What changed in this filing

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Item 1. Financial Statements

2022-10-20 compared with 2022-07-21 · 126 added, 106 removed, 642 unchanged (27% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

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

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

Cash and due from banks $ 240,609 $ 180,663

11 unchanged sentences

Accrued interest receivable and other assets 648,172 559,897

Other assets held for sale 26,450 —

Goodwill and intangible assets, net 1,496 17,262

6 unchanged sentences

Other liabilities 297,900 273,488

Other liabilities held for sale 75,564 —

Short-term borrowings 1,701,480 2,202,832

4 unchanged sentences

Authorized shares - 10,000,000

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

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

300,000 300,000

1 unchanged sentence

Authorized shares - 100,000,000

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

Issued shares - 50,840,022 and 50,618,911 at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,020,153 1,008,559

Retained earnings 2,050,563 1,948,274

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

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

( 50,031 ) ( 8 )

6 unchanged sentences

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

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

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

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

51 unchanged sentences

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

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 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:

7 unchanged sentences

— — 13,425 — ( 284 ) — — — — ( 284 )

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

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

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:

7 unchanged sentences

— — 19,685 1 ( 328 ) — — — — ( 327 )

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

Balance at September 30, 2022 300,000 $ 300,000 50,840,022 $ 509 $ 1,020,153 $ 2,050,563 ( 942,296 ) $ ( 50,031 ) $ ( 435,419 ) $ 2,885,775

See accompanying notes to consolidated financial statements.

14 unchanged sentences

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

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

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

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

9 unchanged sentences

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

Balance at September 30, 2022 300,000 $ 300,000 50,840,022 $ 509 $ 1,020,153 $ 2,050,563 ( 942,296 ) $ ( 50,031 ) $ ( 435,419 ) $ 2,885,775

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2022 2021

23 unchanged sentences

Purchases of premises and equipment, net ( 10,456 ) ( 2,619 )

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

Net cash provided by/(used in) investing activities ( 341,189 ) 223,015

Financing activities

5 unchanged sentences

Repurchase of common stock ( 50,023 ) —

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

Net decrease in short-term borrowings ( 501,352 ) ( 908,281 )

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

7 unchanged sentences

Cash paid during the period for income taxes 48,569 99,915

Transfers of loans from held for investment to held for sale 3,137,792 —

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

9 unchanged sentences

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

On September 6, 2022, we announced the sale of BankDirect Capital Finance (“BDCF” or “disposal group”), our insurance premium finance subsidiary, to AFCO Credit Corporation, an indirect wholly-owned subsidiary of Truist Financial Corp.

The sale of BDCF includes its business operations and loan portfolio of approximately $ 3.1 billion as of September 30, 2022.

The sale is an all-cash transaction for a purchase price of approximately $ 3.4 billion, representing an 8.5 % asset premium compared to the value of the purchased loan portfolio as of September 30, 2022.

The transaction resulted in the recognition of a disposal group that is classified as held for sale but does not meet the criteria for discontinued operations reporting.

As such, the loans, assets and liabilities related to the disposal group were transferred at the lower of cost or fair value to loans held for sale, other assets held for sale and other liabilities held for sale, respectively, on the consolidated balance sheet as of September 30, 2022.

The pre-tax net income for the disposal group for the three months ended September 30, 2022 and 2021 was $ 11.9 million and $ 17.4 million, respectively, and was $ 49.5 million and $ 48.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The sale is expected to close in the fourth quarter of 2022, subject to various customary closing conditions.

Basis of Presentation

13 unchanged sentences

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

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

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

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

13 unchanged sentences

Losses Estimated

June 30, 2022

September 30, 2022

Available-for-sale debt securities:

18 unchanged sentences

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

(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.

(1) Excludes accrued interest receivable of $ 4.2 million and $ 6.6 million at September 30, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $ 1.5 million at September 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.

1 unchanged sentence

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.

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.

5 unchanged sentences

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.

The amortized cost and estimated fair value as of September 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

June 30, 2022

September 30, 2022

treasury securities $ 637,281 $ ( 30,812 ) $ — $ — $ 637,281 $ ( 30,812 )

8 unchanged sentences

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

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

At September 30, 2022, we had 98 available-for-sale debt securities in an unrealized loss position, comprised of twelve U.S.

treasury securities, five U.S.

1 unchanged sentence

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, therefore, 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 these available-for-sale debt securities before recovery of the amortized cost of such 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 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.

At September 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 $ 18.6 million and $ 1.4 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at September 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 June 30, Six months ended June 30,

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Loans are summarized by portfolio segment as follows:

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

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

Loans held for investment(1):

9 unchanged sentences

Loans held for sale:

Insurance premium finance loans, at lower of cost or fair value (2)

$ 3,137,791 $ —

Mortgage loans, at fair value 4,387 8,123

Total loans held for sale $ 3,142,178 $ 8,123

(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.

(1) Excludes accrued interest receivable of $ 71.8 million and $ 50.9 million at September 30, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(2) September 30, 2022 includes $ 1.3 million in non-accrual loans and $ 3.1 million in loans past due 90 days and still accruing that were transferred from loans held for investment to loans held for sale as of September 30, 2022.

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

June 30, 2022

September 30, 2022

(1-7) Pass $ 1,530,588 $ 776,714 $ 252,321 $ 366,245 $ 225,307 $ 316,001 $ 5,004,072 $ 27,344 $ 8,498,592

73 unchanged sentences

(in thousands) Commercial Energy Mortgage

Six months ended June 30, 2022

Nine months ended September 30, 2022

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

4 unchanged sentences

Ending balance $ 130,798 $ 32,073 $ 10,156 $ 61,586 $ 234,613

Six months ended June 30, 2021

Nine months ended September 30, 2021

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

4 unchanged sentences

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

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.

We recorded a $ 32.0 million provision for credit losses for the nine months ended September 30, 2022, compared to a negative provision of $ 20.0 million for the same period in 2021.

The $ 32.0 million provision for credit losses resulted primarily from updated views on the downside risks to the economic forecast, partially offset by a decline in criticized loans.

We recorded $ 4.9 million in net charge-offs during the nine months ended September 30, 2022, compared to net charge-offs of $ 11.9 million during the same period in 2021.

Criticized loans totaled $ 484.0 million at September 30, 2022, compared to $ 582.9 million and $ 728.9 million at December 31, 2021 and September 30, 2021, respectively.

The decrease in criticized loans as compared to June 30, 2022 was primarily due to the resolution of one mortgage finance credit that was downgraded in the second quarter of 2022 and resolved in the third quarter of 2022 with no losses recorded.

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

At September 30, 2022, we had no collateral-dependent loans .

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

3 unchanged sentences

Due Non-Accrual Loans(1) Current Total Non-Accrual With No Allowance

June 30, 2022

September 30, 2022

Commercial $ 10,405 $ 151 $ 30,602 $ 41,158 $ 27,968 $ 8,744,488 $ 8,813,614 $ 3,637

7 unchanged sentences

Total $ 11,157 $ 2,604 $ 30,664 $ 44,425 $ 35,864 $ 19,763,948 $ 19,844,237 $ 3,637

(1) Loans past due 90 days and still accruing includes premium finance loans of $ 3.1 million.

These loans are generally secured by obligations of insurance carriers to refund premiums on canceled insurance policies.

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

(2) As of June 30, 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.

(3) As of September 30, 2022 and December 31, 2021, $ 1.8 million of our non-accrual loans were earning interest income on a cash basis.

Additionally, $ 801,000 in interest income was recognized on non-accrual loans for the nine months ended September 30, 2022.

Accrued interest of $ 100,000 was reversed during the nine months ended September 30, 2022.

As of September 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 September 30, 2022 and December 31, 2021, $ 2.2 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 six months ended June 30, 2022 or 2021.

The following table details the recorded investment of loans restructured during the nine months ended September 30, 2022:

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, 2022

Commercial loans — $ — 1 $ 604 1 $ 604

Total — $ — 1 $ 604 1 $ 604

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

The restructuring of the loans did not have a significant impact on our allowance for credit losses at September 30, 2022.

As of September 30, 2022 and 2021, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.

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

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

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

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

Customer repurchase agreements $ 1,480 $ 2,832

2 unchanged sentences

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

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

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

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 271,991 $ 270,487

8 unchanged sentences

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

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

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

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

$ 21,648 $ 18,211 $ 21,648 $ 18,211

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

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

Commitments to extend credit - period end balance $ 9,182,739 $ 9,445,763

6 unchanged sentences

The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S.

federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1

capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

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

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

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.

No dividends were declared or paid on our common stock during the nine months ended September 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.

During the nine months ended September 30, 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.

3 unchanged sentences

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

Management believes, as of June 30, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Management believes, as of September 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 June 30, 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 September 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.

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 financial condition and results of operations.

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

3 unchanged sentences

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

June 30, 2022

September 30, 2022

Company $ 3,011,505 11.08 % $ 1,902,047 7.00 % N/A N/A

25 unchanged sentences

(8) Stock-based Compensation

We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the board of directors or its designated committee.

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.

We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the Company’s board of directors or its designated committee.

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

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

1 unchanged sentence

The table below summarizes our stock-based compensation expense:

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

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Total $ 5,379 $ 8,388 $ 15,991 $ 23,192

(in thousands except period data) June 30, 2022

(in thousands except period data) September 30, 2022

Unrecognized compensation expense related to unvested stock-settled awards $ 37,492

6 unchanged sentences

(in thousands) Level 1 Level 2 Level 3

June 30, 2022

September 30, 2022

Available-for-sale debt securities:(1)

4 unchanged sentences

Equity securities(1)(2) 21,932 11,041 —

Loans held for sale(3) — — 4,266

Mortgage loans held for sale(3) — — 4,387

Derivative assets(4) — 24,093 —

8 unchanged sentences

Equity securities(1)(2) 33,589 12,018 —

Loans held for sale(3) — 465 7,658

Mortgage loans held for sale(3) — 465 7,658

Derivative assets(4) — 37,788 —

10 unchanged sentences

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

Three months ended June 30, 2022

Three months ended September 30, 2022

Available-for-sale debt securities:(1)

Tax-exempt asset-backed securities $ 165,845 $ — $ ( 166,890 ) $ — $ 1,045 $ —

CRT securities $ 11,670 $ — $ — $ — $ 32 $ 11,702

Loans held for sale(2) 4,266 571 ( 450 ) — — 4,387

Three months ended June 30, 2021

Three months ended September 30, 2021

Available-for-sale debt securities:(1)

2 unchanged sentences

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

Six months ended June 30, 2022

Nine months ended September 30, 2022

Available-for-sale debt securities:(1)

2 unchanged sentences

Loans held for sale(2) 7,658 1,898 ( 5,050 ) — ( 119 ) 4,387

Six months ended June 30, 2021

Nine months ended September 30, 2021

Available-for-sale debt securities:(1)

7 unchanged sentences

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

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

The securities were redeemed in full prior to September 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.

1 unchanged sentence

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

At June 30, 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 September 30, 2022, the discount rates utilized ranged from 6.97 % to 11.52 % and the weighted-average life ranged from 5.23 years to 8.93 years.

On a combined amortized cost weighted-average basis, a discount rate of 8.49 % and a weighted-average life of 6.46 years were utilized to determine the fair value of these securities at September 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.

Loans held for sale

The fair value of loans held for sale using Level 3 inputs include loans that cannot be sold through normal sale channels and thus require significant management judgment or estimation when determining the fair value.

Mortgage loans held for sale

The fair value of mortgage loans held for sale using Level 3 inputs include loans that cannot be sold through normal sale channels and thus require significant management judgment or estimation when determining the fair value.

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

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.

At September 30, 2022, the fair value of these loans was calculated using a weighted-average discounted price of 90.4 %, compared to 97.8 % at December 31, 2021.

Fair Value of Financial Instruments

3 unchanged sentences

Amount Total Level 1 Level 2 Level 3

June 30, 2022

September 30, 2022

Financial assets:

26 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Estimated Fair Value Estimated Fair Value

19 unchanged sentences

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 $ 11.0 million at June 30, 2022, and approximately $ 37.8 million at December 31, 2021.

Our credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 24.1 million at September 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.

At September 30, 2022, we had $ 73.0 million in cash collateral pledged to counterparties included in interest-bearing cash and cash equivalents on the consolidated balance sheet and $ 74.0 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.

1 unchanged sentence

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

We are party to 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.

We are party to 18 risk participation agreements where we are a participant bank with a notional amount of $ 343.3 million at September 30, 2022, compared to seven risk participation agreements with 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 $ 10.4 million at September 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 September 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 $ 199.5 million at June 30, 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 with a notional amount of $ 201.1 million at September 30, 2022, compared to 15 agreements with 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.

During the nine months ended September 30, 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.

3 unchanged sentences

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.

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 nine months ended September 30, 2022, we recorded $ 78.2 million and $ 77.9 million, respectively, in unrealized losses to adjust our cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 1.8 million and $ 2.5 million, respectively, from AOCI into interest income on loans.

Based on current market conditions, we estimate that during the next 12 months, an additional $ 31.7 million will be reclassified from AOCI as a decrease to interest income.

As of September 30, 2022, the maximum length of time over which forecasted transactions are hedged is 4.00 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

(in thousands) Cash Flow Hedges Available-for-Sale Securities Held-to-Maturity Securities Total

Three months ended September 30, 2022

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

1 unchanged sentence

Amounts reclassified into net income ( 1,760 ) — 2,369 609

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

Total other comprehensive income/(loss) ( 79,937 ) ( 129,027 ) 2,369 ( 206,595 )

Income tax expense/(benefit) ( 16,786 ) ( 27,095 ) 497 ( 43,384 )

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

Total other comprehensive income/(loss), net of tax ( 63,151 ) ( 101,932 ) 1,872 ( 163,211 )

Ending balance $ ( 63,467 ) $ ( 322,022 ) $ ( 49,930 ) $ ( 435,419 )

Three months ended June 30, 2021

Three months ended September 30, 2021

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

1 unchanged sentence

Amounts reclassified into net income — — — —

Total OCI — 38,037 — 38,037

Total other comprehensive income/(loss) — ( 18,131 ) — ( 18,131 )

Income tax expense/(benefit) — ( 3,808 ) — ( 3,808 )

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

Total other comprehensive income/(loss), net of tax — ( 14,323 ) — ( 14,323 )

Ending balance $ — $ ( 40,712 ) $ — $ ( 40,712 )

Six months ended June 30, 2022

Nine months ended September 30, 2022

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

1 unchanged sentence

Amounts reclassified into net income ( 2,464 ) — 5,962 3,498

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

Total other comprehensive income/(loss) ( 80,337 ) ( 347,223 ) ( 63,203 ) ( 490,763 )

Income tax expense/(benefit) ( 16,870 ) ( 72,916 ) ( 13,273 ) ( 103,059 )

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

Total other comprehensive income/(loss), net of tax ( 63,467 ) ( 274,307 ) ( 49,930 ) ( 387,704 )

Ending balance $ ( 63,467 ) $ ( 322,022 ) $ ( 49,930 ) $ ( 435,419 )

Six months ended June 30, 2021

Nine months ended September 30, 2021

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

1 unchanged sentence

Amounts reclassified into net income — — — —

Total OCI — ( 53,370 ) — ( 53,370 )

Total other comprehensive income/(loss) — ( 71,501 ) — ( 71,501 )

Income tax expense/(benefit) — ( 15,015 ) — ( 15,015 )

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

Total other comprehensive income/(loss), net of tax — ( 56,486 ) — ( 56,486 )

Ending balance $ — $ ( 40,712 ) $ — $ ( 40,712 )

(12) New Accounting Standards

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.

Accounting Standard Update 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50)” (“ASU 2022-04”) enhances the transparency of supplier finance programs and the related financial statement disclosures.

The amendments require that a buyer in a supplier finance program disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period and a description of where in the financial statements outstanding amounts are presented.

ASU 2022-04 is effective January 1, 2023, except for the disclosure of rollforward information, which is effective January 1, 2024, and is not expected to have an impact on our consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements