What changed in this filing

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Item 1. Financial Statements

2022-07-21 compared with 2022-04-21 · 202 added, 120 removed, 546 unchanged (37% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

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

(in thousands except share data) June 30, 2022 December 31, 2021

Cash and due from banks $ 242,425 $ 180,663

14 unchanged sentences

Liabilities and Stockholders’ Equity

Non-interest bearing $ 13,434,723 $ 13,390,370

Interest bearing 11,943,215 14,718,995

Non-interest bearing deposits $ 12,555,367 $ 13,390,370

Interest bearing deposits 12,884,654 14,718,995

Total deposits 25,440,021 28,109,365

7 unchanged sentences

Authorized shares - 10,000,000

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

Issued shares - 300,000 shares issued at June 30, 2022 and December 31, 2021

300,000 300,000

1 unchanged sentence

Authorized shares - 100,000,000

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

Issued shares - 50,820,337 and 50,618,911 at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,015,105 1,008,559

Retained earnings 2,013,458 1,948,274

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 )

Treasury stock - 942,296 and 417 shares at cost at June 30, 2022 and December 31, 2021, respectively

( 50,031 ) ( 8 )

Accumulated other comprehensive loss, net of taxes ( 272,208 ) ( 47,715 )

Total stockholders’ equity 3,006,832 3,209,616

4 unchanged sentences

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

Three months ended March 31,

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

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

37 unchanged sentences

Other comprehensive income/(loss):

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

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

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

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

Change in unrealized gain/(loss) $ ( 86,438 ) $ 38,037 $ ( 287,057 ) $ ( 53,370 )

Amounts reclassified into net income 1,903 — 2,889 —

Other comprehensive income/(loss) ( 84,535 ) 38,037 ( 284,168 ) ( 53,370 )

Income tax expense/(benefit) ( 17,752 ) 7,989 ( 59,675 ) ( 11,207 )

Other comprehensive income/(loss), net of tax ( 66,783 ) 30,048 ( 224,493 ) ( 42,163 )

Comprehensive income/(loss) $ ( 32,624 ) $ 103,529 $ ( 150,684 ) $ 103,256

Basic earnings per common share $ 0.59 $ 1.33 $ 1.29 $ 2.68

6 unchanged sentences

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

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

Comprehensive income/(loss):

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

Comprehensive income:

Net income — — — — — 73,481 — — — 73,481

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

Change in other comprehensive income/(loss), net of taxes — — — — — — — — 30,048 30,048

Total comprehensive income 103,529

Stock-based compensation expense recognized in earnings

— — — — 8,315 — — — — 8,315

Preferred stock dividend — — — — — ( 6,317 ) — — — ( 6,317 )

Issuance of stock related to stock-based awards

— — 34,434 1 ( 53 ) — — — — ( 52 )

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

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

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

Comprehensive income:

Net income — — — — — 34,159 — — — 34,159

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 66,783 ) ( 66,783 )

Total comprehensive loss ( 32,624 )

1 unchanged sentence

— — — — 5,022 — — — — 5,022

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

Issuance of stock related to stock-based awards

— — 109,479 1 ( 1,270 ) — — — — ( 1,269 )

Repurchase of common stock — — — — — — ( 941,879 ) ( 50,023 ) — ( 50,023 )

Balance at June 30, 2022 300,000 $ 300,000 50,820,337 $ 508 $ 1,015,105 $ 2,013,458 ( 942,296 ) $ ( 50,031 ) $ ( 272,208 ) $ 3,006,832

See accompanying notes to consolidated financial statements.

Preferred Stock Common Stock Additional Treasury Stock Accumulated Other

Paid-in Retained Comprehensive

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

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

Comprehensive income:

Net income — — — — — 145,419 — — — 145,419

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 42,163 ) ( 42,163 )

Total comprehensive income 103,256

Stock-based compensation expense recognized in earnings

— — — — 13,776 — — — — 13,776

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

2 unchanged sentences

— — 121,751 2 ( 2,928 ) — — — — ( 2,926 )

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

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

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

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

Comprehensive income/(loss):

Comprehensive income:

Net income — — — — — 73,809 — — — 73,809

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

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 224,493 ) ( 224,493 )

Total comprehensive loss ( 150,684 )

4 unchanged sentences

— — 201,426 2 ( 3,883 ) — — — — ( 3,881 )

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

Repurchase of common stock — — — — — — ( 941,879 ) ( 50,023 ) — ( 50,023 )

Balance at June 30, 2022 300,000 $ 300,000 50,820,337 $ 508 $ 1,015,105 $ 2,013,458 ( 942,296 ) $ ( 50,031 ) $ ( 272,208 ) $ 3,006,832

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Three months ended March 31,

Six months ended June 30,

(in thousands) 2022 2021

20 unchanged sentences

Proceeds from pay-offs of loans held for investment, mortgage finance 55,418,173 88,823,033

Proceeds from sale of mortgage servicing rights — 108,646

Net (increase)/decrease in loans held for investment, excluding mortgage finance ( 2,188,546 ) 174,095

Purchases of premises and equipment, net ( 9,201 ) ( 1,516 )

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

Net cash used in investing activities ( 1,534,670 ) ( 74,669 )

Financing activities

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

Net decrease in deposits ( 2,669,344 ) ( 2,157,026 )

Issuance of stock related to stock-based awards ( 3,881 ) ( 2,926 )

Net proceeds from issuance of preferred stock — 289,723

Redemption of preferred stock — ( 150,000 )

Preferred stock dividends paid ( 8,625 ) ( 10,096 )

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

Repurchase of common stock ( 50,023 ) —

Net increase/(decrease) in short-term borrowings 448,704 ( 1,097,270 )

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

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

Net increase/(decrease) in cash and cash equivalents ( 2,575,126 ) 2,221,731

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

Net cash used in financing activities ( 2,283,169 ) ( 2,599,155 )

Net decrease in cash and cash equivalents ( 3,671,303 ) ( 2,235,181 )

Cash and cash equivalents at beginning of period 7,946,659 9,206,380

9 unchanged sentences

Texas Capital Bancshares, Inc.

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

(“we,” “us”, 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 lending products to businesses throughout the United States.

3 unchanged sentences

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.

In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made present a fair presentation of our financial position and results of operations.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S.

Securities and Exchange Commission (“SEC”).

Accordingly, the financial statements 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”).

Accordingly, the financial statements and the notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements do not include all of the information and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 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.

5 unchanged sentences

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

Three months ended March 31,

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

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

13 unchanged sentences

Losses Estimated

March 31, 2022

June 30, 2022

Available-for-sale debt securities:

2 unchanged sentences

Residential mortgage-backed securities 2,036,101 21 ( 246,567 ) 1,789,555

Tax-exempt asset-backed securities 166,889 926 ( 1,970 ) 165,845

Credit risk transfer (“CRT”) securities 14,713 — ( 3,043 ) 11,670

14 unchanged sentences

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.

(1) Excludes accrued interest receivable of $ 5.2 million and $ 6.6 million at June 30, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $ 1.6 million at June 30, 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.

6 unchanged sentences

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.

In the second quarter of 2022, our tax-exempt asset-backed securities were redeemed at par.

The outstanding certificates were cancelled and related trusts were terminated.

Unrealized gains and losses previously recorded, net of tax, in AOCI were reversed and no additional gains or losses were recognized as a result of the redemption.

The amortized cost and estimated fair value as of June 30, 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.

9 unchanged sentences

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

March 31, 2022

June 30, 2022

treasury securities $ 429,037 $ ( 13,598 ) $ — $ — $ 429,037 $ ( 13,598 )

1 unchanged sentence

Residential mortgage-backed securities 893,351 ( 117,057 ) 895,346 ( 129,510 ) 1,788,697 ( 246,567 )

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

CRT securities — — 11,670 ( 3,043 ) 11,670 ( 3,043 )

5 unchanged sentences

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

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

At June 30, 2022, we had 88 available-for-sale debt securities in an unrealized loss position, comprised of seven 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.

government agency securities, 74 residential mortgage-backed securities, and two CRT securities.

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

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.

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, therefore, 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.

At June 30, 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 $ 18.0 million and $ 1.6 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at June 30, 2022.

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

2 unchanged sentences

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,

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Loans are summarized by portfolio segment as follows:

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

(in thousands) June 30, 2022 December 31, 2021

Loans held for investment(1):

11 unchanged sentences

Total loans held for sale $ 4,266 $ 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.

(1) Excludes accrued interest receivable of $ 57.6 million and $ 50.9 million at June 30, 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

March 31, 2022

June 30, 2022

(1-7) Pass $ 853,390 $ 4,017,274 $ 293,544 $ 434,095 $ 295,347 $ 379,247 $ 4,971,573 $ 35,847 $ 11,280,317

73 unchanged sentences

(in thousands) Commercial Energy Mortgage

Three months ended March 31, 2022

Six months ended June 30, 2022

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

4 unchanged sentences

Ending balance $ 116,003 $ 26,823 $ 19,058 $ 67,129 $ 229,013

Three months ended March 31, 2021

Six months ended June 30, 2021

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

4 unchanged sentences

Ending balance $ 82,591 $ 55,202 $ 5,051 $ 78,667 $ 221,511

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.

We recorded a $ 20.0 million provision for credit losses for the six months ended June 30, 2022, compared to a negative provision of $ 25.0 million for the same period in 2021.

The $ 20.0 million provision for credit losses resulted primarily from an increase in total loans held for investment.

We recorded $ 2.1 million in net charge-offs during the six months ended June 30, 2022, compared to net charge-offs of $ 8.8 million during the same period in 2021.

Criticized loans totaled $ 603.5 million at June 30, 2022, compared to $ 582.9 million and $ 891.6 million at December 31, 2021 and June 30, 2021, respectively.

The increase in criticized loans as compared to March 31, 2022 was primarily due to one mortgage finance credit which is adequately reserved for as of June 30, 2022, and is expected to be resolved in the third quarter of 2022.

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

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

At June 30, 2022, we had $ 12.2 million in collateral-dependent real estate loans, collateralized by real property and business assets.

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

3 unchanged sentences

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

March 31, 2022

June 30, 2022

Commercial $ 13,625 $ 6,395 $ 3,144 $ 23,164 $ 20,373 $ 11,467,995 $ 11,511,532 $ 12,675

10 unchanged sentences

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

(2) As of 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.

(2) As of June 30, 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 six months ended June 30, 2022.

Accrued interest of $ 4,000 was reversed during the six months ended June 30, 2022.

As of June 30, 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 June 30, 2022 and December 31, 2021, $ 17.3 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 three months ended March 31, 2022 or 2021.

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

(in thousands) June 30, 2022 December 31, 2021

Customer repurchase agreements $ 1,536 $ 2,832

2 unchanged sentences

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

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

(in thousands) June 30, 2022 December 31, 2021

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 258,497 $ 270,487

8 unchanged sentences

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

Three months ended March 31,

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

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

$ 17,981 $ 16,747 $ 17,981 $ 16,747

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

(in thousands) June 30, 2022 December 31, 2021

Commitments to extend credit - period end balance $ 10,194,949 $ 9,445,763

Standby letters of credit - period end balance 378,217 357,672

(7) Regulatory Restrictions

(7) Regulatory Ratios and Capital

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

6 unchanged sentences

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

No dividends were declared or paid on our common stock during the six months ended June 30, 2022 or during the year ended December 31, 2021.

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

During the second

quarter of 2022, the Company repurchased 941,879 shares of its common stock for an aggregate price of $ 50.0 million, at a weighted average price of $ 53.11 per share.

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

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

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

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

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

Management believes, as of June 30, 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 March 31, 2022 and December 31, 2021.

As shown in the table below, the Company’s and the Bank’s capital ratios exceeded the regulatory definition of well capitalized as of June 30, 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.

6 unchanged sentences

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

March 31, 2022

June 30, 2022

Company $ 2,969,107 10.46 % $ 1,986,272 7.00 % N/A N/A

23 unchanged sentences

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

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

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 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.

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

(8) Stock-based Compensation

4 unchanged sentences

The table below summarizes our stock-based compensation expense:

Three months ended March 31,

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Total $ 5,024 $ 8,436 $ 10,612 $ 14,804

(in thousands except period data) March 31, 2022

(in thousands except period data) June 30, 2022

Unrecognized compensation expense related to unvested stock-settled awards $ 42,688

6 unchanged sentences

(in thousands) Level 1 Level 2 Level 3

March 31, 2022

June 30, 2022

Available-for-sale debt securities:(1)

2 unchanged sentences

Residential mortgage-backed securities — 1,789,555 —

Tax-exempt asset-backed securities — — 165,845

CRT securities — — 11,670

24 unchanged sentences

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

Three months ended March 31, 2022

Three months ended June 30, 2022

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 8,085 — ( 4,029 ) — 210 4,266

Three months ended March 31, 2021

Three months ended June 30, 2021

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 7,275 1,148 ( 246 ) — 50 8,227

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

Six months ended June 30, 2022

Available-for-sale debt securities:(1)

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

CRT securities 11,846 — — — ( 176 ) 11,670

Loans held for sale(2) 7,658 1,327 ( 4,600 ) — ( 119 ) 4,266

Six months ended June 30, 2021

Available-for-sale debt securities:(1)

Tax-exempt asset-backed securities $ 199,176 $ — $ ( 11,513 ) $ — $ ( 1,709 ) $ 185,954

CRT securities 11,417 — — — 296 11,713

Loans held for sale(2) 6,933 1,685 ( 525 ) 5 129 8,227

(1) Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI.

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

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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 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.

The securities were redeemed in full prior to June 30, 2022.

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

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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 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 June 30, 2022, the discount rates utilized ranged from 5.88 % to 10.66 % and the weighted-average life ranged from 5.35 years to 9.15 years.

On a combined amortized cost weighted-average basis a discount rate of 7.47 % and a weighted-average life of 6.62 years were utilized to determine the fair value of these securities at June 30, 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.

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

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.

At June 30, 2022, the fair value of these loans was calculated using a weighted-average discounted price of 90.2 % compared to 97.8 % at December 31, 2021.

Fair Value of Financial Instruments

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Amount Total Level 1 Level 2 Level 3

March 31, 2022

June 30, 2022

Financial assets:

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Estimated Fair Value Estimated Fair Value

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Amount Asset Derivative Liability Derivative

Derivatives designated as hedges

Cash flow hedges:

Interest rate contracts:

Swaps hedging loans $ 750,000 $ 1,103 $ 1,180 $ — $ — $ —

Non-hedging derivatives

Financial institution counterparties:

Commercial loan/lease interest rate swaps

$ 1,529,665 $ 29,161 $ 8,072 $ 1,768,045 $ 3,228 $ 37,694

Commercial loan/lease interest rate caps

168,701 713 — 191,291 94 —

Customer counterparties:

Commercial loan/lease interest rate swaps

1,529,665 8,072 29,161 1,768,045 37,694 3,228

Commercial loan/lease interest rate caps

168,701 — 713 191,291 — 94

Customer-initiated and other derivatives:

Interest rate contracts:

Swaps 3,563,862 48,096 48,096 3,536,090 40,922 40,922

Caps and floors written 122,810 — 1,197 191,291 94 —

Caps and floors purchased 122,810 1,197 — 191,291 — 94

Forward contracts 395,239 1,227 1,147 — — —

Gross derivatives 51,623 51,620 41,016 41,016

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

Netting adjustment - offsetting derivative assets/liabilities ( 4,980 ) ( 4,980 ) ( 3,228 ) ( 3,228 )

Netting adjustment - cash collateral received/posted ( 35,594 ) ( 425 ) — —

Net derivatives included on the consolidated balance sheets $ 11,049 $ 46,215 $ 37,788 $ 37,788

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

March 31, 2022 December 31, 2021

Received Paid Received Paid

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 $ 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.

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.

Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 11.0 million at June 30, 2022, and approximately $ 37.8 million at December 31, 2021.

Collateral levels are monitored and adjusted on a regular basis for changes in the value of derivative instruments.

At June 30, 2022, we had $ 4.8 million in cash collateral pledged to counterparties included in interest-bearing cash and cash equivalents on the consolidated balance sheet and $ 42.0 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet.

The comparative amounts at December 31, 2021, were $ 40.3 million in cash collateral pledged to counterparties and no cash collateral received from counterparties.

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 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.

We are party to 12 risk participation agreements where we are a participant bank with a notional amount of $ 125.0 million at June 30, 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 $ 78,000 at June 30, 2022 and $ 2.3 million at December 31, 2021.

The fair value of these exposures was insignificant to the consolidated financial statements at both June 30, 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 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.

We are party to 17 risk participation agreements where we are the lead bank having a notional amount of $ 199.5 million at June 30, 2022, compared to 15 agreements having a notional amount of $ 156.1 million at December 31, 2021.

Derivatives Designated as Cash Flow Hedges

During the second quarter of 2022, we entered into interest rate derivative contracts that were designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate.

To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge.

At inception a statistical regression analysis is prepared to determine hedge effectiveness.

At each reporting period thereafter, a statistical regression or qualitative analysis is performed.

If it is determined that hedge effectiveness has not been or will not continue to be highly effective then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately.

The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax.

Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability.

During the three and six months ended June 30, 2022, we recorded $ 304,000 in unrealized gains to adjust our cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 704,000 from AOCI into interest income on loans.

Based on current market conditions, we estimate that during the next 12 months, an additional $ 621,000 will be reclassified from AOCI as a decrease to interest income.

As of June 30, 2022, the maximum length of time over which forecasted transactions are hedged is 2.95 years.

(11) Accumulated Other Comprehensive Income

The following table provides the change in AOCI by component:

(in thousands) Cash Flow Hedges AFS Securities HTM Securities Total

Three months ended June 30, 2022

Beginning balance $ — $ ( 151,564 ) $ ( 53,861 ) $ ( 205,425 )

Change in unrealized gain/(loss) 304 ( 86,742 ) — ( 86,438 )

Amounts reclassified into net income ( 704 ) — 2,607 1,903

Total OCI ( 400 ) ( 86,742 ) 2,607 ( 84,535 )

Income tax expense/(benefit) ( 84 ) ( 18,216 ) 548 ( 17,752 )

Total OCI, net of tax ( 316 ) ( 68,526 ) 2,059 ( 66,783 )

Ending balance $ ( 316 ) $ ( 220,090 ) $ ( 51,802 ) $ ( 272,208 )

Three months ended June 30, 2021

Beginning balance $ — $ ( 56,437 ) $ — $ ( 56,437 )

Change in unrealized gain/(loss) — 38,037 — 38,037

Amounts reclassified into net income — — — —

Total OCI — 38,037 — 38,037

Income tax expense/(benefit) — 7,989 — 7,989

Total OCI, net of tax — 30,048 — 30,048

Ending balance $ — $ ( 26,389 ) $ — $ ( 26,389 )

Six months ended June 30, 2022

Beginning balance $ — $ ( 47,715 ) $ — $ ( 47,715 )

Change in unrealized gain/(loss) 304 ( 218,196 ) ( 69,165 ) ( 287,057 )

Amounts reclassified into net income ( 704 ) — 3,593 2,889

Total OCI ( 400 ) ( 218,196 ) ( 65,572 ) ( 284,168 )

Income tax expense/(benefit) ( 84 ) ( 45,821 ) ( 13,770 ) ( 59,675 )

Total OCI, net of tax ( 316 ) ( 172,375 ) ( 51,802 ) ( 224,493 )

Ending balance $ ( 316 ) $ ( 220,090 ) $ ( 51,802 ) $ ( 272,208 )

Six months ended June 30, 2021

Beginning balance $ — $ 15,774 $ — $ 15,774

Change in unrealized gain/(loss) — ( 53,370 ) — ( 53,370 )

Amounts reclassified into net income — — — —

Total OCI — ( 53,370 ) — ( 53,370 )

Income tax expense/(benefit) — ( 11,207 ) — ( 11,207 )

Total OCI, net of tax — ( 42,163 ) — ( 42,163 )

Ending balance $ — $ ( 26,389 ) $ — $ ( 26,389 )

(12) New Accounting Standards

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.

Accounting Standard Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820)” (“ASU 2022-03”) clarifies the guidance in ASC 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security.

This update also requires specific disclosures related to these types of securities.

ASU 2022-03 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