What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-09 compared with 2022-02-09 · 459 added, 605 removed, 939 unchanged (53% of the section changed)

15 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 9, 2023, expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

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

Basis for Opinion

29 unchanged sentences

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

/s/ Ernst & Young LLP

We have served as the Company's auditor since 1999.

4 unchanged sentences

Cash and due from banks $ 233,637 $ 180,663

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

Interest bearing cash and cash equivalents 4,778,623 7,765,996

Available-for-sale debt securities 2,615,644 3,538,201

Held-to-maturity debt securities 935,514 —

Equity securities 33,956 45,607

Investment securities 3,585,114 3,583,808

Loans held for sale ($ 8.1 million and $ 239.1 million at December 2021 and 2020, respectively, at fair value)

8,123 283,165

Loans held for sale 36,357 8,123

Loans held for investment, mortgage finance 4,090,033 7,475,497

Loans held for investment (net of unearned income) 15,331,457 15,351,451

Loans held for investment 15,197,307 15,331,457

Allowance for credit losses on loans 253,469 211,866

Loans held for investment, net 19,033,871 22,595,088

Mortgage servicing rights, net — 105,424

Premises and equipment, net 26,382 20,901

3 unchanged sentences

Liabilities and Stockholders’ Equity

Non-interest-bearing $ 13,390,370 $ 12,740,947

Interest-bearing 14,718,995 18,255,642

Non-interest bearing deposits $ 9,618,081 $ 13,390,370

Interest bearing deposits 13,238,799 14,718,995

Total deposits 22,856,880 28,109,365

1 unchanged sentence

Other liabilities 345,827 273,488

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

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

Short-term borrowings 1,201,142 2,202,832

Long-term debt 931,442 928,738

3 unchanged sentences

Authorized shares - 10,000,000

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

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

300,000 300,000

5 unchanged sentences

Treasury stock shares at cost:

417 at December 31, 2021 and 2020)

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

2,083,535 and 417 at December 31, 2022 and 2021, respectively

( 115,310 ) ( 8 )

Accumulated other comprehensive loss, net of taxes ( 418,943 ) ( 47,715 )

Total stockholders’ equity 3,055,351 3,209,616

9 unchanged sentences

Investment securities 63,179 42,820 17,475

Federal funds sold 1 693 1,529

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

Interest bearing cash and cash equivalents 97,271 13,233 28,262

Total interest income 1,144,237 876,585 1,039,407

1 unchanged sentence

Deposits 190,663 65,507 146,117

Federal funds purchased 131 1,083 11,872

Other borrowings 4,482 20,923 58,393

Short-term borrowings 29,077 4,613 22,006

Long-term debt 48,739 37,628 19,963

10 unchanged sentences

Net gain/(loss) on sale of loans held for sale ( 990 ) 1,317 58,026

Gain on disposal of subsidiary 248,526 — —

Other 14,011 37,158 27,198

1 unchanged sentence

Non-interest expense

Salaries and employee benefits 350,930 340,529 328,483

Net occupancy expense 33,232 34,955 32,989

Salaries and benefits 436,809 350,930 340,529

Occupancy expense 44,222 33,232 34,955

Marketing 32,388 10,006 23,581

1 unchanged sentence

Communications and technology 69,253 75,185 103,054

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

Federal Deposit Insurance Corporation insurance assessment 14,344 21,027 25,955

Servicing-related expenses — 27,765 64,585

7 unchanged sentences

Net income available to common stockholders $ 315,228 $ 235,218 $ 56,539

Other comprehensive income

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

Other comprehensive income/(loss):

Change in unrealized gain/(loss) $ ( 479,814 ) $ ( 80,366 ) $ 8,639

Amounts reclassified into net income 9,905 — —

Other comprehensive income/(loss) ( 469,909 ) ( 80,366 ) 8,639

Income tax expense/(benefit) ( 98,681 ) ( 16,877 ) 1,815

Other comprehensive income/(loss), net of tax ( 371,228 ) ( 63,489 ) 6,824

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

Comprehensive income/(loss) $ ( 38,750 ) $ 190,450 $ 73,113

Basic earnings per common share $ 6.25 $ 4.65 $ 1.12

3 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

Comprehensive income:

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

Comprehensive income/(loss):

Net income — — — — — 66,289 — — — 66,289

Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes — — — — — — — — 8,432 8,432

Change in other comprehensive income/(loss), net of taxes — — — — — — — — 6,824 6,824

Total comprehensive income 73,113

2 unchanged sentences

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

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

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

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

Comprehensive income:

Comprehensive income/(loss):

Net income — — — — — 253,939 — — — 253,939

Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes — — — — — — — — 6,824 6,824

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 63,489 ) ( 63,489 )

Total comprehensive income 190,450

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

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

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

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

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

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

Comprehensive income:

Comprehensive income (loss):

Net income — — — — — 332,478 — — — 332,478

Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes — — — — — — — — ( 63,489 ) ( 63,489 )

Total comprehensive income 190,450

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 371,228 ) ( 371,228 )

Total comprehensive loss ( 38,750 )

Stock-based compensation expense recognized in earnings — — — — 21,246 — — — — 21,246

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

Preferred stock dividend — — — — — ( 17,250 ) — — — ( 17,250 )

Issuance of stock related to stock-based awards — — 248,387 3 ( 4,212 ) — — — — ( 4,209 )

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

Repurchase of common stock — — — — — — ( 2,083,118 ) ( 115,302 ) — ( 115,302 )

Balance at December 31, 2022 300,000 $ 300,000 50,867,298 $ 509 $ 1,025,593 $ 2,263,502 ( 2,083,535 ) $ ( 115,310 ) $ ( 418,943 ) $ 3,055,351

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

(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 for more information.

9 unchanged sentences

Deferred tax expense/(benefit) ( 17,395 ) ( 20,253 ) ( 7,964 )

Depreciation and amortization 93,406 74,925 37,267

Depreciation and amortization expense 45,284 93,406 74,925

Net (gain)/loss on sale of loans held for sale 990 ( 1,317 ) ( 58,026 )

3 unchanged sentences

Proceeds from sales and repayments of loans held for sale 8,132 1,676,601 13,619,623

Gain on sale of subsidiary ( 248,526 ) — —

Changes in operating assets and liabilities:

1 unchanged sentence

Accrued interest payable and other liabilities 2,518 ( 70,154 ) 5,749

Net cash provided by/(used in) operating activities 657,315 2,639,869 ( 240,189 )

Net cash provided by operating activities 147,970 657,315 2,639,869

Investing activities

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

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

Originations of mortgage finance loans ( 167,084,439 ) ( 216,234,122 ) ( 138,759,289 )

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

Purchases of available-for sale debt securities ( 920,217 ) ( 1,059,897 ) ( 3,001,746 )

Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities 432,175 569,931 52,609

Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities 87,945 — —

Net decrease in equity securities 11,651 — —

Originations of loans held for investment, mortgage finance ( 102,438,943 ) ( 167,084,439 ) ( 216,234,122 )

Proceeds from pay-offs of loans held for investment, mortgage finance 105,824,407 168,688,351 215,324,562

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

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

Net (increase)/decrease in loans held for investment, excluding mortgage finance loans ( 3,001,340 ) 7,076 926,176

Proceeds from sale of subsidiary 3,324,159 — —

Purchase of premises and equipment, net ( 11,270 ) ( 4,127 ) ( 2,796 )

2 unchanged sentences

Net increase/(decrease) in deposits ( 5,252,485 ) ( 2,887,224 ) 4,517,996

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

Issuance of stock related to stock-based awards ( 4,209 ) ( 3,121 ) ( 1,986 )

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

1 unchanged sentence

Preferred dividends paid ( 17,250 ) ( 18,721 ) ( 9,750 )

Repurchase of common stock ( 115,302 ) — —

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

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

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

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

Net increase/(decrease) in short-term borrowings ( 1,001,690 ) ( 908,919 ) 569,985

Net cash provided by/(used in) financing activities ( 6,390,936 ) ( 3,149,822 ) 5,076,245

5 unchanged sentences

Cash paid during the period for income taxes 128,435 101,101 26,152

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

See accompanying notes to consolidated financial statements.

2 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.

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.

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

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

Effective as of the date of conversion, the Texas Department of Banking is the Bank’s primary regulator, the Federal Deposit Insurance Corporation (“FDIC”) is the Bank’s primary federal regulator, and the Board of Governors of the Federal Reserve System (“Federal Reserve”).

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

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

The Company serves the needs of commercial businesses, entrepreneurs and professionals located in Texas through a custom array of financial products and services with high-quality personal service.

On September 6, 2022, the Company announced the sale of BankDirect Capital Finance, LLC (“BDCF”), its insurance premium finance subsidiary, to AFCO Credit Corporation, an indirect wholly-owned subsidiary of Truist Financial Corporation.

The sale of BDCF included its business operations and loan portfolio of approximately $ 3.1 billion.

The sale was an all-cash transaction for a purchase price of $ 3.4 billion, representing a pre-tax gain of $ 248.5 million.

This transaction did not meet the criteria for discontinued operations reporting, and the sale was completed on November 1, 2022.

Basis of Presentation

Our accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and to generally accepted practices within the banking industry.

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and to generally accepted practices within the banking industry.

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

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

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

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

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

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

December 31, 2020 December 31, 2019

( in thousands)

As Reported Adjustment As Revised As Reported Adjustment As Revised

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

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

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

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

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

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

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

Use of Estimates

5 unchanged sentences

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

Accumulated Other Comprehensive Income/(Loss)

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

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

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

as a result the effects become “stranded” in AOCI.

Stranded tax effects caused by the 2018 revaluation of deferred taxes resulting from the corporate tax rates established by the Tax Cuts and Jobs Act (the “Tax Act”) are reclassified from AOCI to retained earnings in accordance with our early adoption of ASU 2018-02 “ Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”

Cash and Cash Equivalents

6 unchanged sentences

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

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

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

Gains or losses realized upon the sale of debt securities is recorded in other non-interest income on the consolidated statements of income and other comprehensive income.

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

The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest and other assets on the consolidated balance sheets.

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

Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.

Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable

Trading Account

1 unchanged sentence

Held-to-Maturity

Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity.

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

Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity.

Held-to-maturity securities are stated at amortized cost, net of any allowance for credit losses.

Management may transfer debt securities classified as available-for-sale to held-to-maturity when upon reassessment it is determined that the Company has both the positive intent and ability to hold these securities to maturity.

The debt securities are transferred at fair value resulting in a premium or discount recorded on transfer date.

Unrealized gains or losses at the date of transfer continue to be reported as a separate component of accumulated other comprehensive income/loss, net (“AOCI”).

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

Available-for-Sale

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

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

If either of these criteria is met, the securities’ amortized cost basis is written down to fair value as a current period expense.

If either of the above criteria is not met, we evaluate whether the decline in fair value is the result of credit losses or other factors.

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

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

If either of these criteria is met, the securities’ amortized cost basis is written down to fair value as a current period expense recorded on the consolidated statements of income and other comprehensive income.

If either of the above criteria is not met, management evaluates whether the decline in fair value is the result of credit losses or other factors.

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

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

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

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

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

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

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

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

Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.

Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

Included in debt securities available-for-sale are credit risk transfer (“CRT”) securities.

CRT securities represent unsecured obligations issued by government sponsored entities (“GSEs”) such as Freddie Mac and are designed to transfer mortgage credit risk from the GSE to private investors.

CRT securities are structured to be subject to the performance of a reference pool of mortgage loans in which we share in 50% of the first losses with the GSE.

If the reference pool incurs losses, the amount we will recover on the notes is reduced by our share of the amount of such losses, which could potentially be up to 100% of the amount outstanding.

Included in debt securities available-for-sale are credit risk transfer (“CRT”) securities, which represent unsecured obligations issued by government sponsored entities (“GSEs”) such as Freddie Mac and are designed to transfer mortgage credit risk from the GSE to private investors.

CRT securities are structured to be subject to the performance of a reference pool of mortgage loans in which the Company shares in 50% of the first losses with the GSE.

If the reference pool incurs losses, the amount the Company will recover on the notes is reduced by its share of the amount of such losses, which could potentially be up to 100% of the amount outstanding.

Unrealized losses recognized in AOCI for the CRT securities are primarily related to the difference between the current market rate for similar securities and the stated interest rate and are not considered to be related to credit loss events.

2 unchanged sentences

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

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

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

Loans Held for Sale

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

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

In some cases, we retained the mortgage servicing rights.

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

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

The Company transitioned its mortgage correspondent aggregation (“MCA”) program to a third party in 2021.

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

In some cases, the Company retained the mortgage servicing rights.

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

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

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

4 unchanged sentences

Exposure to interest rate fluctuations is partially managed through forward sales contracts, which set the price for loans that will be delivered in the next 60 to 90 days.

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

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

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

As a Ginnie Mae approved lender, we may recover losses incurred on repurchased loans through a claims process with the government agency.

From time to time we hold for sale the guaranteed portion of Small Business Administration 7(a) loans, which are carried at lower of cost or market.

From time to time the Company holds for sale certain commercial loans and also the guaranteed portion of Small Business Administration 7(a) loans, which are carried at lower of cost or fair value.

Loans Held for Investment

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

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

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

Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.

Restructured loans are loans on which, due to the borrower’s financial difficulties, we have granted a concession that we would not otherwise consider for borrowers of similar credit quality.

Restructured loans are loans on which, due to the borrower’s financial difficulties, the Company has granted a concession that it would not otherwise consider for borrowers of similar credit quality.

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

1 unchanged sentence

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

If the restructuring agreement specifies an interest rate at the time of the restructuring that is greater than or equal to the rate that we are willing to accept for a new extension of credit with comparable risk, then the loan is no longer considered a restructuring if it is in compliance with the modified terms in calendar years after the year of the restructure.

If the restructuring agreement specifies an interest rate at the time of the restructuring that is greater than or equal to the rate that the Company is willing to accept for a new extension of credit with comparable risk, then the loan is no longer considered a restructuring if it is in compliance with the modified terms in calendar years after the year of the restructure.

A loan is considered past due when a contractually due payment has not been received by the contractual due date.

We place a loan on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The Company places a loan on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed as a reduction of current period interest income.

1 unchanged sentence

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

A loan is placed back on accrual status when both

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

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

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

Loans held for investment includes legal ownership interests in mortgage loans that the Company purchases through its mortgage finance division.

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

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

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

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

These mortgage ownership interests are generally held by us for a period of less than 30 days and more typically 10-20 days.

The mortgage originator has no obligation to offer and the Company has no obligation to purchase these interests.

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

The Company typically purchases up to a 99% ownership interest in each mortgage with the originator owning the remaining percentage.

These mortgage ownership interests are generally held for a period of less than 30 days and more typically 10-20 days.

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

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

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

Due to market conditions or events of default by the investor or the originator, we could be required to purchase the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days.

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

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

Due to market conditions or events of default by the investor or the originator, the Company could be required to purchase the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days.

Mortgage loans acquired under these conditions would require mark-to-market adjustments to income and could require further allocations of the allowance for credit losses or be subject to charge-off in the event the loans become impaired.

Allowance for Credit Losses

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

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

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

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

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

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

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

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

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

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

See “ Investment Securities - Debt Securities ” above for discussion of the allowance for credit losses on available-for-sale and held-to maturity debt securities.

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

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

Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.

Loans, or portions thereof, are charged off against the allowance

when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

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

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

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

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

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

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

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

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

The Company generally uses a two-year forecast period, based on a single forecast scenario or a blend of multiple forecast scenarios, using variables management believes are most relevant to each portfolio segment.

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

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

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

A summary of our primary portfolio segments is as follows:

Our commercial loan portfolio is comprised of lines of credit for working capital, term loans and leases to finance equipment and other business assets across a variety of industries.

These loans are used for general corporate purposes including financing working capital, internal growth, acquisitions and business insurance premiums and are generally secured by accounts receivable, inventory, equipment and other assets of our clients’ businesses.

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

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

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

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

A summary of the primary portfolio segments is as follows:

The commercial loan portfolio is comprised of lines of credit for working capital, term loans and leases to finance equipment and other business assets across a variety of industries.

The commercial loan portfolio also includes consumer loans because the Company’s small portfolio of consumer loans is largely comprised of accommodation loans to individuals associated with its commercial clients.

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

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

Energy loans are impacted by commodity price volatility, as well as changes in consumer and business demand.

Mortgage finance .

Mortgage finance loans relate to our mortgage warehouse lending operations in which we purchase mortgage loan ownership interests from unaffiliated mortgage originators that are generally held by us for a period of less than 30 days and more typically 10-20 days before they are sold to an approved investor.

Mortgage finance loans relate to mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests from unaffiliated mortgage originators that are generally held for a period of less than 30 days and more typically 10-20 days before they are sold to an approved investor.

Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates and housing demand and tend to peak at the end of each month.

Mortgage finance loans are consistently underwritten based on standards established by the approved investors.

Market conditions or events of default by an investor or originator could require that we repurchase the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days.

Market conditions or events of default by an investor or originator could require that the Company repurchases the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days.

Real estate .

Our real estate portfolio is comprised of the following types of loans:

The real estate portfolio is comprised of the following types of loans:

Commercial real estate (“CRE”) .

Our CRE portfolio is comprised of both construction/development financing and limited term financing provided to professional real estate developers and owners/managers of commercial real estate projects and properties who have a demonstrated record of past success with similar properties.

The CRE portfolio is comprised of both construction/development financing and limited term financing provided to professional real estate developers and owners/managers of commercial real estate

projects and properties who have a demonstrated record of past success with similar properties.

Collateral properties include office buildings, warehouse/distribution buildings, shopping centers, hotels/motels, senior living, apartment buildings and residential and commercial tract development.

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The “other” category is primarily comprised of real estate loans originated through a Small Business Administration (SBA) program where repayment is partially guaranteed by the SBA, as well as other loans secured by real estate where the primary source of repayment is not expected to come from the sale or lease of the real property collateral.

We have several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Within our criticized/classified credit grades are special mention, substandard and doubtful.

The Company has several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Within the criticized/classified credit grades are special mention, substandard and doubtful.

Special mention loans are those that are currently protected by the sound worth and paying capacity of the borrower, but that are potentially weak and constitute an additional credit risk.

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Substandard loans have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt.

They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired.

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

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

The review of the appropriateness of the allowance is performed by executive management and presented to the audit and risk committees of our board of directors for their review.

The committees report to the board as part of the board's review on a quarterly basis of our consolidated financial statements.

As the Company’s portfolio has matured, historical loss ratios have been closely monitored.

The review of the appropriateness of the allowance is performed by executive management and presented to the audit and risk committees of the board of directors for their review.

The committees report to the board as part of the board's quarterly review of the Company’s consolidated financial statements.

When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs, when appropriate.

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The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:

management has a reasonable expectation that a loan will be restructured or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by us.

We do not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as discussed above.

management has a reasonable expectation that a loan will be restructured or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable.

The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as discussed above.

Other Real Estate Owned

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

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

Subsequent write-downs required for declines in value are recorded through a valuation allowance, or taken directly

to the asset, and are recorded in other non-interest expense on the consolidated statements of income and other comprehensive income.

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

Mortgage Servicing Rights, Net

Mortgage servicing rights (“MSRs”) are created by selling mortgage loans with servicing rights retained.

We identify classes of servicing rights based upon the nature of the underlying assumptions used to value the asset along with the risks associated with the underlying asset.

Based upon these criteria we have one class of MSRs, residential.

MSRs are recognized based on the estimated fair value of the mortgage loans and the related servicing rights at the date of sale using values derived from a valuation model.

MSRs are reported on the consolidated balance sheets at amortized cost, less a valuation allowance if the fair value of identified strata within the MSR portfolio are determined to have a fair value that is less than amortized cost.

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

From time to time we may sell MSRs.

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

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

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

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

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

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

MSRs typically do not trade in an active, open market with readily observable prices;

as such, the fair value of MSRs is determined using a discounted cash flow model to calculate the present value of the estimated future net servicing income.

The assumptions utilized in the discounted cash flow model are based on market data for comparable assets, where available.

Each quarter, management and the independent third party review the key assumptions used in the discounted cash flow model and make adjustments as necessary to estimate the fair value of the MSRs.

Goodwill and Other Intangible Assets, Net

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.

Our intangible assets relate primarily to loan customer relationships purchased as part of business acquisitions.

The Company’s goodwill and intangible assets relate primarily to customer relationships purchased as part of business acquisitions.

Intangible assets with definite useful lives are amortized over their estimated life.

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The Company has undertaken certain guarantee obligations in the ordinary course of business which include liabilities with off-balance sheet risk.

We consider the following arrangements to be guarantees:

The Company considers the following arrangements to be guarantees:

commitments to extend credit, standby letters of credit and indemnification agreements included within third party contractual arrangements.

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

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

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

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

The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to these financial instruments is represented by the contractual amount of the instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower.

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Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

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

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

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

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

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

Those guarantees are primarily issued to support public and private borrowing arrangements.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

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

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

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

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

We establish reserves for estimated losses of this nature inherent in the origination of mortgage loans by estimating the losses inherent in the population of all loans sold based on trends in claims and actual loss severities experienced.

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

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

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

The Company establishes reserves for estimated losses of this nature inherent in the sale of mortgage loans by estimating the

losses inherent in the population of all loans sold based on trends in claims and actual loss severities experienced.

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

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

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

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

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

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

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

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

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

The Company does not separate lease and non-lease components for real estate leases.

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

ROU assets are further adjusted for lease incentives.

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

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

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

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

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

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

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

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The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures.

Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of non-interest income are as follows:

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures.

Descriptions of revenue-generating activities that are within the scope of ASC 606, which are presented in the income statements as components of non-interest income are as follows:

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

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

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

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

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

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

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

Also included are fees received from independent correspondent mortgage lenders as consideration for our purchase of individual residential mortgage loans through our MCA business.

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

Also included are fees received from independent correspondent mortgage lenders as consideration for the purchase of individual residential mortgage loans through the Company’s MCA business.

Revenue related to the mortgage warehouse lending business is recognized when the related loan interest is disposed (i.e., through sale or payoff) or upon receipt of the facility renewal or application.

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

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

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

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

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

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

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

The Company’s performance obligations are generally complete when the transactions generating the fees are processed.

Stock-based Compensation

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

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

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

We utilize the liability method in accounting for income taxes.

The Company utilizes the liability method in accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled.

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

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

as a result the effects become “stranded” in AOCI.

Stranded tax effects caused by the revaluation of deferred taxes are reclassified from AOCI to retained earnings in accordance with ASU 2018-02 “ Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”

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

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

Those techniques are significantly affected by the assumptions

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

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

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

The following are descriptions of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents, Variable Rate Loans, and Variable Rate Debt

Cash and Cash Equivalents, Variable Rate Loans, Variable Rate Short-term Borrowings and Variable Rate Long-term Debt

The fair value of these financial instruments approximates carrying value.

Investment Securities

Within the investment securities portfolio, we hold equity securities that consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan.

The fair value of the Company’s U.S.

Treasury, U.S.

government agency and residential mortgage-backed securities are based on prices obtained from independent pricing services.

The Company’s U.S.

Treasury securities are valued based on quoted market prices for identical securities in an active market and are classified as Level 1 assets in the fair value hierarchy, while the Company’s U.S.

government agency and residential mortgage-backed securities are valued based on quoted market prices for the same or similar securities and are characterized as Level 2 assets in the fair value hierarchy.

Management obtains documentation from the primary independent pricing service regarding the processes and controls applicable to pricing investment securities, and on a quarterly basis independently verify the prices that were received from the service provider using two additional independent pricing sources.

Tax-exempt asset-backed securities and CRT securities are valued using a discounted cash flow model, which utilizes Level 3 inputs, and are classified as Level 3 assets in the fair value hierarchy.

Within the investment securities portfolio, the Company holds equity securities that consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to non-qualified deferred compensation plan.

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

The fair value of our U.S.

government agency and residential mortgage-backed securities are based on prices obtained from independent pricing services that are based on quoted market prices for the same or similar securities, and are characterized as Level 2 assets in the fair value hierarchy.

We obtain documentation from our primary pricing service regarding their processes and controls applicable to pricing investment securities, and on a quarterly basis independently verify the prices that we receive from the service provider using two additional independent pricing sources.

We also hold tax-exempt asset-backed securities and CRT securities that are valued using a discounted cash flow model, which utilizes Level 3 inputs, and are classified as Level 3 assets in the fair value hierarchy.

Loans Held for Sale

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Derivative Assets and Liabilities

The estimated fair value of interest rate swaps and caps is obtained from independent pricing services based on quoted market prices for similar derivative contracts and these financial instruments are characterized as Level 2 assets and liabilities in the fair value hierarchy.

On a quarterly basis, we independently verify the fair value using an additional independent pricing source.

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

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

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

Loan purchase commitments are valued based upon the fair value of the underlying mortgage loans to be purchased, which is based on observable market data for similar loans.

Forward sale commitments are valued based upon quoted market prices from brokers.

As such, these loan purchase commitments and forward sales commitments are characterized as Level 2 assets or liabilities in the fair value hierarchy.

The derivative instruments related to our residential MSRs include interest rate swap futures and forward sale commitments.

The interest rate swap futures are valued based on quoted market prices obtained from brokers for similar derivative contracts, while the forward sale commitments are valued based on the fair value of the underlying mortgage loans to be purchased, which is based on observable market data for similar loans.

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

The estimated fair value of derivative assets and liabilities is obtained from independent pricing services based on quoted market prices for similar derivative contracts and these financial instruments are characterized as Level 2 assets and liabilities in the fair value hierarchy.

On a quarterly basis, management independently verifies the fair value using an additional independent pricing source.

Derivative Financial Instruments

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

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

We enter into interest rate derivative contracts that are not designated as hedging instruments.

These derivative positions relate to transactions in which we enter into an interest rate swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap, cap and/or floor with another financial institution.

In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate.

At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.

The transaction allows our customer to effectively convert a variable rate loan to a fixed rate.

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

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

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

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

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

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

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

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

All contracts that satisfy the definition of a derivative are recorded at fair value in other assets and other liabilities on the consolidated balance sheets, and the related cash flows are recorded in the operating activities section of the consolidated statement of cash flows.

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

Non-Hedging Derivatives

The Company enters into an interest rate swap, cap and/or floor derivative instruments with customers while at the same time entering into offsetting interest rate swap, cap and/or floor derivative instruments with another financial institution.

In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate.

At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.

The transaction allows the customer to effectively convert a variable rate loan to a fixed rate.

Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative instruments substantially offset each other and do not have a material impact on the Company’s results of operations.

The Company offers forward contract derivative instruments, such as to-be-announced U.S.

agency residential mortgage-back securities, to its mortgage banking customers to allow the customers to mitigate exposure to market risks associated with the purchase or origination of mortgage loans.

To mitigate the Company’s exposure to these forward contracts, the Company will enter offsetting forward contracts, most typically with a financial institution.

Any changes in fair value to the forward contract derivative instruments are recorded in investment banking and trading income on the consolidated statements of income and other comprehensive income.

The Company also offers foreign currency forward contracts derivative instruments in which the Company enters into a contract with a customer to buy or sell a foreign currency at a future date for a specified price while at the same time entering into an offsetting contract with a financial institution to buy or sell the same currency at the same future date for a specified

The transaction allows the customer to manage their exposure to foreign currency exchange rate fluctuations.

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

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

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

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

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

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

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

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

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

Derivatives Designated as Hedges

The Company enters into interest rate derivative contracts that are 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.

Segment Reporting

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

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

(2) Earnings Per Share

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Net income available to common stockholders $ 315,228 $ 235,218 $ 56,539

Denominator for basic earnings per share—weighted average shares 50,580,660 50,430,326 50,286,300

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

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

Denominator for basic earnings per common share—weighted average common shares 50,457,746 50,580,660 50,430,326

Effect of dilutive outstanding stock-settled awards 588,996 560,314 152,653

Denominator for dilutive earnings per common share—weighted average diluted common shares 51,046,742 51,140,974 50,582,979

Basic earnings per common share $ 6.25 $ 4.65 $ 1.12

Diluted earnings per common share $ 6.18 $ 4.60 $ 1.12

(1) SARs and RSUs outstanding of 93,945 , 453,024 and 86,308 in 2021, 2020 and 2019, respectively, have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented.

Anti-dilutive outstanding stock-settled awards 311,226 93,945 453,024

(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 the Company’s investment securities:

(in thousands) Amortized

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December 31, 2022

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

Residential mortgage-backed securities 3,288,261 156 ( 63,039 ) 3,225,378

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

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

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

December 31, 2020

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

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

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

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

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

(1) Excludes accrued interest receivable of $ 6.6 million and $ 6.0 million at December 31, 2021 and 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

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

(dollars in thousands) Less Than

One Year After One

Five Years After Five

Ten Years After Ten

December 31, 2021

Available-for-sale debt securities:

Treasury securities $ 698,769 $ — $ ( 28,187 ) $ 670,582

government agency securities 125,000 — ( 22,846 ) 102,154

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

Estimated fair value — — 120,944 — 120,944

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

Residential mortgage-backed securities 2,162,364 3 ( 331,320 ) 1,831,047

Amortized cost $ 48 $ 153 $ 17,324 $ 3,270,736 $ 3,288,261

Estimated fair value 53 166 16,547 3,208,612 3,225,378

Weighted average yield(3) 4.35 % 4.69 % 1.08 % 1.12 % 1.12 %

Tax-exempt asset-backed securities — — — —

Amortized Cost $ — $ — $ — $ 170,626 $ 170,626

Estimated fair value — — — 180,033 180,033

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

CRT securities 14,713 — ( 2,852 ) 11,861

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

Estimated fair value — — 11,846 — 11,846

Weighted average yield(3) — % — % 0.12 % — % 0.12 %

Total available-for-sale debt securities 3,000,846 3 ( 385,205 ) 2,615,644

Amortized cost $ 3,598,600

Estimated fair value $ 3,538,201

Held-to-maturity debt securities:

Residential mortgage-backed securities 935,514 — ( 118,600 ) 816,914

Total held-to-maturity debt securities 935,514 — ( 118,600 ) 816,914

Equity securities 33,956

Total investment securities(2) $ 3,585,114

December 31, 2021

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.

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:

Equity securities 45,607

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

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

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

In the second quarter of 2022, the Company’s 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 December 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 $ 14 $ 14 $ — $ —

Due after one year through five years 698,769 670,582 — —

Due after five years through ten years 156,551 128,026 — —

Due after ten years 2,145,512 1,817,022 935,514 816,914

Total $ 3,000,846 $ 2,615,644 $ 935,514 $ 816,914

The following table discloses the Company’s 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:

Less Than 12 Months 12 Months or Longer Total

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December 31, 2022

Treasury securities $ 670,582 $ ( 28,187 ) $ — $ — $ 670,582 $ ( 28,187 )

government agency securities — — 102,154 ( 22,846 ) 102,154 ( 22,846 )

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

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

At December 31, 2022, the Company had 103 available-for-sale debt securities in an unrealized loss position, comprised of 13 U.S.

Treasury securities, five U.S.

government agency securities, 83 residential mortgage-backed securities and two CRT securities.

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

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 AOCI.

Available-for-sale debt securities with carrying values of approximately $ 22.0 million and $ 2.0 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at December 31, 2021.

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.

The Company does not intend to sell and it is not more likely than not that the Company 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 has, therefore recorded the unrealized losses related to this portfolio in AOCI.

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

At December 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 $ 16.1 million and $ 1.4 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at December 31, 2022.

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

Equity Securities

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

At December 31, 2021 and December 31, 2020, we had $ 45.6 million and $ 33.8 million, respectively, in equity securities recorded at fair value.

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

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:

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Net gains/(losses) recognized during the period $ ( 7,876 ) 2,277

Realized net gains/(losses) recognized during the period on equity securities sold 1,065 1,418

Unrealized net gains/(losses) recognized during the period on equity securities still held $ 1,212 $ 1,580

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

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

Realized net gains/(losses) recognized on securities sold 714 1,065

Unrealized net gains/(losses) recognized on securities still held $ ( 8,590 ) 1,212

(4) Loans and Allowance for Credit Losses on Loans

Loans are summarized by portfolio segment as follows:

(in thousands) 2022 2021

Loans held for investment(1):

Commercial $ 8,902,948 $ 9,897,561

4 unchanged sentences

Unearned income (net of direct origination costs) ( 63,580 ) ( 65,007 )

Total loans held for investment 19,287,340 22,806,954

Allowance for credit losses on loans ( 253,469 ) ( 211,866 )

Total loans held for investment, net $ 19,033,871 $ 22,595,088

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

Loans held for sale:

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

Non-mortgage loans, at lower of cost or fair value 36,357 —

Total loans held for sale $ 36,357 $ 8,123

(1) Excludes accrued interest receivable of $ 100.4 million and $ 50.9 million at December 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:

The following tables summarize 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

34 unchanged sentences

Total real estate $ 1,437,544 $ 1,073,010 $ 770,709 $ 550,826 $ 311,001 $ 541,571 $ 470,745 $ 43,237 $ 5,198,643

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

Total $ 3,524,436 $ 2,318,862 $ 1,217,215 $ 1,143,913 $ 1,134,112 $ 3,450,576 $ 6,495,256 $ 66,550 $ 19,350,920

(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.

10 unchanged sentences

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

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

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

3 unchanged sentences

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

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

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

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

The Company recorded a $ 61.5 million provision for credit losses for the year ended December 31, 2022, compared to a $ 29.8 million negative provision for the same period of 2021.

The $ 61.5 million provision for credit losses resulted primarily from updated views on the downside risks to the economic forecast and an increase in net charge-offs during 2022.

Net charge-offs for the year ended December 31, 2022 were $ 19.9 million, compared to $ 12.9 million during the same period of 2021.

Criticized loans totaled $ 513.2 million at December 31, 2022 and $ 582.9 million at December 31, 2021.

1 unchanged sentence

There were no loans that met these criteria at December 31, 2022.

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

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

(in thousands) 30-59 Days

5 unchanged sentences

Energy — — — — 3,658 1,155,638 1,159,296 3,658

Mortgage finance loans — — — — — 7,475,497 7,475,497 —

Mortgage finance — — — — — 4,090,033 4,090,033 —

CRE 440 — — 440 182 3,551,677 3,552,299 —

2 unchanged sentences

Secured by 1-4 family — — — — — 323,280 323,280 —

Total loans held for investment $ 8,199 $ 16,023 $ 3,467 $ 27,689 $ 72,502 $ 22,771,770 $ 22,871,961 $ 17,965

(1) Loans past due 90 days and still accruing includes premium finance loans of $ 3.3 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 December 31, 2021 and December 31, 2020, none of our non-accrual loans were earning interest income on a cash basis.

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

Total $ 9,592 $ 3,041 $ 131 $ 12,764 $ 48,338 $ 19,289,818 $ 19,350,920 $ 45,134

(1) As of December 31, 2022 $ 2.2 million of non-accrual loans were earning interest income on a cash basis compared to none as of December 31, 2021.

Additionally, $ 801,000 and $ 624,000 of interest income was recognized on non-accrual loans for the years ended December 31, 2022 and 2021, respectively.

Accrued interest of $ 1.6 million and $ 1.2 million was reversed during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 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 December 31, 2021 and 2020, $ 19.4 million and $ 45.4 million, respectively, met the criteria for restructured.

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

Of the non-accrual loans at December 31, 2022 and 2021, $ 531,000 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 year ended December 31, 2021.

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

The following table details the recorded investment at December 31, 2022 of loans restructured during the year ended December 31, 2022:

Extended Maturity Adjusted Payment Schedule Total

2 unchanged sentences

Commercial — $ — 1 $ 531 1 $ 531

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

Total — — 1 531 1 531

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

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

(5) Certain Transfers of Financial Assets

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

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

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

We sold the remaining MSR balance of $ 1.2 million, which represented MSRs from loans sold after the cut-off date for the initial sale mentioned above.

The sale of this MSR portfolio and the transfer of servicing on the underlying mortgage loans were completed on October 1, 2021, at which time all remaining MSR hedge positions were closed.

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

Year Ended December 31,

(in thousands) 2021 2020

Outstanding balance(1):

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

Loans purchased and originated 1,413,899 11,366,986

Payments and loans sold ( 1,686,567 ) ( 13,654,211 )

Ending balance 8,469 281,137

Fair value adjustment:

Beginning balance 2,028 8,772

Increase/(decrease) to fair value ( 2,374 ) ( 6,744 )

Ending balance ( 346 ) 2,028

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

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

No loans held for sale were on non-accrual as of December 31, 2021.

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

At December 31, 2021 and December 31, 2020, we had $ 4.0 million and $ 16.7 million, respectively, in loans held for sale that were 90 days or more past due.

The $ 4.0 million in loans held for sale that were 90 days or more past due at December 31, 2021 was comprised of loans guaranteed by U.S.

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

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

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

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

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

A summary of MSR activity is as follows:

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

The restructuring of these loans did not have a significant impact on the allowance for credit losses at December 31, 2022 or 2021.

As of December 31, 2022 and 2021, the Company did not have any loans that were restructured within the last 12 months that subsequently defaulted.

The following table presents ROU assets and lease liabilities:

Year Ended December 31,

(in thousands) 2022 2021

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

Capitalized servicing rights 15,990 99,678

Amortization ( 18,663 ) ( 38,994 )

Direct write-down ( 279 ) —

Sales ( 128,439 ) —

Balance, end of period $ — $ 131,391

Valuation allowance:

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

Increase (decrease) in valuation allowance ( 25,967 ) 20,164

Balance, end of period $ — $ 25,967

MSRs, net $ — $ 105,424

MSRs, fair value $ — $ 105,424

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

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

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

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

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

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

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

Average discount rates 9.09 %

Expected prepayment speeds 16.37 %

Weighted-average life, in years 4.9

(in thousands) 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 $ 400,000 and $ 621,000 at December 31, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets.

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

The following table presents ROU assets and leases liabilities:

(in thousands) 2021 2020

Finance leases $ 2,865 $ 259

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Total $ 82,754 $ 55,589

Leases liabilities

Lease liabilities

Finance leases $ 2,877 $ 259

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Total $ 106,691 $ 69,443

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

These leases will commence in the first quarter of 2022.

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

The table below summarizes our net lease cost:

As of December 31, 2022, operating leases had remaining lease terms of generally 1 year to 17 years, while finance leases had remaining terms of generally 2 years.

The table below summarizes the Company’s net lease cost:

Year Ended December 31,

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ROU assets obtained in exchange for new operating leases 57,544 2,109

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

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

Year Ended December 31,

Weighted-average remaining lease term - finance leases, in years 2.2 2.7

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Weighted-average discount rate - operating leases 4.16 % 2.30 %

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

The table below summarizes the maturity of remaining lease liabilities as of December 31, 2022:

(in thousands) Finance Leases Operating Leases Total

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Total goodwill and intangible assets $ 24,474 $ ( 7,212 ) $ 17,262

On November 1, 2022, the sale of BDCF was completed, resulting in the removal of goodwill and other intangible assets, net of accumulated amortization, of $ 15.4 million.

In 2022 and 2021, the annual test of goodwill impairment was performed, and in both periods, no impairment was indicated.

Amortization expense related to intangible assets totaled $ 338,000 in 2022, $ 405,000 in 2021 and $ 432,000 in 2020.

The estimated aggregate future amortization expense for intangible assets remaining as of December 31, 2021 is as follows:

(in thousands)

Thereafter 577

Total $ 2,168

(8) Premises and Equipment

(7) Premises & Equipment

Premises and equipment are summarized as follows:

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(in thousands) 2022 2021

Non-interest-bearing demand deposits $ 13,390,370 $ 12,740,947

Non-interest bearing deposits $ 9,618,081 $ 13,390,370

Interest bearing deposits:

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Total $ 1,512,579

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

(10) Short-Term and Other Borrowings

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

At December 31, 2022 and 2021, interest bearing time deposits greater than $250,000 were approximately $ 258.4 million and $ 186.0 million, respectively.

(9) Short-Term Borrowings and Long-Term Debt

The table below presents a summary of the Company’s short-term borrowings, all of which mature within one year:

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

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Maximum month-end outstanding during the year $ 302,301 $ 5,487 $ 2,600,000

The following table summarizes our other borrowing capacities net of balances outstanding.

As of December 31, 2021, all are scheduled to mature within one year.

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

(in thousands) 2022 2021

FHLB borrowing capacity relating to loans $ 5,190,703 $ 7,653,317

FHLB borrowing capacity relating to securities 3,352,111 2,946,539

Total FHLB borrowing capacity(1) $ 8,542,814 $ 10,599,856

Unused federal funds lines available from commercial banks $ 892,000 $ 1,030,000

Unused Federal Reserve borrowings capacity $ 2,414,702 $ 2,179,000

Unused revolving line of credit(2) $ 75,000 $ 130,000

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

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

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

The loan agreement contains customary financial covenants and restrictions.

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

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

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

(11) Long-Term Debt

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

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

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

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 272,492 $ 270,487

Bank-issued 5.25 % fixed rate subordinated notes due 2026

174,196 173,935

Company-issued 4.00 % fixed rate subordinated notes due 2031

371,348 370,910

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

Total long-term debt $ 931,442 $ 928,738

The following table summarizes the significant terms of the Company’s trust preferred subordinated debentures:

(dollars in thousands) Texas Capital

Statutory Trust I Texas Capital

Trust II Texas Capital

Trust III Texas Capital

Trust IV Texas Capital

Statutory Trust II Texas Capital

Statutory Trust III Texas Capital

Statutory Trust IV Texas Capital

Statutory Trust V

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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 $ 275.0 million of senior unsecured credit-linked notes.

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

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

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

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

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

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

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

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

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

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

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

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

The indenture governing the notes contains customary covenants and restrictions.

(10) Financial Instruments with Off-Balance Sheet Risk

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

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

Year Ended December 31,

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

Impact of CECL adoption — 563

Provision for off-balance sheet credit losses 4,528 ( 169 )

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Standby letters of credit - period end balance 417,896 357,672

(13) Regulatory Restrictions

(11) Regulatory Ratios and Capital

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

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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.

Additionally, the Basel III Capital Rules require that the Company maintains 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 the Company’s common stock during 2022, 2021 or 2020.

On April 19, 2022, the Company’s board of directors authorized the Company to repurchase up to $ 150.0 million in shares of its outstanding common stock.

During the year ended December 31, 2022, the Company repurchased 2,083,118 shares

of its common stock for an aggregate price of $ 115.3 million, at a weighted average price of $ 55.35 per share.

On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $ 150.0 million in shares of its outstanding common stock.

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.

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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.

The Company 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.

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

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

Because the 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.

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

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

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 the Bank’s condition and results of operations.

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

At the beginning of each of the last five years of the life of the Bank issued fixed rate subordinated notes due 2026, 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 2022, the amount of the notes that qualify as Tier 2 capital has been reduced by 40%.

The table below summarizes the Company’s and the Bank’s actual and required capital ratios under the Basel III Capital Rules.

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

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

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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 balance for any period.

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

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

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

linked notes in the first quarter of 2021 that effectively transfer the risk of first losses on a $ 2.2 billion reference pool of the Bank's mortgage warehouse loans to the purchasers of the notes in an amount up to $ 275.0 million.

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

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

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

No dividends were declared or paid on our common stock during 2021, 2020 or 2019.

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

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

however, the Federal Reserve reduced the reserve requirement ratio to zero effective March 26, 2020, therefore the total requirement was zero at both December 31, 2022 and 2021.

(12) Stock-Based Compensation and Employee Benefits

We have a qualified retirement plan with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (“the 401(k) Plan”).

The 401(k) Plan permits our employees to defer a portion of their compensation.

The Company has a qualified retirement plan with a salary deferral feature designed to qualify under Section 401 of the Internal Revenue Code (“the 401(k) Plan”).

The 401(k) Plan permits employees to defer a portion of their compensation.

Matching contributions may be made in amounts and at times determined by the Company.

We contributed approximately $ 10.2 million, $ 10.3 million, and $ 9.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

These contributions were approximately $ 13.3 million, $ 10.2 million and $ 10.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Employees are eligible to participate in the 401(k) Plan when they meet certain requirements concerning minimum age and period of credited service.

All contributions to the 401(k) Plan are invested in accordance with participant elections among certain investment options.

We also offer a non-qualified deferred compensation plan for our executives and key members of management in order to assist us in attracting and retaining these individuals.

The Company also offers a non-qualified deferred compensation plan for executives and key members of management in order to assist in attracting and retaining these individuals.

Participants in the plan may elect to defer up to 75% of their annual salary and/or short-term incentive payout into deferral accounts that mirror the gains or losses of investments selected by the participants.

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

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

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

The Company did not make a matching contribution in 2022, compared to matching contributions of $ 274,000 in 2021 and $ 1.0 million in 2020.

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

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

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

The Company has an Employee Stock Purchase Plan (“ESPP”).

Employees are eligible for the ESPP when they meet certain requirements concerning period of credited service and minimum hours worked.

Eligible employees may contribute a between 1 % and 10 % of eligible compensation up to the Section 423 of the Internal Revenue Code limit of $25,000.

Eligible employees may contribute between 1 % and 10 % of eligible compensation up to the Section 423 of the Internal Revenue Code limit of $25,000.

Employee contributions to the ESPP were temporarily suspended throughout 2020.

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As of December 31, 2022, 2021 and 2020, 184,263 , 164,033 and 155,933 shares, respectively, had been purchased on behalf of employees under the ESPP.

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

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

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

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

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

A total of 1,400,000 shares are authorized for grant under the current plan.

Total shares remaining available for grant under the current plan at December 31, 2022 were 1,143,773 .

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

A summary of the Company’s SAR activity and related information is as follows.

Grants of SARs include time-based vesting conditions that generally vest ratably over a period of five years .

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Unrecognized compensation expense $ — $ — $ —

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

Intrinsic value of exercised $ 64,000 $ 302,000 $ 294,000

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

A summary of the Company’s RSU activity and related information is as follows.

Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of three to five years .

13 unchanged sentences

Weighted average years over which unrecognized compensation expense is expected to be recognized 2.31 2.79 2.83

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

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

The Company may make grants of restricted common stock to various non-employee directors as to which restrictions lapse ratably over a period of three years .

No grants of restricted stock were made during 2022, 2021 or 2020 and no compensation expense was recorded during 2022, compared to compensation expense of $ 1,000 and $ 26,000 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2022, there were no remaining restrictions on any grants of restricted common stock.

Total compensation cost for grants of stock-settled units was $ 21.2 million, $ 30.1 million and $ 15.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

The Company did not have cash-settled RSUs outstanding at December 31, 2022.

No grants of cash-settled RSUs were made in 2022, 2021 or 2020.

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

Compensation cost for the cash-settled units was $ 1.3 million, $ 1.8 million and $ 5.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Compensation cost for the cash-settled units was $ 186,000 , $ 1.3 million and $ 1.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(13) Income Taxes

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The reconciliation of income tax at the U.S.

federal statutory tax rate to our income tax expense and effective tax rate is as follows:

federal statutory tax rate to income tax expense and effective tax rate is as follows:

Year ended December 31,

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Total $ 99,277 23 % $ 84,116 25 % $ 25,657 28 %

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

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

We are no longer subject to U.S.

At December 31, 2022, 2021 and 2020, the Company had unrecognized tax benefits of $ 889,000 , $ 722,000 and $ 1.1 million, respectively.

The Company is no longer subject to U.S.

federal income tax examinations for years before 2019 or state and local income tax examinations for years before 2018.

The table below summarizes significant components of our deferred tax assets and liabilities utilizing the federal corporate income tax rate of 21%.

The table below summarizes significant components of deferred tax assets and liabilities utilizing the federal corporate income tax rate of 21%.

Management believes it is more likely than not that all of the deferred tax assets will be realized.

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

(in thousands) 2022 2021

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Allowance for credit losses $ 62,154 $ 51,738

Operating lease liabilities 15,615 17,983

Lease liabilities 24,091 15,615

Loan origination fees 14,385 11,204

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Non-qualified deferred compensation 4,782 6,705

Unrealized loss on securities 12,684 —

Net unrealized losses in AOCI 111,365 12,684

Other 4,678 1,671

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Leases ( 12,863 ) ( 8,414 )

Operating lease ROU assets ( 14,266 ) ( 16,617 )

MSRs — ( 22,566 )

Lease ROU assets ( 19,807 ) ( 14,266 )

Depreciation ( 9,034 ) ( 10,567 )

Unrealized gain on securities — ( 4,193 )

Other ( 284 ) ( 3,446 )

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(14) 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.

The Company determines the fair market values of its assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in ASC 820.

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

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Available-for-sale debt securities:(1)

Treasury securities $ 670,582 $ — $ —

government agency securities — 102,154 —

Residential mortgage-backed securities — 1,831,047 —

Tax-exempt asset-backed securities — — 180,033

CRT securities — — 11,861

Equity securities(1)(2) 22,879 11,077 —

Loans held for sale(3) — 465 7,658

Derivative assets(4) — 13,504 —

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

Loans held for sale(3) — 232,147 6,933

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

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

Derivative assets(4) — 37,788 —

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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.

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

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

(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.

(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 non-qualified deferred compensation plan.

(3) Mortgage loans held for sale 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.

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Loans held for sale(2) 6,933 2,125 ( 1,428 ) 5 23 7,658

(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.

(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).

(2) Realized and unrealized gains/(losses) on loans held for sale are recorded in 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 weighted-average life.

At December 31, 2021, the discount rates utilized ranged from 2.55 % to 2.66 % and the weighted-average life ranged from 4.59 years to 4.63 years.

On a combined amortized cost weighted-average basis a discount rate of 2.60 % and a weighted-average life of 4.61 years were utilized to determine the fair value of these securities at December 31, 2021.

The securities were redeemed in full in the second quarter of 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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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.

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 December 31, 2021, the fair value of these loans was calculated using a weighted-average discounted price of 97.8 %, 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 December 31, 2021.

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

There were no loans held for sale that were measured at fair value on a recurring basis at December 31, 2022.

At December 31, 2021, the fair value of loans held for sale was calculated using a weighted-average discounted price of 97.8 %.

Fair Value of Financial Instruments

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

December 31, 2021 December 31, 2020

(in thousands) Carrying

Amount Estimated

Fair Value Carrying

Amount Estimated

Amount Estimated Fair Value

(in thousands) Total Level 1 Level 2 Level 3

December 31, 2022

Financial assets:

Level 1 inputs:

Cash and cash equivalents $ 5,012,260 $ 5,012,260 $ 5,012,260 $ — $ —

Investment securities 33,589 33,589 26,593 26,593

Level 2 inputs:

Investment securities 3,358,340 3,358,340 2,959,784 2,959,784

Available-for-sale debt securities 2,615,644 2,615,644 670,582 1,933,201 11,861

Held-to-maturity debt securities 935,514 816,914 — 816,914 —

Equity securities 33,956 33,956 22,879 11,077 —

Loans held for sale 36,357 36,357 — — 36,357

Loans held for investment, net 19,033,871 18,969,922 — — 18,969,922

Derivative assets 13,504 13,504 — 13,504 —

Level 3 inputs:

Investment securities 191,879 191,879 210,593 210,593

Financial liabilities:

Total deposits 22,856,880 22,857,949 — — 22,857,949

Short-term borrowings 1,201,142 1,201,142 — 1,201,142 —

Long-term debt 931,442 881,716 — 881,716 —

Derivative liabilities 91,758 91,758 — 91,758 —

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 2,832 2,832 111,751 111,751

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 28,109,365 28,109,762 30,996,589 30,997,980

(15) 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 during the third quarter of 2021 as a result of the sale of our MSR portfolio and transition of the MCA program to a third-party.

December 31, 2022 December 31, 2021

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Amount Asset Derivative Liability Derivative

Derivatives designated as hedges

Cash flow hedges:

Interest rate contracts:

Swaps hedging loans $ 3,000,000 $ — $ 86,378 $ — $ — $ —

Non-hedging derivatives

Financial institution counterparties:

Commercial loan/lease interest rate swaps $ 1,768,045 $ 3,228 $ 37,694 $ 1,922,956 $ 71 $ 96,246

Commercial loan/lease interest rate caps 191,291 94 — 565,634 34 —

Foreign currency forward contracts — — — 6,667 214 78

Customer counterparties:

Commercial loan/lease interest rate swaps 1,768,045 37,694 3,228 1,922,956 96,246 71

Commercial loan/lease interest rate caps 191,291 — 94 565,634 — 34

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

Customer-initiated and other derivatives:

Interest rate contracts:

Swaps 4,396,367 83,529 83,529 3,536,090 40,922 40,922

Caps and floors written 220,142 — 2,583 191,291 94 —

Caps and floors purchased 220,142 2,583 — 191,291 — 94

Forward contracts 1,569,326 4,431 4,053 — — —

Gross derivatives 90,543 176,543 41,016 41,016

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

Netting adjustment - offsetting derivative assets/liabilities ( 5,164 ) ( 5,164 ) ( 3,228 ) ( 3,228 )

Netting adjustment - cash collateral received/posted ( 71,875 ) ( 79,621 ) — —

Net derivatives included on the consolidated balance sheets $ 13,504 $ 91,758 $ 37,788 $ 37,788

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

December 31, 2021

Weighted-Average Interest Rate December 31, 2020

Weighted-Average Interest Rate

Received Paid Received Paid

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

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

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

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

The Company’s 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 $ 37.8 million at December 31, 2021 and approximately $ 102.7 million at December 31, 2020.

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

At December 31, 2021, we had $ 40.3 million in cash collateral pledged for these derivatives that is included in interest-bearing deposits in other banks.

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

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 seven risk participation agreements where we are a participant bank with a notional amount of $ 79.2 million at December 31, 2021, compared to nine risk participation agreements having a notional amount of $ 119.5 million at December 31, 2020.

The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 13.5 million at December 31, 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 December 31, 2022, the Company had $ 89.2 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 72.5 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.

The Company also enters into credit risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which the Company is either a participant or a lead bank.

The risk participation agreements entered into by the Company 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.

The Company is party to 19 risk participation agreements where it acts as a participant bank with a notional amount of $ 291.2 million at December 31, 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 $ 8.9 million at December 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 December 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 15 risk participation agreements where we are the lead bank having a notional amount of $ 156.1 million at December 31, 2021, compared to 16 agreements having a notional amount of $ 165.9 million at December 31, 2020.

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

The Company is party to 18 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 222.0 million at December 31, 2022, compared to 15 agreements having a notional amount of $ 156.1 million at December 31, 2021.

Derivatives Designated as Cash Flow Hedges

During 2022, the Company 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 2022, the Company recorded $ 85.8 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 1.8 million from AOCI into interest income on loans.

Based on current market conditions, the Company estimates that during the next 12 months, an additional $ 50.9 million will be reclassified from AOCI as a decrease to interest income.

As of December 31, 2022, the maximum length of time over which forecasted transactions are hedged is 3.75 years.

(16) Accumulated Other Comprehensive Income

The following table provides the change in AOCI by component:

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

Year Ended December 31, 2022

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

Change in unrealized gain/(loss) ( 85,846 ) ( 324,803 ) ( 69,165 ) ( 479,814 )

Amounts reclassified into net income 1,803 — 8,102 9,905

Total other comprehensive income/(loss) ( 84,043 ) ( 324,803 ) ( 61,063 ) ( 469,909 )

Income tax expense/(benefit) ( 17,649 ) ( 68,209 ) ( 12,823 ) ( 98,681 )

Total other comprehensive income/(loss), net of tax ( 66,394 ) ( 256,594 ) ( 48,240 ) ( 371,228 )

Ending balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 )

Year Ended December 31, 2021

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

Change in unrealized gain/(loss) — ( 80,366 ) — ( 80,366 )

Amounts reclassified into net income — — — —

Total other comprehensive income/(loss) — ( 80,366 ) — ( 80,366 )

Income tax expense/(benefit) — ( 16,877 ) — ( 16,877 )

Total other comprehensive income/(loss), net of tax — ( 63,489 ) — ( 63,489 )

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

(17) Related Party Transactions

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

During 2022 and 2021, the Company has had transactions with its directors, executive officers and their affiliates and its employees.

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

6 unchanged sentences

Cash and cash equivalents $ 245,777 $ 438,761

Loans held for investment — 7,500

Investment in subsidiaries 3,183,767 3,155,954

5 unchanged sentences

Total liabilities 491,508 487,984

Stockholders’ Equity:

Preferred stock 300,000 300,000

9 unchanged sentences

(in thousands) 2022 2021 2020

Interest on loans $ 3,404 $ 3,402 $ 3,401

Interest on notes receivable $ 3,250 $ 3,404 $ 3,402

Dividend income 10,529 10,472 10,496

20 unchanged sentences

Equity in undistributed income of subsidiary ( 337,946 ) ( 258,539 ) ( 68,100 )

Amortization 2,469 101 101

Increase in other assets ( 1,750 ) ( 912 ) ( 1,187 )

Increase (decrease) in other liabilities 2,348 ( 448 ) 297

Amortization expense 438 2,469 101

Changes in operating assets and liabilities:

Accrued interest receivable and other assets ( 2,095 ) ( 1,750 ) ( 912 )

Accrued interest payable and other liabilities 3,086 2,348 ( 448 )

Net cash used in operating activities ( 6,223 ) ( 3,717 ) ( 5,254 )

Investing Activities

Net (increase)/decrease in loans held for investment 7,500 3,000 ( 3,000 )

Net decrease in loans held for investment — 7,500 3,000

Investments in and advances to subsidiaries ( 50,000 ) — —

Net cash provided by/(used in) investing activities ( 50,000 ) 7,500 3,000

Financing Activities

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

Issuance of stock related to stock-based awards ( 4,209 ) ( 3,121 ) ( 1,986 )

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

Redemption of preferred stock — ( 150,000 ) —

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

Preferred stock dividends paid ( 17,250 ) ( 18,721 ) ( 9,750 )

Repurchase of common stock ( 115,302 ) — —

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

Issuance of long-term debt 370,625 — —

Net proceeds from Issuance of long-term debt — 370,625 —

Net cash provided by/(used in) financing activities ( 136,761 ) 377,506 ( 11,736 )

3 unchanged sentences

(19) 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.

On April 19, 2022, the Company’s board of directors authorized the Company to repurchase up to $ 150.0 million in shares of its outstanding common stock.

During the year ended December 31, 2022, the Company repurchased 2,083,118 shares of its common stock for an aggregate price of $ 115.3 million, at a weighted average price of $ 55.35 per share.

On March 3, 2021, the Company 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 the board of directors to the extent that the Company has 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.

1 unchanged sentence

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.

A portion of the proceeds were also used to redeem, in whole, the 6.50 % non-cumulative perpetual preferred stock Series A, par value $ 0.01 per share, in accordance with its terms.

The redemption of the Series A preferred stock occurred on June 15, 2021.

(20) Quarterly Financial Data (unaudited)

The tables below summarize our quarterly financial information:

The tables below summarize quarterly financial information:

2022 Selected Quarterly Financial Data

13 unchanged sentences

Basic earnings per share $ 4.28 $ 0.74 $ 0.59 $ 0.70

$ 1.20 $ 0.76 $ 1.31 $ 1.33

Diluted earnings per share $ 4.23 $ 0.74 $ 0.59 $ 0.69

$ 1.19 $ 0.76 $ 1.31 $ 1.33

2021 Selected Quarterly Financial Data

7 unchanged sentences

Non-interest expense 146,649 152,987 149,060 150,316

Income/(loss) before income taxes 83,010 72,176 ( 41,922 ) ( 21,318 )

Income tax expense/(benefit) 22,834 15,060 ( 7,606 ) ( 4,631 )

Net income/(loss) 60,176 57,116 ( 34,316 ) ( 16,687 )

Income before income taxes 88,842 57,328 97,036 94,849

Income tax expense 23,712 13,938 23,555 22,911

Net income 65,130 43,390 73,481 71,938

Preferred stock dividends 4,313 4,312 6,317 3,779

Net income/(loss) available to common stockholders $ 57,739 $ 54,678 $ ( 36,753 ) $ ( 19,125 )

Basic earnings/(loss) per share:

$ 1.14 $ 1.08 $ ( 0.73 ) $ ( 0.38 )

Diluted earnings/(loss) per share:

$ 1.14 $ 1.08 $ ( 0.73 ) $ ( 0.38 )

Net income available to common stockholders $ 60,817 $ 39,078 $ 67,164 $ 68,159

Basic earnings per share $ 1.20 $ 0.76 $ 1.31 $ 1.33

Diluted earnings per share $ 1.19 $ 0.76 $ 1.31 $ 1.33

(21) 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 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 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 is not expected to have a significant impact on the Company’s financial statements.

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 the Company’s consolidated financial statements.

ASU 2022-06, “Reference Rate Reform (Topic 848)” (“ASU 2022-06”) provides optional guidance to ease the potential burden in account for (or recognizing the effects of) reference rate reform on financial reporting.

The objective of the guidance is to provide temporary relief during the transition period away from LIBOR toward new interest rate benchmarks.

The amendments in ASU 2022-06 defer the sunset date provision from December 31, 2022 to December 31, 2024.

ASU 2022-06 was effective immediately upon issuance and is not expected to have an impact on the Company’s financial statements or disclosures.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data