What changed in this filing

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Item 1. Financial Statements

2022-04-21 compared with 2021-10-21 · 225 added, 436 removed, 441 unchanged (60% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

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

(in thousands except share data) March 31, 2022 December 31, 2021

Cash and due from banks $ 234,853 $ 180,663

Interest-bearing deposits in other banks 8,317,926 9,032,807

Interest-bearing cash and cash equivalents 5,136,680 7,765,996

Available-for-sale debt securities 2,591,218 3,538,201

Held-to-maturity debt securities 1,009,972 —

Equity securities 40,825 45,607

Investment securities 3,642,015 3,583,808

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

9,660 283,165

Loans held for sale 8,085 8,123

Loans held for investment, mortgage finance 5,827,965 7,475,497

Loans held for investment (net of unearned income) 15,221,404 15,351,451

Loans held for investment 15,849,434 15,331,457

Allowance for credit losses on loans 211,151 211,866

Loans held for investment, net 21,466,248 22,595,088

Mortgage servicing rights, net 1,158 105,424

Premises and equipment, net 24,181 20,901

8 unchanged sentences

Other liabilities 252,394 273,488

Federal funds purchased and repurchase agreements 3,470 111,751

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

Short-term borrowings 1,427,033 2,202,832

Long-term debt 929,414 928,738

3 unchanged sentences

Authorized shares - 10,000,000

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

Issued shares - 300,000 at March 31, 2022 and December 31, 2021

300,000 300,000

1 unchanged sentence

Authorized shares - 100,000,000

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

Issued shares - 50,710,858 and 50,618,911 at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,011,353 1,008,559

Retained earnings 1,983,611 1,948,274

Treasury stock (shares at cost:

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

Treasury stock - 417 shares at cost at March 31, 2022 and December 31, 2021

Accumulated other comprehensive income/(loss), net of taxes ( 205,425 ) ( 47,715 )

5 unchanged sentences

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

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

Three months ended March 31,

(in thousands except per share data) 2022 2021

2 unchanged sentences

Investment securities 17,302 9,887

Federal funds sold and securities purchased under resale agreements — 1 1 692

Interest-bearing deposits in other banks 3,606 2,877 9,499 24,777

Interest-bearing cash and cash equivalents 3,571 2,933

Total interest income 208,530 223,151

1 unchanged sentence

Deposits 13,630 20,004

Federal funds purchased 5 128 131 973

Other borrowings 743 3,365 3,711 17,516

Short-term borrowings 758 2,592

Long-term debt 10,595 5,743

8 unchanged sentences

Servicing income 237 9,009

Swap fees 568 484 1,628 4,709

Investment banking and trading income 4,179 5,787

Net gain/(loss) on sale of loans held for sale — 5,572

2 unchanged sentences

Non-interest expense

Salaries and employee benefits 87,503 84,096 261,855 262,080

Net occupancy expense 8,324 8,736 24,463 26,582

Salaries and benefits 100,098 87,522

Occupancy expense 8,885 8,274

Marketing 4,977 1,697

3 unchanged sentences

Servicing-related expenses — 12,989

Merger-related expenses — — — 17,756

Other 10,149 8,975

4 unchanged sentences

Preferred stock dividends 4,313 3,779

Net income/(loss) available to common stockholders $ 39,078 $ 54,678 $ 174,401 $ ( 1,200 )

Other comprehensive loss

Net income available to common stockholders $ 35,337 $ 68,159

Other comprehensive income/(loss):

Change in unrealized gain/(loss) on available-for-sale debt securities, before tax $ ( 199,633 ) $ ( 91,407 )

Income tax expense/(benefit) ( 3,808 ) 1,692 ( 15,015 ) ( 561 )

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

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

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

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

Income tax benefit ( 41,923 ) ( 19,196 )

Other comprehensive loss, net of tax ( 157,710 ) ( 72,211 )

Comprehensive loss $ ( 118,060 ) $ ( 273 )

Basic earnings per common share $ 0.70 $ 1.35

Diluted earnings per common share $ 0.69 $ 1.33

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

Preferred Stock Common Stock Additional Treasury Stock Accumulated

Paid-in Retained Comprehensive

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

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

Comprehensive income:

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

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

Total comprehensive income 63,477

Stock-based compensation expense recognized in earnings

— — — — 4,799 — — — — 4,799

Preferred stock dividend — — — — — ( 2,438 ) — — — ( 2,438 )

Issuance of stock related to stock-based awards

— — 19,880 — ( 189 ) — — — — ( 189 )

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

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

Comprehensive income:

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

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

Total comprehensive income 29,067

Stock-based compensation expense recognized in earnings

— — — — 8,324 — — — — 8,324

Preferred stock dividend — — — — — ( 4,312 ) — — — ( 4,312 )

Issuance of stock related to stock-based awards

— — 13,425 — ( 284 ) — — — — ( 284 )

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

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED - CONTINUED

Preferred Stock Common Stock Additional Treasury Stock Accumulated

Preferred Stock Common Stock Additional Treasury Stock Accumulated Other

Paid-in Retained Comprehensive

1 unchanged sentence

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

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

Comprehensive income

Comprehensive income/(loss):

Net income — — — — — 71,938 — — — 71,938

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

Total comprehensive income 4,000

Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes — — — — — — — — ( 72,211 ) ( 72,211 )

Total comprehensive loss ( 273 )

Stock-based compensation expense recognized in earnings

— — — — 5,461 — — — — 5,461

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

Preferred stock dividend — — — — — ( 3,779 ) — — — ( 3,779 )

1 unchanged sentence

— — 87,317 1 ( 2,875 ) — — — — ( 2,874 )

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

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

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

Comprehensive income:

Comprehensive income/(loss):

Net income — — — — — 39,650 — — — 39,650

Change in unrealized gain/(loss) on available-for-sale securities, net of taxes — — — — — — — — ( 56,486 ) ( 56,486 )

Total comprehensive income 132,323

Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes — — — — — — — — ( 157,710 ) ( 157,710 )

Total comprehensive loss ( 118,060 )

Stock-based compensation expense recognized in earnings

— — — — 5,407 — — — — 5,407

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

Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 )

1 unchanged sentence

— — 91,947 1 ( 2,613 ) — — — — ( 2,612 )

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

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

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

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

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Nine months ended September 30,

Three months ended March 31,

(in thousands) 2022 2021

2 unchanged sentences

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

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

Depreciation and amortization 65,943 51,716

Provision/(benefit) for credit losses ( 2,000 ) ( 6,000 )

Depreciation and amortization expense 10,604 26,067

Net (gain)/loss on sale of loans held for sale — ( 5,572 )

Increase/(decrease) in valuation allowance on mortgage servicing rights ( 16,448 ) 20,933

Decrease in valuation allowance on mortgage servicing rights — ( 16,448 )

Stock-based compensation expense 5,588 6,368

6 unchanged sentences

Investing activities

Purchases of investment securities ( 952,982 ) ( 1,140,935 )

Principal payments received on investment securities 400,429 12,042

Originations of mortgage finance loans ( 128,503,055 ) ( 157,016,926 )

Proceeds from pay-offs of mortgage finance loans 129,054,151 155,808,671

Proceeds from sale of mortgage servicing rights 108,925 —

Net increase/(decrease) in loans held for investment, excluding mortgage finance loans 118,166 553,026

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

Purchases of available-for-sale debt securities ( 376,415 ) ( 460,793 )

Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities 104,338 118,316

Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities 9,882 —

Sales/(purchases) of equity securities, net 940 ( 588 )

Originations of loans held for investment, mortgage finance ( 26,902,960 ) ( 48,097,222 )

Proceeds from pay-offs of loans held for investment, mortgage finance 28,550,492 48,167,550

Net (increase)/decrease in loans held for investment, excluding mortgage finance ( 517,465 ) ( 54,141 )

Purchases of premises and equipment, net ( 2,709 ) ( 924 )

Net cash provided by/(used in) investing activities 866,103 ( 327,802 )

1 unchanged sentence

Net increase/(decrease) in deposits ( 2,731,427 ) 2,395,381

Costs from issuance of stock related to stock-based awards and warrants ( 3,210 ) ( 1,798 )

Issuance of stock related to stock-based awards ( 2,612 ) ( 2,874 )

Net proceeds from issuance of preferred stock — 289,723

Redemption of preferred stock ( 150,000 ) —

Preferred dividends paid ( 14,408 ) ( 7,313 )

Net increase/(decrease) in other borrowings ( 800,000 ) 300,000

Net increase/(decrease) in federal funds purchased and repurchase agreements ( 108,281 ) 66,417

Preferred stock dividends paid ( 4,313 ) ( 3,779 )

Net decrease in short-term borrowings ( 775,799 ) ( 596,164 )

Net proceeds from issuance of long-term debt — 268,815

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

Net cash provided by/(used in) financing activities ( 3,514,151 ) 2,351,102

5 unchanged sentences

Cash paid during the period for income taxes 302 440

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

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Texas Capital Bancshares, Inc.

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

(“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”).

2 unchanged sentences

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

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

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

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

Basis of Presentation

1 unchanged sentence

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

The consolidated interim financial statements are unaudited and certain information and disclosures in the notes to consolidated financial statements that are presented in accordance with GAAP have been condensed or omitted.

The consolidated interim financial statements are unaudited and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted.

In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make the interim financial information not misleading.

1 unchanged sentence

Securities and Exchange Commission (“SEC”).

Accordingly, the financial statements do not include all of the information and notes to the consolidated financial statements required by GAAP for complete annual financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

Accordingly, the financial statements do not include all of the information and notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

3 unchanged sentences

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

(2) Earnings/(Loss) Per Share

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

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

(2) Earnings Per Share

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

Three months ended March 31,

(in thousands except share and per share data) 2022 2021

1 unchanged sentence

Preferred stock dividends 4,313 3,779

Net income/(loss) available to common stockholders $ 39,078 $ 54,678 $ 174,401 $ ( 1,200 )

Denominator for basic earnings per share—weighted average shares 50,600,732 50,446,691 50,568,439 50,417,563

Effect of employee stock-based awards(1) 538,823 126,382 555,836 103,984

Denominator for dilutive earnings per share—adjusted weighted average shares and assumed conversions

51,139,555 50,573,073 51,124,275 50,521,547

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

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

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

Net income available to common stockholders $ 35,337 $ 68,159

Denominator for basic earnings per common share—weighted average common shares 50,667,090 50,513,277

Effect of dilutive outstanding stock-settled awards 656,937 556,234

Denominator for dilutive earnings per common share—weighted average diluted common shares 51,324,027 51,069,511

Basic earnings per common share $ 0.70 $ 1.35

Diluted earnings per common share $ 0.69 $ 1.33

Anti-dilutive outstanding stock-settled awards 229,488 80,263

(3) Investment Securities

Available-for-Sale Debt Securities

The following is a summary of available-for-sale debt securities:

The following is a summary of our investment securities:

(in thousands) Amortized

1 unchanged sentence

Losses Estimated

September 30, 2021

March 31, 2022

Available-for-sale debt securities:

Treasury securities $ 376,569 $ — $ ( 8,715 ) $ 367,854

government agency securities 125,000 — ( 11,484 ) 113,516

2 unchanged sentences

Credit risk transfer (“CRT”) securities 14,713 — ( 2,812 ) 11,901

Total $ 3,674,800 $ 13,994 $ ( 65,528 ) $ 3,623,266

December 31, 2020

Available-for-sale debt securities:

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

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

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

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

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

(in thousands, except percentage data) Less Than

One Year After One

Five Years After Five

Ten Years After Ten

September 30, 2021

Available-for-sale:

government agency securities:(1)

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

Estimated fair value — — 121,920 — 121,920

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

Residential mortgage-backed securities:(1)

Amortized cost $ 24 $ 252 $ 17,339 $ 3,346,315 $ 3,363,930

Estimated fair value 26 280 16,652 3,287,764 3,304,722

Weighted average yield(3) 3.99 % 4.66 % 1.08 % 1.13 % 1.13 %

Tax-exempt asset-backed securities:(1)

Amortized Cost $ — $ — $ — $ 171,157 $ 171,157

Estimated fair value — — — 184,820 184,820

Weighted average yield(2)(3) — % — % — % 4.96 % 4.96 %

CRT securities:(1)

Amortized Cost $ — $ — $ 14.713 $ — $ 14,713

Estimated fair value — — 11.804 — 11,804

Weighted average yield(3) — % — % 0.08 % — % 0.08 %

Total available-for-sale debt securities 2,783,071 972 ( 192,825 ) 2,591,218

Amortized cost $ 3,674,800

Estimated fair value $ 3,623,266

Held-to-maturity debt securities:

Residential mortgage-backed securities 1,009,972 — ( 36,381 ) 973,591

Total held-to-maturity debt securities 1,009,972 — ( 36,381 ) 973,591

Equity securities 40,825

Total investment securities(2) $ 3,642,015

December 31, 2021

Available-for-sale:

Available-for-sale debt securities:

government agency securities $ 125,000 $ — $ ( 4,056 ) $ 120,944

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 3,288,261 156 ( 63,039 ) 3,225,378

Amortized cost $ — $ 545 $ 17,500 $ 2,800,473 $ 2,818,518

Estimated fair value — 605 17,490 2,810,861 2,828,956

Weighted average yield(3) — % 4.58 % 1.08 % 1.25 % 1.25 %

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

Amortized Cost $ — $ — $ — $ 184,940 $ 184,940

Estimated fair value — — — 199,176 199,176

Weighted average yield(2)(3) — % — % — % 4.92 % 4.92 %

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

Amortized Cost $ — $ — $ — $ 14,713 $ 14,713

Estimated fair value — — — 11,417 11,417

Weighted average yield(3) — % — % — % 0.15 % 0.15 %

Total available-for-sale debt securities 3,598,600 9,563 ( 69,962 ) 3,538,201

Amortized cost $ 3,143,171

Estimated fair value $ 3,163,138

(1) Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

(2) Yields have been adjusted to a tax equivalent basis assuming a 21 % federal tax rate.

(3) Yields are calculated based on amortized cost.

Equity securities 45,607

Total investment securities(2) $ 3,583,808

(1) Excludes accrued interest receivable of $ 5.5 million and $ 6.6 million at March 31, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $ 1.6 million at March 31, 2022 related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(2) Includes available-for-sale debt securities and equity securities at estimated fair value and held-to-maturity debt securities at amortized cost.

Debt Securities

In the first quarter of 2022, we transferred $ 1.0 billion of available-for-sale debt securities to held-to-maturity at fair value.

The transfer was the result of deliberate actions taken to execute on our asset-liability management strategies in response to rising interest rates.

Management determined that it has both the positive intent and ability to hold these securities to maturity.

On the date of transfer, the difference between the carrying value and fair value of these securities, which was recorded, net of tax, as a loss in accumulated other comprehensive income/(loss) (“AOCI”), resulted in the securities transferring at a discount of $ 69.2 million.

The discount and unrealized loss, net of tax, in AOCI will be amortized to interest income over the remaining life of the securities using the interest method.

There were no gains or losses recognized as a result of this transfer.

The amortized cost and estimated fair value as of March 31, 2022, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity.

Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

Available-for-sale Held-to-maturity

(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value

Due within one year $ 95 $ 101 $ — $ —

Due after one year through five years 376,612 367,899 — —

Due after five years through ten years 156,492 140,462 — —

Due after ten years 2,249,872 2,082,756 1,009,972 973,591

Total $ 2,783,071 $ 2,591,218 $ 1,009,972 $ 973,591

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

1 unchanged sentence

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

September 30, 2021

March 31, 2022

treasury securities $ 367,854 $ ( 8,715 ) $ — $ — $ 367,854 $ ( 8,715 )

government agency securities — — 113,516 ( 11,484 ) 113,516 ( 11,484 )

Residential mortgage-backed securities 962,312 ( 77,250 ) 967,491 ( 90,594 ) 1,929,803 ( 167,844 )

Tax-exempt asset-backed securities 70,464 ( 1,970 ) — — 70,464 ( 1,970 )

CRT securities — — 11,901 ( 2,812 ) 11,901 ( 2,812 )

5 unchanged sentences

Total $ 2,895,137 $ ( 51,636 ) $ 412,196 $ ( 18,326 ) $ 3,307,333 $ ( 69,962 )

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

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

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

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

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

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

At March 31, 2022, we had 81 available-for-sale debt securities in an unrealized loss position, comprised of five U.S.

treasury securities, five U.S.

government agency securities, 68 residential mortgage-backed securities, one tax-exempt asset-backed security and two CRT securities.

The unrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.

We do not intend to sell and it is not more likely than not that we will be required to sell before recovery of the amortized cost of the available-for-sale debt securities in an unrealized loss position and have recorded the unrealized losses related to this portfolio in AOCI.

Held-to-maturity debt securities consist of government guaranteed securities for which no loss is expected.

At March 31, 2022 and December 31, 2021, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

Debt securities with carrying values of approximately $ 19.5 million and $ 1.9 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2022.

The comparative amounts at December 31, 2021 were $ 22.0 million and $ 2.0 million, respectively.

1 unchanged sentence

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

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

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

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

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

Three months ended March 31,

(in thousands) 2022 2021

Net gains/(losses) recognized during the period $ ( 3,640 ) $ 378

Realized net gains/(losses) recognized during the period on equity securities sold

347 177 1,096 ( 68 )

Unrealized net gains/(losses) recognized during the period on equity securities still held

$ 503 $ 1,173 $ 3,400 $ 1,353

(4) Loans Held for Investment and Allowance for Credit Losses on Loans

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

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

Realized net gains/(losses) recognized on securities sold 202 398

Unrealized net gains/(losses) recognized on securities held $ ( 3,842 ) $ ( 20 )

(4) Loans and Allowance for Credit Losses on Loans

Loans are summarized by portfolio segment as follows:

(in thousands) March 31, 2022 December 31, 2021

Loans held for investment:

Commercial $ 10,175,668 $ 9,897,561

4 unchanged sentences

Unearned income (net of direct origination costs) ( 66,620 ) ( 65,007 )

Total loans held for investment(1) 21,677,399 22,806,954

Allowance for credit losses on loans ( 211,151 ) ( 211,866 )

Total loans held for investment, net(1) $ 21,466,248 $ 22,595,088

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

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

Loans held for sale:

Mortgage loans, at fair value $ 8,085 $ 8,123

Total loans held for sale $ 8,085 $ 8,123

(1) Excludes accrued interest receivable of $ 49.7 million and $ 50.3 million at March 31, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

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

(in thousands) 2022 2021 2020 2019 2018 2017 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total

September 30, 2021

March 31, 2022

(1-7) Pass $ 234,841 $ 3,863,274 $ 330,939 $ 453,566 $ 305,767 $ 430,483 $ 4,264,331 $ 34,280 $ 9,917,481

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Total real estate $ 258,217 $ 969,657 $ 886,268 $ 758,718 $ 439,683 $ 949,059 $ 613,857 $ 67,736 $ 4,943,195

Total loans held for investment $ 1,876,166 $ 4,929,560 $ 2,367,747 $ 1,829,705 $ 1,054,703 $ 6,768,334 $ 4,853,338 $ 136,286 $ 23,815,839

Total $ 530,886 $ 5,317,481 $ 1,824,593 $ 1,829,727 $ 1,332,960 $ 5,197,578 $ 5,603,207 $ 107,587 $ 21,744,019

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

34 unchanged sentences

Total real estate $ 934,008 $ 844,518 $ 769,592 $ 481,616 $ 326,691 $ 762,427 $ 587,064 $ 71,614 $ 4,777,530

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

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

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

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(in thousands) Commercial Energy Mortgage

Nine months ended September 30, 2021

Allowance for credit losses on loans:

Three months ended March 31, 2022

Beginning balance $ 102,202 $ 52,568 $ 6,083 $ 51,013 $ 211,866

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Ending balance $ 107,746 $ 28,801 $ 10,242 $ 64,362 $ 211,151

Nine months ended September 30, 2020

Allowance for credit losses on loans:

Three months ended March 31, 2021

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

Impact of Current Expected Credit Loss (“CECL”) adoption ( 15,740 ) 24,154 2,031 ( 1,860 ) 8,585

Provision for credit losses on loans ( 1,001 ) ( 5,852 ) 211 929 ( 5,713 )

3 unchanged sentences

Ending balance $ 70,659 $ 73,195 $ 4,910 $ 93,720 $ 242,484

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

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

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

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

We recorded a negative $ 2.0 million provision for credit losses for the three months ended March 31, 2022, compared to a negative provision of $ 6.0 million for the same period in 2021, resulting from a decline in criticized loans, partially offset by an increase in loans held for investment, excluding mortgage finance.

We recorded $ 512,000 in net recoveries during the three months ended March 31, 2022, compared to net charge-offs of $ 6.4 million during the same period in 2021.

Criticized loans totaled $ 476.1 million at March 31, 2022, compared to $ 945.1 million at March 31, 2021.

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

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

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

At March 31, 2021, we had $ 12.7 million in collateral-dependent real estate loans, collateralized by real estate property.

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

(in thousands) 30-59 Days

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

September 30, 2021

March 31, 2022

Commercial $ 13,349 $ 2,142 $ 3,808 $ 19,299 $ 25,470 $ 10,130,899 $ 10,175,668 $ 4,277

Energy — — — — 18,267 778,924 797,191 8,584

Mortgage finance loans

— — — — — 8,528,313 8,528,313 —

Mortgage finance — — — — — 5,827,965 5,827,965 —

187 194 1,986 2,367 194 3,037,108 3,039,669 —

3 unchanged sentences

— — 237 237 186 318,344 318,767 —

Total loans held for investment

$ 21,423 $ 18,313 $ 3,405 $ 43,141 $ 87,532 $ 23,685,166 $ 23,815,839 $ 22,877

Total $ 13,536 $ 2,336 $ 6,031 $ 21,903 $ 59,327 $ 21,662,789 $ 21,744,019 $ 28,071

(1) Loans past due 90 days and still accruing includes premium finance loans of $ 3.2 million.

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

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

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

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

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

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

(2) As of March 31, 2022 and December 31, 2021, none of our non-accrual loans were earning interest income on a cash basis.

Additionally, no interest income was recognized on non-accrual loans for the three months ended March 31, 2022.

Accrued interest of $ 4,000 was reversed during the three months ended March 31, 2022.

As of March 31, 2022 and December 31, 2021, we did not have any loans considered restructured that were not on non-accrual.

Of the non-accrual loans at March 31, 2022 and December 31, 2021, $ 18.0 million and $ 19.4 million, respectively, met the criteria for restructured.

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

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

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

Extended Maturity Adjusted Payment Schedule Total

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

Nine months ended September 30, 2020

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

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

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

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

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

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

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

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

(5) Certain Transfers of Financial Assets

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

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

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

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

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

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

Nine Months Ended September 30,

(in thousands) 2021 2020

Outstanding balance(1):

Beginning balance $ 281,137 $ 2,568,362

Loans purchased and originated 1,413,899 8,963,499

Payments and loans sold ( 1,685,212 ) ( 10,889,549 )

Ending balance 9,824 642,312

Fair value adjustment:

Beginning balance 2,028 8,772

Increase/(decrease) to fair value ( 2,192 ) ( 3,075 )

Ending balance ( 164 ) 5,697

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

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

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

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

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

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

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

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

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 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.

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

A summary of MSR activity is as follows:

Nine months ended September 30,

(in thousands) 2021 2020

Balance, beginning of year $ 131,391 $ 70,707

Capitalized servicing rights 15,990 76,905

Amortization ( 18,663 ) ( 25,553 )

Direct write-down ( 279 ) —

Sales ( 127,281 ) —

Balance, end of period $ 1,158 $ 122,059

Valuation allowance:

Balance, beginning of year $ 25,967 $ 5,803

Change in valuation allowance ( 25,967 ) 20,933

Balance, end of period $ — $ 26,736

MSRs, net $ 1,158 $ 95,323

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

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

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

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

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

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

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

December 31, 2020

Average discount rates 9.09 %

Expected prepayment speeds 16.37 %

Weighted-average life, in years 4.9

(in thousands) December 31, 2020

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

100 bp adverse change in prepayment speed ( 16,062 )

These sensitivities are hypothetical and actual results may differ materially due to a number of factors.

The effect on fair value of a 10% variation in assumptions generally cannot be determined with confidence because the relationship of the change in assumptions to the fair value may not be linear.

Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant.

In reality, changes in one factor may be correlated with changes in other factors, which could impact the sensitivity analysis as presented.

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 $ 619,000 and $ 621,000 at September 30, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets.

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

(6) Long-term Debt

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

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

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

(dollar amounts in thousands) Texas Capital

Statutory Trust I Texas Capital

Trust II Texas Capital

Trust III Texas Capital

Trust IV Texas Capital

Statutory Trust V

Date issued November 19, 2002 April 10, 2003 October 6, 2005 April 28, 2006 September 29, 2006

Trust preferred securities issued $ 10,310 $ 10,310 $ 25,774 $ 25,774 $ 41,238

Floating or fixed rate securities Floating Floating Floating Floating Floating

Interest rate on subordinated debentures 3 month LIBOR

3 month LIBOR

Maturity date November 2032 April 2033 December 2035 June 2036 December 2036

On September 21, 2012, the Company issued $ 111.0 million of subordinated notes.

The notes mature in September 2042 and bear interest at a rate of 6.50 % per annum, payable quarterly.

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.

The notes mature in January 2026 and bear interest at a rate of 5.25 % per annum, payable semi-annually.

The notes are unsecured and are subordinate to the Bank’s obligations to its depositors, its obligations under banker’s acceptances and letters of credit, certain obligations to Federal Reserve Banks and the FDIC and the Bank’s obligations to its other creditors, except any obligations which expressly rank on a parity with or junior to the notes.

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

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

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.

The fair value of the credit-linked note is based on observable inputs, when available, and as such are categorized as Level 2 liabilities.

Because the notes are variable rate debt, the fair value approximates carrying value.

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.

We did not have any loans that were restructured during the three months ended March 31, 2022 or 2021.

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

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

(in thousands) March 31, 2022 December 31, 2021

Customer repurchase agreements $ 2,033 $ 2,832

Federal Home Loan Bank borrowings 1,425,000 2,200,000

Total short-term borrowings $ 1,427,033 $ 2,202,832

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

(in thousands) March 31, 2022 December 31, 2021

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 270,988 $ 270,487

Bank-issued 5.75 % fixed rate subordinated notes due 2026

174,000 173,935

Company-issued 4.00 % fixed rate subordinated notes due 2031

371,020 370,910

Trust preferred floating rate subordinated debentures due 2032 to 2036 113,406 113,406

Total long-term debt $ 929,414 $ 928,738

(6) Financial Instruments with Off-Balance Sheet Risk

1 unchanged sentence

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

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

Three months ended March 31,

(in thousands) 2022 2021

1 unchanged sentence

$ 17,265 $ 17,434

Impact of CECL adoption

Provision for off-balance sheet credit losses

2 unchanged sentences

$ 16,492 $ 17,147

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

(in thousands) March 31, 2022 December 31, 2021

Commitments to extend credit - period end balance $ 9,917,556 $ 9,445,763

10 unchanged sentences

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

The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year CECL transition option).

In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year CECL transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year CECL transition option).

We adopted CECL on January 1, 2020 and have elected to utilize the five-year CECL transition option.

In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year

transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option).

We adopted CECL on January 1, 2020 and have elected to utilize the five-year transition option.

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

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

Management believes, as of March 31, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

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

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

As shown in the table below, the Company’s and the Bank’s capital ratios exceeded the regulatory definition of well capitalized as of March 31, 2022 and December 31, 2021.

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

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

In addition, a change may result in imposition of

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

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

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

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

September 30, 2021

March 31, 2022

Company $ 2,987,142 11.46 % $ 1,824,684 7.00 % N/A N/A

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

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

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 the nine months ended September 30, 2021, or during the year ended December 31, 2020.

The Basel III Capital Rules further limit the amount of dividends that may

be paid by us or our Bank.

No dividends were declared or paid on our common stock during the three months ended March 31, 2022, or during the year ended December 31, 2021.

On April 19, 2022, our board of directors authorized a new share repurchase program under which we may repurchase up to $ 150.0 million in shares of our outstanding common stock.

Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions.

The extent to which we repurchase shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations.

No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.

(8) Stock-based Compensation

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Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), restricted stock and performance units, or any combination thereof.

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

On April 19, 2022, the Company’s stockholders approved the Texas Capital Bancshares, Inc.

2022 Long-Term Incentive Plan, which provides for the issuance of 1,124,880 shares of common stock for compensation to the Company’s key employees and non-employee directors.

The table below summarizes our stock-based compensation expense:

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

Three months ended March 31,

(in thousands) 2022 2021

4 unchanged sentences

Total $ 5,588 $ 6,368

(in thousands except period data) September 30, 2021

(in thousands except period data) March 31, 2022

Unrecognized compensation expense related to unvested stock-settled awards $ 46,901

1 unchanged sentence

(9) Fair Value Disclosures

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

We determine the fair market values of our assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in the Accounting Standards Codification (“ASC”) 820, Fair Value Measurement .

See Note 1 - Operations and Summary of Significant Accounting Policies in our 2021 Form 10-K for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments.

2 unchanged sentences

(in thousands) Level 1 Level 2 Level 3

September 30, 2021

March 31, 2022

Available-for-sale debt securities:(1)

Treasury securities $ 367,854 $ — $ —

government agency securities — 113,516 —

15 unchanged sentences

Loans held for sale(3) — 465 7,658

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

Derivative assets(4) — 37,788 —

1 unchanged sentence

Non-qualified deferred compensation plan liabilities(5) 29,695 — —

(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.

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

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

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

(4) Includes certain collateral-dependent loans held for investment for which a specific allocation of the allowance for credit losses is based upon the fair value of the loan’s underlying collateral.

These loans held for investment are measured on a nonrecurring basis, generally annually or more often as warranted by market and economic conditions.

(3) Mortgage loans held for sale are measured at fair value on a recurring basis, generally monthly.

(4) Derivative assets and liabilities are measured at fair value on a recurring basis, generally quarterly.

1 unchanged sentence

Level 3 Valuations

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

Net Realized/Unrealized Gains (Losses)

The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis:

Net Gains (Losses)

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

Three months ended September 30, 2021

Available-for-sale debt securities:(1)

Tax-exempt asset-backed securities $ 185,954 $ — $ ( 2,270 ) $ — $ 1,136 $ 184,820

CRT securities 11,713 — — — 91 11,804

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

Three months ended September 30, 2020

Available-for-sale debt securities:(1)

Tax-exempt asset-backed securities $ 191,417 $ — $ ( 2,248 ) $ — $ 11,652 $ 200,821

CRT securities 10,953 — — — 105 11,058

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

Nine months ended September 30, 2021

Three months ended March 31, 2022

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 7,658 933 ( 41 ) — ( 465 ) 8,085

Nine months ended September 30, 2020

Three months ended March 31, 2021

Available-for-sale debt securities:(1)

3 unchanged sentences

(1) Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI and relate to assets that remain outstanding at period end.

Realized gains/(losses) are recorded in other non-interest income.

(2) Realized and unrealized gains/(losses) on loans held for sale are recorded in gain/(loss) on sale of loans held for sale.

Realized gains/(losses) are recorded in other non-interest income on the consolidated statements of income and other comprehensive income/(loss).

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

Tax-exempt asset-backed securities

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

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

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

At March 31, 2022, the discount rates utilized ranged from 4.09 % to 4.16 % and the weighted-average life ranged from 4.33 years to 4.40 years.

On a combined amortized cost weighted-average basis a discount rate of 4.12 % and weighted-average life of 4.36 years were utilized to determine the fair value of these securities at March 31, 2022.

At December 31, 2021, the combined weighted-average discount rate and weighted-average life utilized were 2.60 % and 4.61 years, respectively.

1 unchanged sentence

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

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

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

At March 31, 2022, the discount rates utilized ranged from 4.57 % to 9.54 % and the weighted-average life ranged from 4.84 years to 9.38 years.

On a combined amortized cost weighted-average basis a discount rate of 6.23 % and a weighted-average life of 6.35 years were utilized to determine the fair value of these securities at March 31, 2022.

At December 31, 2021, the combined weighted-average discount rate and combined weighted-average life utilized were 4.97 % and 6.35 years, respectively.

2 unchanged sentences

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

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

Loans held for investment

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

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

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

At March 31, 2022, the fair value of these loans was calculated using a weighted-average discounted price of 92.3 % compared to 97.8 % at December 31, 2021.

Fair Value of Financial Instruments

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

September 30, 2021 December 31, 2020

Estimated Fair Value

(in thousands) Carrying

Amount Estimated

Fair Value Carrying

Amount Estimated

Amount Total Level 1 Level 2 Level 3

March 31, 2022

Financial assets:

Level 1 inputs:

Cash and cash equivalents $ 5,371,533 $ 5,371,533 $ 5,371,533 $ — $ —

Investment securities 33,511 33,511 26,593 26,593

Level 2 inputs:

Investment securities 3,433,739 3,433,739 2,959,784 2,959,784

Available-for-sale debt securities 2,591,218 2,591,218 367,854 2,045,618 177,746

Held-to-maturity debt securities 1,009,972 973,591 — 973,591 —

Equity securities 40,825 40,825 29,154 11,671 —

Loans held for sale 8,085 8,085 — — 8,085

Loans held for investment, net 21,466,248 21,436,263 — — 21,436,263

Derivative assets 30,238 30,238 — 30,238 —

Level 3 inputs:

Investment securities 196,624 196,624 210,593 210,593

Financial liabilities:

Total deposits 25,377,938 25,378,165 — — 25,378,165

Short-term borrowings 1,427,033 1,427,033 — 1,427,033 —

Long-term debt 929,414 913,678 — 913,678 —

Derivative liabilities 30,238 30,238 — 30,238 —

December 31, 2021

Financial assets:

Cash and cash equivalents $ 7,946,659 $ 7,946,659 $ 7,946,659 $ — $ —

Available-for-sale debt securities 3,538,201 3,538,201 — 3,346,322 191,879

Equity securities 45,607 45,607 33,589 12,018 —

Loans held for sale 8,123 8,123 — 465 7,658

Loans held for investment, net 22,595,088 22,631,252 — — 22,631,252

Derivative assets 37,788 37,788 — 37,788 —

Financial liabilities:

Level 2 inputs:

Federal funds purchased and repurchase agreements 3,470 3,470 111,751 111,751

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

Total deposits 28,109,365 28,109,762 — — 28,109,762

Short-term borrowings 2,202,832 2,202,832 — 2,202,832 —

Long-term debt 928,738 952,404 — 952,404 —

Derivative liabilities 37,788 37,788 — 37,788 —

Level 3 inputs:

Deposits 29,813,668 29,814,204 30,996,589 30,997,980

(10) Derivative Financial Instruments

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 as of September 30, 2021 as a result of the sale of our MSR portfolio and transition of the MCA program to a third-party.

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Estimated Fair Value Estimated Fair Value

8 unchanged sentences

168,701 713 — 191,291 94 —

Foreign currency forward contracts

— — — 6,667 214 78

Customer counterparties:

3 unchanged sentences

168,701 — 713 191,291 — 94

Foreign currency forward contracts

— — — 6,667 78 214

Economic hedging derivatives to hedge:

Residential MSRs:

Interest rate swap futures — — — 320,000 474 —

Forward sale commitments — — — 155,000 551 —

Loans held for sale:

Loan purchase commitments — — — 332,145 5,123 8

Forward sale commitments — — — 485,326 — 2,675

Gross derivatives 37,946 37,946 41,016 41,016

Offsetting derivative assets/liabilities ( 7,708 ) ( 7,708 ) ( 3,228 ) ( 3,228 )

Net derivatives included in the consolidated balance sheets

$ 56,940 $ 56,940 $ 102,720 $ 99,255

Net derivatives included on the consolidated balance sheets $ 30,238 $ 30,238 $ 37,788 $ 37,788

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

September 30, 2021

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

March 31, 2022 December 31, 2021

Received Paid Received Paid

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

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

Non-hedging interest rate swaps - financial institution counterparties 1.58 % 2.83 % 1.15 % 2.65 %

Non-hedging interest rate swaps - customer counterparties 2.83 % 1.58 % 2.65 % 1.15 %

The weighted-average strike rate for outstanding interest rate caps was 2.47 % at March 31, 2022 and 2.54 % at December 31, 2021.

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

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

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

Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 30.2 million at March 31, 2022, and approximately $ 37.8 million at December 31, 2021.

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

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

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

We had $ 14.3 million and $ 40.3 million in cash collateral pledged for these derivatives at March 31, 2022 and December 31, 2021, respectively, included in interest-bearing cash and cash equivalents on the consolidated balance sheets.

We also enter into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are either a participant or a lead bank.

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

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

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

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

We are party to 12 risk participation agreements where we are a participant bank with a notional amount of $ 126.8 million at March 31, 2022, compared to seven risk participation agreements having a notional amount of $ 79.2 million at December 31, 2021.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 750,000 at March 31, 2022 and $ 2.3 million at December 31, 2021.

The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 2022 and December 31, 2021.

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

We are party to 16 risk participation agreements where

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

(12) Material Transactions Affecting Stockholders' Equity

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.

On June 15, 2021 we redeemed all 6,000,000 outstanding shares of our 6.50 % non-cumulative perpetual preferred stock, Series A.

We are party to 17 risk participation agreements where we are the lead bank having a notional amount of $ 197.8 million at March 31, 2022, compared to 15 agreements having a notional amount of $ 156.1 million at December 31, 2021.

(11) New Accounting Standards

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.

For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts.

ASU 2020-04 also provides numerous optional expedients for derivative accounting.

ASU 2020-04 is effective March 12, 2020 through December 31, 2022.

An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

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.

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

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

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

Accounting Standard Update (“ASU”) ASU 2022-01, “Derivatives and Hedging (Topic 815)” (“ASU 2022-01”) clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets.

Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method.

ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2022-02”) eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan.

ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases.

ASU 2022-02 is effective January 1, 2023 and will have an impact on our financial statement disclosures.

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

What changed 10-Q

Item 1. Financial Statements