below.

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) 2020

6 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 $ 621,000 and $ 3.6 million at December 31, 2020 and December 31, 2019, respectively, and is recorded in other liabilities in the consolidated

balance sheets.

$ 8.4 million in make-whole obligation payments were made during the year ended December 31, 2020 compared to $ 9.0 million in 2019.

Our leases relate primarily to office space and bank branches with remaining lease terms of generally 1 to 13 years.

At December 31, 2020, operating lease ROU assets and liabilities were $ 67.0 million and $ 82.5 million, respectively, compared to $ 80.0 million and $ 95.9 million, respectively, at December 31, 2019.

We do not currently have any significant finance leases in which we are the lessee.

Our estimated exposure related to those agreements totaled $ 400,000 and $ 621,000 at December 31, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets.

$ 92,000 in make-whole obligation payments were made during the year ended December 31, 2021 compared to $ 8.4 million in 2020.

The following table presents ROU assets and leases liabilities:

(in thousands) 2021 2020

Finance leases $ 259 $ —

Operating leases 55,330 66,968

Total $ 55,589 $ 66,968

Leases liabilities

Finance leases $ 259 $ —

Operating leases 69,184 82,529

Total $ 69,443 $ 82,529

As of December 31, 2021, additional finance leases related to computer equipment that had not yet commenced totaled $ 2.6 million.

These leases will commence in the first quarter of 2022.

As of December 31, 2021, operating leases had remaining lease terms of generally 1 to 11 years, while finance leases had remaining terms of generally 3 years.

The table below summarizes our net lease cost:

1 unchanged sentence

(in thousands) 2021 2020

Finance lease cost:

Amortization of ROU assets $ 32 $ —

Interest on lease liabilities 1 —

Operating lease cost 15,608 15,544

4 unchanged sentences

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from finance leases $ 1 $ —

Operating cash flows from operating leases 17,666 16,568

Non-cash changes in ROU assets $ 765 $ 98,369

Non-cash changes in lease liabilities(1) $ 784 $ 108,189

(1) Includes $ 833,000 and $ 87.9 million in lease liabilities from new ROU assets obtained during the years ended December 31, 2020 and December 31, 2019, respectively.

The table below summarizes other information related to our operating leases:

Financing cash flows from finance leases 32 —

ROU assets obtained in exchange for new finance leases 291 —

ROU assets obtained in exchange for new operating leases 2,109 833

The table below summarizes other information related to our operating and finance leases:

Weighted-average remaining lease term - finance leases, in years 2.7 —

Weighted-average remaining lease term - operating leases, in years 5.9 6.5

Weighted-average discount rate - finance leases 0.77 % — %

Weighted-average discount rate - operating leases 2.30 % 2.74 %

The table below summarizes the maturity of remaining lease liabilities:

(in thousands) December 31, 2020

The table below summarizes the maturity of remaining combined operating and finance lease liabilities as of December 31, 2021:

(in thousands) Finance Leases Operating Leases Total

2022 $ 98 $ 17,168 $ 17,266

2023 98 17,205 17,303

2024 66 12,063 12,129

2025 — 5,610 5,610

2026 — 5,473 5,473

2027 and thereafter — 17,442 17,442

4 unchanged sentences

Goodwill and other intangible assets are summarized as follows:

(in thousands) Gross Goodwill and Intangible Assets Accumulated

Amortization Net Goodwill and Intangible Assets

(in thousands) Goodwill and Intangible Assets Accumulated

Amortization Goodwill and Intangible Assets, Net

December 31, 2021

19 unchanged sentences

Total premises and equipment, net $ 20,901 $ 24,546

Depreciation expense for the above premises and equipment was approximately $ 9.5 million, $ 9.2 million and $ 9.0 million in 2020, 2019 and 2018, respectively.

Depreciation and amortization expense for the above premises and equipment was approximately $ 8.1 million, $ 9.5 million and $ 9.2 million in 2021, 2020 and 2019, respectively.

Deposits are summarized as follows:

12 unchanged sentences

Total $ 1,198,706

At December 31, 2020 and 2019, interest-bearing time deposits of $250,000 or more were approximately $ 386.9 million and $ 347.7 million, respectively.

At December 31, 2021 and 2020, interest-bearing time deposits of greater than $250,000 were approximately $ 186.0 million and $ 375.7 million, respectively.

(10) Short-Term and Other Borrowings

The following table summarizes our short-term and other borrowings:

(dollar amounts in thousands) Federal Funds Purchased Customer Repurchase Agreements FHLB Borrowings

December 31, 2020

Amount outstanding at year-end $ 107,600 $ 4,151 $ 3,000,000

Interest rate at year-end 0.15 % 0.35 % 0.46 %

Average balance outstanding during the year $ 207,121 $ 5,563 $ 2,902,732

Weighted-average interest rate during the year 0.52 % 0.47 % 0.72 %

Maximum month-end outstanding during the year $ 300,430 $ 8,314 $ 4,900,000

(dollars in thousands) Federal Funds Purchased Customer Repurchase Agreements FHLB Borrowings

December 31, 2021

20 unchanged sentences

(1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and also certain pledged securities.

(2) Unsecured revolving, non-amortizing line of credit with maturity date of December 14, 2021.

(2) Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2023.

Proceeds may be used for general corporate purposes, including funding regulatory capital infusions into the Bank.

The loan agreement contains customary financial covenants and restrictions.

No borrowings were made against this line of credit during 2020, 2019, or 2018.

No borrowings were made against this line of credit during 2021, 2020.

Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of our existing indebtedness, we or the Bank may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding our debt or capital structure.

For example we and the Bank periodically evaluate and may engage in liability management transactions, including repurchases or redemptions of outstanding subordinated notes, which may be funded by the issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to actively manage our debt maturity profile and interest cost.

(11) 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 year ended December 31, 2021, the combined weighted-average interest rate on the trust preferred subordinated debentures was 2.13 %, compared to 2.82 % for 2020.

As of December 31, 2021, the details of the trust preferred subordinated debentures are summarized below:

(dollar amounts in thousands) Texas Capital

(dollars in thousands) Texas Capital

Statutory Trust I Texas Capital

15 unchanged sentences

The indenture governing the notes contains customary covenants and restrictions.

These notes were redeemed on June 21, 2021.

On January 31, 2014, the Bank issued $ 175.0 million of subordinated notes in an offering to institutional investors exempt from registration under Section 3(a)(2) of the Securities Act of 1933 and 12 C.F.R.

2 unchanged sentences

The notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations.

At the beginning of each of the last five years of the life of the notes, the amount that is eligible to be included in Tier 2 capital is reduced by 20% of the original amount of the notes (net of redemptions).

In 2021, the amount of the notes that qualify as Tier 2 capital has been reduced by 20%.

On March 9, 2021, the Bank issued and sold $ 275.0 million of senior unsecured credit-linked notes.

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 year ended December 31, 2021, the weighted-average interest rate on the notes was 5.56 %.

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.

In the event of a failure to pay by the relevant mortgage originator, insolvency of the relevant mortgage originator, or restructuring of such loans that results in a loss on a loan included in the reference pool, the principal balance of the notes will be reduced to the extent of such loss and

recognized as a debt extinguishment gain within non-interest income on our consolidated statements of income and other comprehensive income.

The purchasers of the notes have the option to acquire the underlying mortgage loan collateralizing the reference warehouse line of credit in lieu of a principal reduction on the notes.

Losses on our warehouse lines of credit have not generally been significant.

The notes are recorded in long-term debt on our consolidated balance sheets and accounted for at amortized cost.

On May 6, 2021, the Company issued and sold $ 375.0 million of subordinated notes.

The notes mature in May 2031 and bear interest at a fixed rate of 4.00 % per annum, payable semi-annually.

Net proceeds from the transaction were $ 370.7 million providing additional capital to be used for general corporate purposes.

A portion of the proceeds were also used to redeem the Company’s 6.50 % fixed rate subordinated notes, as is described above.

The indenture governing the notes contains customary covenants and restrictions.

(12) Financial Instruments with Off-Balance Sheet Risk

The table below presents our financial instruments with off-balance sheet risk, as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments:

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

Year Ended December 31,

4 unchanged sentences

Ending balance of allowance for off-balance sheet credit losses $ 17,265 $ 17,434

(in thousands) 2021 2020

Commitments to extend credit - period end balance $ 9,445,763 $ 8,530,453

8 unchanged sentences

Additionally, the Basel III Capital Rules require that we maintain a 2.5 % capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements.

A financial institution with a conservation buffer of less than the required amount is subject to

limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP.

4 unchanged sentences

Management believes, as of December 31, 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 December 31, 2020 and 2019.

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.

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

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

2 unchanged sentences

The table below summarizes our actual and required capital ratios under the Basel III Capital Rules.

Actual Minimum capital Required - Basel III Fully Phased-In Required to be Considered Well Capitalized

The ratios presented below include the effects of our election to utilize the five-year CECL transition described above.

Actual Minimum Capital Required(2) Capital Required to be Well Capitalized

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

3 unchanged sentences

Total capital (to risk-weighted assets)

Company 3,498,737 12.09 % 3,039,600 10.50 % N/A N/A

Company 4,085,540 15.32 % 2,799,666 10.50 % 2,666,348 10.00 %

Bank 3,578,014 13.42 % 2,799,455 10.50 % 2,666,148 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 3,359,785 12.60 % 2,266,396 8.50 % 1,599,809 6.00 %

Bank 3,173,170 11.90 % 2,266,225 8.50 % 2,132,918 8.00 %

6 unchanged sentences

Total capital (to risk-weighted assets)

Company 3,398,345 11.37 % 3,137,926 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 2,912,529 9.75 % 2,540,226 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 %

3 unchanged sentences

(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules;

however, the Federal Reserve 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.

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

At December 31, 2020, our mortgage finance loans were $ 9.1 billion compared to the average for the quarter ended December 31, 2020 of $ 9.6 billion.

As CET1, Tier 1 and total capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted (excluding MCA mortgage loans held for sale, which receive lower risk weights), the period-end fluctuation in these balances can significantly impact our reported ratios.

Due to the actual risk profile and liquidity of this asset class, we manage capital allocated to mortgage finance loans based on changing trends in average balances and do not believe that the period-end balance is representative of risk characteristics that would justify higher allocations.

However, we monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels.

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.

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 balance for any period.

As CET1, Tier 1 and total capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted (excluding MCA loans held for sale, which receive lower risk weights), the period-end fluctuation in these balances can significantly impact our reported ratios.

Due to the actual risk profile and liquidity of this asset class, we do not believe that the period-end balance is representative of risk characteristics that would justify higher allocations, and while we manage capital allocated to mortgage finance loans based on changing trends in average balances, we do monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels.

To better align the actual risk profile of this asset class to its required capital allocation, the Bank issued and sold senior unsecured credit-

linked notes in the first quarter of 2021 that 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.

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, 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 2021, 2020 or 2019.

On March 15, 2020, to encourage banks to lend all available funds during the COVID-19 pandemic, the Federal Reserve announced it had reduced the reserve requirement ratio to zero effective March 26, 2020 and continuing through December 31, 2020.

The required reserve balances at the Federal Reserve at December 31, 2019 was approximately $ 283.4 million.

We are required to maintain reserve balances in cash and on deposit with the Federal Reserve based on a percentage of transactional deposits;

however, the Federal Reserve reduced the reserve requirement ratio to zero effective March 26, 2020, therefore the total requirement was zero at both December 31, 2021 and 2020.

(14) Stock-Based Compensation and Employee Benefits

8 unchanged sentences

The plan allows us to make discretionary contributions on behalf of a participant as well as matching contributions.

We made matching contributions of $ 1.0 million in each of 2020, 2019 and 2018.

We made matching contributions of $ 274,000 in 2021 and $ 1.0 million in each of 2020 and 2019.

All participant contributions to the plan and any related earnings are immediately vested and may be withdrawn upon the participant's separation from service, death or disability or upon a date specified by the participant.

Salary deferrals are recorded as salaries and employee benefits expense in the consolidated statements of income with an offsetting payable to participants in other liabilities on the consolidated balance sheets.

Salary deferrals are recorded as salaries and employee benefits expense on the consolidated statements of income with an offsetting payable to participants in other liabilities on the consolidated balance sheets.

We have an Employee Stock Purchase Plan (“ESPP”).

4 unchanged sentences

In 2006, stockholders approved the ESPP, which allocated 400,000 shares for purchase.

As of December 31, 2020, 2019 and 2018, 155,933 , 155,933 and 143,348 shares had been purchased on behalf of employees under the ESPP.

As of December 31, 2021, 2020 and 2019, 164,033 , 155,933 and 155,933 shares, respectively, had been purchased on behalf of employees under the ESPP.

We have stock-based compensation plans under which equity-based compensation grants are made by the board of directors, or its designated committee.

Grants are subject to vesting requirements.

Under the plans, we may grant, among other things, non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), cash-settled performance units or any combination thereof to employees and non-employee directors.

A total of 2,550,000 shares are authorized for grant under the plans.

Total shares remaining available for grant under the plans at December 31, 2020 were 1,203,294 .

Grants are subject to vesting requirements and may be settled in shares of common stock or paid in cash.

Under the plans, we may grant, among other things, non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), performance awards or any combination thereof to employees and non-employee directors.

A total of 2,550,000 shares are authorized for grant under the current plan.

Total shares remaining available for grant under the current plan at December 31, 2021 were 764,496 .

A summary of our SAR activity and related information is as follows.

2 unchanged sentences

SARs Weighted Average Exercise Price SARs Weighted Average Exercise Price SARs Weighted Average Exercise Price

SARs outstanding at beginning of year 21,200 $ 33.95 41,350 $ 29.13 74,363 $ 30.12

SARs exercised ( 8,800 ) 20.52 ( 20,150 ) 24.07 ( 33,013 ) 31.35

SARs outstanding at year-end 12,400 $ 43.48 21,200 $ 33.95 41,350 $ 29.13

SARs vested and exercisable at year-end 12,400 $ 43.48 21,200 $ 33.95 39,750 $ 27.81

Weighted average remaining contractual life of SARs vested (in years) 2.26 2.14 2.33

Weighted average remaining contractual life of SARs outstanding (in years) 2.26 2.14 2.44

Outstanding at beginning of year 12,400 $ 43.48 21,200 $ 33.95 41,350 $ 29.13

Exercised ( 9,400 ) 43.24 ( 8,800 ) 20.52 ( 20,150 ) 24.07

Outstanding at year-end 3,000 $ 44.20 12,400 $ 43.48 21,200 $ 33.95

Vested and exercisable at year-end 3,000 $ 44.20 12,400 $ 43.48 21,200 $ 33.95

Weighted average remaining contractual life of vested (in years) 1.66 2.26 2.14

Weighted average remaining contractual life of outstanding (in years) 1.66 2.26 2.14

Compensation expense $ — $ — $ 6,000

Unrecognized compensation expense $ — $ — $ —

Weighted average period over which unrecognized compensation expense is expected to be recognized (in years) 0.00 0.00 0.17

Fair value of shares vested during the year $ — $ — $ 37,000

Intrinsic value of SARs exercised $ 294,000 $ 724,000 $ 1,919,000

Intrinsic value of exercised $ 302,000 $ 294,000 $ 724,000

A summary of our RSU activity and related information is as follows.

6 unchanged sentences

Grant Date Fair Value

RSUs outstanding at beginning of year 558,312 $ 64.95 349,533 $ 69.11 423,732 $ 60.01

RSUs granted 631,092 39.37 386,913 59.28 95,891 88.07

RSUs vested ( 171,494 ) 65.17 ( 140,666 ) 59.97 ( 121,507 ) 54.97

RSUs forfeited ( 62,316 ) 56.92 ( 37,468 ) 62.73 ( 48,583 ) 63.60

RSUs outstanding at year-end 955,594 $ 48.76 558,312 $ 64.95 349,533 $ 69.11

Outstanding at beginning of year 955,594 $ 48.76 558,312 $ 64.95 349,533 $ 69.11

Granted 677,472 66.31 631,092 39.37 386,913 59.28

Vested ( 187,530 ) 58.82 ( 171,494 ) 65.17 ( 140,666 ) 59.97

Forfeited ( 238,674 ) 53.76 ( 62,316 ) 56.92 ( 37,468 ) 62.73

Outstanding at year-end 1,206,862 $ 56.06 955,594 $ 48.76 558,312 $ 64.95

Compensation expense $ 30,060,000 $ 15,655,000 $ 11,733,000

Unrecognized compensation expense $ 32,525,000 $ 29,146,000 $ 25,305,000

Weighted average period over which unrecognized compensation expense is expected to be recognized (in years) 2.83 3.09 2.90

New non-employee directors receive grants of restricted common stock as to which restrictions lapse ratably over a period of three years .

Weighted average years over which unrecognized compensation expense is expected to be recognized 2.79 2.83 3.09

From time to time the Company has made grants of restricted common stock to various non-employee directors as to which restrictions lapse ratably over a period of three years .

Compensation expense for these grants was $ 1,000 , $ 26,000 and $ 36,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

Total compensation cost for all share-based arrangements was $ 15.7 million, $ 11.8 million and $ 9.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash-settled units totaling 59,285 were outstanding at December 31, 2020, all of which are time-based and vest ratably over a period of four years .

We granted 138,773 cash-settled units in 2018.

No grants were made in 2020 or 2019.

As of December 31, 2021, there were no remaining restrictions on any grants of restricted common stock.

Total compensation cost for grants of stock-settled units was $ 30.1 million, $ 15.7 million and $ 11.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Cash-settled RSUs totaling 13,131 were outstanding at December 31, 2021, all of which are time-based and vest ratably over a period of four years .

No grants of cash-settled RSUs were made in 2021, 2020 or 2019.

Since these units have a cash payout feature, they are accounted for under the liability method with related expense based on the stock price at period end.

8 unchanged sentences

Federal ( 19,020 ) ( 7,964 ) 10,796

State ( 1,233 ) — —

Total ( 20,253 ) ( 7,964 ) 10,796

7 unchanged sentences

2021 2020 2019

Amount Rate Amount Rate Amount Rate

(dollars in thousands) Amount Rate Amount Rate Amount Rate

statutory rate $ 70,992 21 % $ 19,309 21 % $ 85,504 21 %

5 unchanged sentences

Other 1,737 1 % 3,176 4 % ( 343 ) — %

Effective tax rate $ 25,657 28 % $ 84,295 21 % $ 79,964 21 %

Total $ 84,116 25 % $ 25,657 28 % $ 84,295 21 %

Our 2020 effective tax rate was significantly impacted by the lower level of income before income taxes experienced in 2020.

The tax effect of unrealized gains and losses on available-for-sale debt securities is recorded to other comprehensive income and is not a component of income tax expense/(benefit).

At December 31, 2020, 2019 and 2018, we had unrecognized tax benefits of $ 1.1 million, $ 1.3 million and $ 1.6 million, respectively.

At December 31, 2021, 2020 and 2019, we had unrecognized tax benefits of $ 722,000 , $ 1.1 million and $ 1.3 million, respectively.

We are no longer subject to U.S.

3 unchanged sentences

In connection with our adoption of CECL, a $ 2.0 million increase to the deferred tax asset associated with our allowance for credit losses was recorded on January 1, 2020.

Our net deferred tax assets are included in other assets in the consolidated balance sheets.

(in thousands) 2021 2020

6 unchanged sentences

Non-qualified deferred compensation 6,705 5,795

Unrealized loss on securities 12,684 —

Other 1,671 3,136

12 unchanged sentences

We determine the fair market values of our assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in ASC 820.

See Note 1 - Operations and Summary of Significant Accounting Policies for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company is estimating its fair value disclosures for financial statements.

See Note 1 - Operations and Summary of Significant Accounting Policies for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial statements.

Assets and liabilities measured at fair value are as follows:

9 unchanged sentences

Loans held for sale(3) — 465 7,658

Loans held for investment(4) — — 21,209

Derivative assets(5) — 37,788 —

3 unchanged sentences

Available-for-sale debt securities:(1)

government agency securities $ — $ 123,589 $ —

Residential mortgage-backed securities — 2,828,956 —

8 unchanged sentences

(1) Securities are measured at fair value on a recurring basis, generally monthly, except for tax-exempt asset-backed securities and CRT securities which are measured quarterly.

(2) Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan.

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

(3) Loans held for sale purchased through our MCA program are measured at fair value on a recurring basis, generally monthly.

36 unchanged sentences

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 $ 21.2 million fair value of loans held for investment at December 31, 2020 reported above includes loans held for investment 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.

There were no collateral-dependent loans held for investment reported at fair value at December 31, 2021.

The $ 21.2 million fair value of loans held for investment at December 31, 2020 reported above includes impaired 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.

20 unchanged sentences

Level 2 inputs:

Federal funds purchased 107,600 107,600 132,270 132,270

Customer repurchase agreements 4,151 4,151 9,496 9,496

Federal funds purchased and repurchase agreements 2,832 2,832 111,751 111,751

Other borrowings 2,200,000 2,200,000 3,000,000 3,000,000

Subordinated notes 282,490 291,704 282,129 292,302

Trust preferred subordinated debentures 113,406 113,406 113,406 113,406

Long-term debt 928,738 952,404 395,896 405,110

Derivative liabilities 37,788 37,788 99,255 99,255

3 unchanged sentences

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

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

December 31, 2021 December 31, 2020

21 unchanged sentences

Offsetting derivative assets/liabilities ( 3,228 ) ( 3,228 ) ( 71 ) ( 71 )

Net derivatives included in the consolidated balance sheets $ 102,720 $ 99,255 $ 48,684 $ 51,310

Net derivatives included on the consolidated balance sheets $ 37,788 $ 37,788 $ 102,720 $ 99,255

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

3 unchanged sentences

Received Paid Received Paid

Non-hedging interest rate swaps 3.14 % 1.38 % 3.94 % 3.26 %

Non-hedging interest rate swaps - financial institution counterparties 1.15 % 2.65 % 1.38 % 3.14 %

Non-hedging interest rate swaps - customer counterparties 2.65 % 1.15 % 3.14 % 1.38 %

The weighted-average strike rate for outstanding interest rate caps was 2.54 % at December 31, 2021 and 3.41 % at December 31, 2020.

3 unchanged sentences

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 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.

At December 31, 2021, we had $ 40.3 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 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 9 risk participation agreements where we are a participant bank with a notional amount of $ 119.5 million at December 31, 2020, compared to 12 risk participation agreements having a notional amount of $ 146.7 million at December 31, 2019.

We are party to seven risk participation agreements where we are a participant bank with a notional amount of $ 79.2 million at December 31, 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 $ 2.3 million at December 31, 2021 and $ 6.0 million at December 31, 2020.

4 unchanged sentences

During 2021 and 2020, we have had transactions with our directors, executive officers and their affiliates and our employees.

These transactions were made in the ordinary course of business and include extensions of credit and deposit transactions.

These transactions were made in the ordinary course of business and include extensions of credit and deposit transactions, all made on the same terms as the then prevailing market and credit terms extended to other customers.

The Bank had approximately $ 10.2 million in deposits from related parties, including directors, stockholders and their affiliates at December 31, 2021 and $ 11.6 million at December 31, 2020.

5 unchanged sentences

Cash and cash equivalents $ 438,761 $ 57,472

Loans held for investment (net of unearned income) 7,500 10,500

Loans held for investment — 7,500

Investment in subsidiaries 3,155,954 2,930,843

3 unchanged sentences

Other liabilities $ 3,668 $ 1,320

Subordinated notes 108,816 108,715

Trust preferred subordinated debentures 113,406 113,406

Long-term debt 484,316 222,222

Total liabilities 487,984 223,542

4 unchanged sentences

Treasury stock ( 8 ) ( 8 )

Accumulated other comprehensive income 15,774 8,950

Accumulated other comprehensive income/(loss) ( 47,715 ) 15,774

Total stockholders’ equity 3,198,032 2,861,824

7 unchanged sentences

Total income 13,881 13,901 13,969

Other non-interest income 3 17 7

Interest expense 15,946 10,515 12,342

3 unchanged sentences

Total expense 22,844 19,031 17,931

Income (loss) before income taxes and equity in undistributed income of subsidiary ( 5,130 ) ( 3,962 ) ( 2,705 )

Income tax expense (benefit) ( 1,135 ) ( 861 ) ( 587 )

Income (loss) before equity in undistributed income of subsidiary ( 3,995 ) ( 3,101 ) ( 2,118 )

Loss before income taxes and equity in undistributed income of subsidiary ( 8,963 ) ( 5,130 ) ( 3,962 )

Income tax benefit ( 2,179 ) ( 1,135 ) ( 861 )

Loss before equity in undistributed income of subsidiary ( 6,784 ) ( 3,995 ) ( 3,101 )

Equity in undistributed income of subsidiary 258,539 68,100 312,932

7 unchanged sentences

Net income $ 251,755 $ 64,105 $ 309,831

Adjustments to reconcile net income to net cash used in operating activities:

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

Equity in undistributed income of subsidiary ( 258,539 ) ( 68,100 ) ( 312,932 )

5 unchanged sentences

Net (increase)/decrease in loans held for investment 7,500 3,000 ( 3,000 )

Investments in and advances to subsidiaries — — ( 40,000 )

Net cash provided by/(used in) investing activities 7,500 3,000 ( 3,000 )

Financing Activities

Proceeds from sale of stock related to stock-based awards ( 1,986 ) ( 1,459 ) ( 2,382 )

Costs from issuance of stock related to stock-based awards and warrants ( 3,121 ) ( 1,986 ) ( 1,459 )

Net proceeds from issuance of preferred stock 289,723 — —

Redemption of preferred stock ( 150,000 ) — —

Preferred dividends paid ( 18,721 ) ( 9,750 ) ( 9,750 )

Net cash used in financing activities ( 11,736 ) ( 11,209 ) ( 12,132 )

Net decrease in cash and cash equivalents ( 13,990 ) ( 18,099 ) ( 55,074 )

Redemption of long-term debt ( 111,000 ) — —

Issuance of long-term debt 370,625 — —

Net cash provided by/(used in) financing activities 377,506 ( 11,736 ) ( 11,209 )

Net increase/(decrease) in cash and cash equivalents 381,289 ( 13,990 ) ( 18,099 )

Cash and cash equivalents at beginning of year 57,472 71,462 89,561

Cash and cash equivalents at end of year $ 438,761 $ 57,472 $ 71,462

(20) Material Transactions Affecting Stockholders’ Equity

On March 3, 2021, we completed an issuance of 5.75 % fixed rate non-cumulative perpetual preferred stock, Series B, with a liquidation preference of $ 1,000 per share (equivalent to $ 25 per depositary share) (the “Series B Preferred Stock”) and an issuance and sale of 12,000,000 depositary shares, each representing a 1/40th interest in a share of the Series B Preferred Stock.

Dividends on the Series B Preferred Stock are not cumulative and will be paid when declared by our board of directors to the extent that we have legally available funds to pay dividends.

If declared, dividends will accrue and be payable quarterly, in arrears, on the liquidation preference amount, on a non-cumulative basis, at a rate of 5.75 % per annum.

Holders of preferred stock will not have voting rights, except with respect to certain changes in the terms of the preferred stock, certain dividend non-payments and as otherwise required by applicable law.

Net proceeds from the sale totaled $ 289.7 million, providing additional capital to be used for general corporate purposes.

A portion of the proceeds were also used to redeem, in whole, our 6.50 % non-cumulative perpetual preferred stock Series A, par value $ 0.01 per share, in accordance with its terms.

The redemption of the Series A preferred stock occurred on June 15, 2021.

(21) Quarterly Financial Data (unaudited)

9 unchanged sentences

Non-interest expense 146,649 152,987 149,060 150,316

Income/(loss) before income taxes 83,010 72,176 ( 41,922 ) ( 21,318 )

Income tax expense/(benefit) 22,834 15,060 ( 7,606 ) ( 4,631 )

Net income/(loss) 60,176 57,116 ( 34,316 ) ( 16,687 )

Income before income taxes 88,842 57,328 97,036 94,849

Income tax expense 23,712 13,938 23,555 22,911

Net income 65,130 43,390 73,481 71,938

Preferred stock dividends 4,313 4,312 6,317 3,779

Net income/(loss) available to common stockholders $ 57,739 $ 54,678 $ ( 36,753 ) $ ( 19,125 )

Basic earnings/(loss) per share:

Net income available to common stockholders $ 60,817 $ 39,078 $ 67,164 $ 68,159

Basic earnings per share:

$ 1.20 $ 0.76 $ 1.31 $ 1.33

Diluted earnings/(loss) per share:

Diluted earnings per share:

$ 1.19 $ 0.76 $ 1.31 $ 1.33

8 unchanged sentences

Non-interest expense 150,863 165,741 222,335 165,417

Income before income taxes 80,959 112,040 99,199 104,112

Income tax expense 16,539 23,958 21,387 22,411

Net income 64,420 88,082 77,812 81,701

Income/(loss) before income taxes 83,010 72,176 ( 41,922 ) ( 21,318 )

Income tax expense/(benefit) 22,834 15,060 ( 7,606 ) ( 4,631 )

Net income/(loss) 60,176 57,116 ( 34,316 ) ( 16,687 )

Preferred stock dividends 2,437 2,438 2,437 2,438

Net income available to common stockholders $ 61,983 $ 85,644 $ 75,375 $ 79,263

Basic earnings per share:

Net income/(loss) available to common stockholders $ 57,739 $ 54,678 $ ( 36,753 ) $ ( 19,125 )

Basic earnings/(loss) per share:

$ 1.14 $ 1.08 $ ( 0.73 ) $ ( 0.38 )

Diluted earnings per share:

Diluted earnings/(loss) per share:

$ 1.14 $ 1.08 $ ( 0.73 ) $ ( 0.38 )

(22) New Accounting Standards

ASU 2019-12 "Income Taxes (Topic 740)" ("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance.

ASU 2019-012 will be effective for us on January 1, 2021 and is not expected to have any material impact on our consolidated financial statements.

ASU 2020-01 "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)" ("ASU 2020-01") clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

ASU 2020-01 will be effective for us on January 1, 2021 and is not expected to have any material impact on our consolidated financial statements.

ASU 2020-02 "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)" ("ASU 2020-02") incorporates SEC SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326.

ASU 2020-02 was effective on January 1, 2020 and has not had a significant impact on our documentation requirements.

ASU 2020-03 "Codification Improvements to Financial Instruments" ("ASU 2020-03") revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications.

ASU 2020-03 was effective immediately upon its release in March 2020 and did not have a material impact on our consolidated financial statements.

ASU 2020-04, “ Reference Rate Reform (Topic 848)” (“ASU 2020-04”) provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks.

4 unchanged sentences

Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

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 this ASU will have material effects on our business operations and consolidated financial statements.

We anticipate this ASU will simplify any modifications we execute between the selected start date 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.

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

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 8. Financial Statements and Supplementary Data