What changed in this filing

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Item 1. Financial Statements

2023-10-19 compared with 2023-07-20 · 103 added, 88 removed, 718 unchanged (21% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands except share data) June 30, 2023 December 31, 2022

(in thousands except share data) September 30, 2023 December 31, 2022

Cash and due from banks $ 216,916 $ 233,637

25 unchanged sentences

Authorized shares - 10,000,000

Issued shares - 300,000 at June 30, 2023 and December 31, 2022

Issued shares - 300,000 at September 30, 2023 and December 31, 2022

300,000 300,000

1 unchanged sentence

Authorized shares - 100,000,000

Issued shares - 51,087,965 and 50,867,298 at June 30, 2023 and December 31, 2022, respectively

Issued shares - 51,110,447 and 50,867,298 at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,039,074 1,025,593

Retained earnings 2,419,555 2,263,502

Treasury stock - 3,095,444 and 2,083,535 shares at cost at June 30, 2023 and December 31, 2022, respectively

Treasury stock - 3,095,444 and 2,083,535 shares at cost at September 30, 2023 and December 31, 2022, respectively

( 175,528 ) ( 115,310 )

6 unchanged sentences

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands except per share data) 2023 2022 2023 2022

48 unchanged sentences

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

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

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

Comprehensive income/(loss):

5 unchanged sentences

Issuance of stock related to stock-based awards — — 19,685 1 ( 328 ) — — — — ( 327 )

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

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

Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927

Balance at March 31, 2023 300,000 $ 300,000 50,947,306 $ 509 $ 1,031,905 $ 2,297,850 ( 3,095,444 ) $ ( 175,528 ) $ ( 374,762 ) $ 3,079,974

Comprehensive income/(loss):

5 unchanged sentences

Issuance of stock related to stock-based awards — — 22,482 — ( 430 ) — — — — ( 430 )

Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927

Balance at September 30, 2023 300,000 $ 300,000 51,110,447 $ 511 $ 1,039,074 $ 2,419,555 ( 3,095,444 ) $ ( 175,528 ) $ ( 505,912 ) $ 3,077,700

See accompanying notes to consolidated financial statements.

16 unchanged sentences

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

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

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

Balance at December 31, 2022 (audited)

10 unchanged sentences

Repurchase of common stock — — — — — — ( 1,011,909 ) ( 60,218 ) — ( 60,218 )

Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927

Balance at September 30, 2023 300,000 $ 300,000 51,110,447 $ 511 $ 1,039,074 $ 2,419,555 ( 3,095,444 ) $ ( 175,528 ) $ ( 505,912 ) $ 3,077,700

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2023 2022

37 unchanged sentences

Cash paid during the period for income taxes 56,161 48,569

Transfers of loans from held for investment to held for sale 126,990 3,137,732

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

5 unchanged sentences

(“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.

The consolidated financial statements include the accounts of TCBI and its wholly owned subsidiary, Texas Capital Bank (the “Bank”), a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs and individual customers.

The Company is headquartered in Dallas with offices in Austin, Houston, San Antonio, and Fort Worth, and has built a network of clients across the country.

Basis of Presentation

81 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands except share and per share data) 2023 2022 2023 2022

13 unchanged sentences

Losses Estimated

June 30, 2023

September 30, 2023

Available-for-sale debt securities:

21 unchanged sentences

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

(1) Excludes accrued interest receivable of $ 9.5 million and $ 6.6 million at June 30, 2023 and December 31, 2022, respectively, related to available-for-sale debt securities and $ 1.5 million and $ 1.5 million at June 30, 2023 and December 31, 2022, respectively, related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Excludes accrued interest receivable of $ 8.1 million and $ 6.6 million at September 30, 2023 and December 31, 2022, respectively, related to available-for-sale debt securities and $ 1.4 million and $ 1.5 million at September 30, 2023 and December 31, 2022, respectively, 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.

2 unchanged sentences

Treasury securities with an amortized cost of $ 56.4 million and realized a gain of $ 489,000 .

The amortized cost and estimated fair value as of June 30, 2023, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity.

The amortized cost and estimated fair value as of September 30, 2023, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity.

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

9 unchanged sentences

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

June 30, 2023

September 30, 2023

Treasury securities $ — $ — $ 623,448 $ ( 25,503 ) $ 623,448 $ ( 25,503 )

9 unchanged sentences

Total $ 932,084 $ ( 37,668 ) $ 1,683,122 $ ( 347,537 ) $ 2,615,206 $ ( 385,205 )

At June 30, 2023, the Company had 112 available-for-sale debt securities in an unrealized loss position, comprised of 11 U.S.

At September 30, 2023, the Company had 111 available-for-sale debt securities in an unrealized loss position, comprised of 11 U.S.

Treasury securities, five U.S.

3 unchanged sentences

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

At June 30, 2023 and December 31, 2022, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

At June 30, 2023, debt securities with carrying values of approximately $ 1.6 million were pledged to secure certain customer deposits at June 30, 2023.

At September 30, 2023 and December 31, 2022, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

At September 30, 2023, debt securities with carrying values of approximately $ 1.5 million were pledged to secure certain customer deposits.

At December 31, 2022, 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.

Equity Securities

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.

Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds, primarily 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:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

6 unchanged sentences

Loans are summarized by portfolio segment as follows:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Loans held for investment(1):

9 unchanged sentences

Loans held for sale:

Mortgage loans, at fair value $ 706 $ —

Non-mortgage loans, at lower of cost or fair value 154,367 36,357

Total loans held for sale $ 155,073 $ 36,357

(1) Excludes accrued interest receivable of $ 105.7 million and $ 100.4 million at June 30, 2023 and December 31, 2022, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Excludes accrued interest receivable of $ 117.1 million and $ 100.4 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

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

1 unchanged sentence

and prior Revolving lines of credit Revolving lines of credit converted to term loans Total

June 30, 2023

September 30, 2023

(1-7) Pass $ 1,408,491 $ 1,855,308 $ 320,579 $ 164,080 $ 214,498 $ 280,472 $ 5,656,437 $ 17,150 $ 9,917,015

55 unchanged sentences

Finance Commercial Real Estate Consumer Total

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Beginning balance $ 185,303 $ 10,745 $ 54,268 $ 3,153 $ 253,469

4 unchanged sentences

Ending balance $ 168,818 $ 6,307 $ 67,203 $ 2,574 $ 244,902

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Beginning balance $ 154,360 $ 6,083 $ 48,247 $ 3,176 $ 211,866

4 unchanged sentences

Ending balance $ 162,461 $ 10,156 $ 58,991 $ 3,005 $ 234,613

The Company recorded a $ 12.0 million provision for credit losses on loans for the six months ended June 30, 2023, compared to a $ 19.3 million provision for the same period of 2022.

The $ 12.0 million provision for credit losses on loans resulted primarily from an increase in non-accrual loans and growth in loans held for investment during the six months ended June 30, 2023.

Net charge-offs of $ 28.1 million were recorded during the six months ended June 30, 2023, compared to net charge-offs of $ 2.1 million during the same period of 2022.

Criticized loans totaled $ 619.4 million at June 30, 2023, $ 513.2 million at December 31, 2022 and $ 603.5 million at June 30, 2022.

The Company recorded a $ 28.5 million provision for credit losses on loans for the nine months ended September 30, 2023, compared to $ 27.6 million for the same period of 2022.

The $ 28.5 million provision for credit losses on loans resulted primarily from increases in criticized loans and total loans held for investment during the nine months ended September 30, 2023.

Net charge-offs of $ 37.1 million were recorded during the nine months ended September 30, 2023, compared to net charge-offs of $ 4.9 million during the same period of 2022.

Criticized loans totaled $ 677.4 million at September 30, 2023, $ 513.2 million at December 31, 2022 and $ 484.0 million at September 30, 2022.

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

At June 30, 2023, the Company had $ 40.4 million in collateral-dependent commercial loans, collateralized by business assets.

At September 30, 2023, the Company had $ 50.4 million in collateral-dependent commercial loans, collateralized by business assets.

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

3 unchanged sentences

Due Non-accrual(1) Current Total Non-accrual With No Allowance

June 30, 2023

September 30, 2023

Commercial $ 12,450 $ 2,242 $ 4,511 $ 19,203 $ 63,129 $ 10,283,318 $ 10,365,650 $ 12,058

3 unchanged sentences

Total $ 15,358 $ 2,242 $ 4,602 $ 22,202 $ 63,129 $ 20,605,807 $ 20,691,138 $ 12,058

(1) As of June 30, 2023, $ 1.4 million of non-accrual loans were earning interest income on a cash basis compared to $ 2.2 million as of December 31, 2022.

Additionally, $ 37,000 of interest income was recognized on non-accrual loans for the six months ended June 30, 2023 compared to none for the same period in 2022.

Accrued interest of $ 1.6 million and $ 4,000 was reversed during the six months ended June 30, 2023 and June 30, 2022, respectively.

(1) As of September 30, 2023, $ 358,000 of non-accrual loans were earning interest income on a cash basis compared to $ 2.2 million as of December 31, 2022.

Additionally, $ 37,000 of interest income was recognized on non-accrual loans for the nine months ended September 30, 2023 compared to $ 801,000 for the same period in 2022.

Accrued interest of $ 1.7 million and $ 100,000 was reversed during the nine months ended September 30, 2023 and September 30, 2022, respectively.

Modifications to Borrowers Experiencing Financial Difficulty

1 unchanged sentence

The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below details gross loans held for investment as of June 30, 2023 made to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 2023:

The table below details gross loans held for investment as of September 30, 2023 made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2023:

(in thousands) Payment

3 unchanged sentences

Extension Total Percentage of

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Commercial $ 271 $ 6,372 $ — $ — $ 6,643 0.03 %

Total $ 271 $ 6,372 $ — $ — $ 6,643 0.03 %

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Commercial $ 31,327 $ 7,065 $ 5,893 $ 14,332 $ 58,617 0.28 %

Total $ 31,327 $ 7,065 $ 5,893 $ 14,332 $ 58,617 0.28 %

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023:

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:

Interest Rate

2 unchanged sentences

(in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Commercial — % 1 to 1

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Commercial 0.70 % 1 to 36

As of June 30, 2023, commercial loans totaling $ 161,000 experienced a default subsequent to being granted a term extension modification in the prior twelve months.

For the three months ended September 30, 2023 there were no loans that experienced a default subsequent to being modified in the prior twelve months.

During the nine months ended September 30, 2023, commercial loans totaling $ 161,000 experienced a default subsequent to being granted a term extension modification in the prior twelve months.

Default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

The table below provides an age analysis of gross loans held for investment as of June 30, 2023 made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02:

The table below provides an age analysis of gross loans held for investment as of September 30, 2023 made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02:

(in thousands) 30-89 Days

1 unchanged sentence

Past Due Non-Accrual Current Total

June 30, 2023

September 30, 2023

Commercial $ — $ — $ 5,893 $ 52,724 $ 58,617

1 unchanged sentence

Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02

The Company did not have any loans that were restructured during the six months ended June 30, 2022.

As of December 31, 2022 and June 30, 2022, 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 June 30, 2022, $ 531,000 and $ 17.3 million, respectively, met the criteria for restructured.

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

Extended Maturity Adjusted Payment Schedule Total

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

Nine months ended September 30, 2022

Commercial loans — $ — 1 $ 604 1 $ 604

Total — $ — 1 $ 604 1 $ 604

As of December 31, 2022 and September 30, 2022, the Company did no t have any loans considered restructured that were not on non-accrual.

Of the non-accrual loans at December 31, 2022 and September 30, 2022, $ 531,000 and $ 2.2 million, respectively, met the criteria for restructured.

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

1 unchanged sentence

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

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Customer repurchase agreements $ — $ 1,142

2 unchanged sentences

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

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 198,997 $ 272,492

14 unchanged sentences

Real Estate Consumer Total

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Beginning balance $ 16,550 $ — $ 5,222 $ 21 $ 21,793

1 unchanged sentence

Ending balance $ 32,349 $ 13 $ 13,755 $ 153 $ 46,270

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Beginning balance $ 15,107 $ — $ 2,136 $ 22 $ 17,265

1 unchanged sentence

Ending balance $ 15,867 $ — $ 5,757 $ 24 $ 21,648

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Commitments to extend credit - period end balance $ 9,704,070 $ 9,673,082

9 unchanged sentences

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

No dividends were declared or paid on the Company’s common stock during the six months ended June 30, 2023 or 2022.

No dividends were declared or paid on the Company’s common stock during the nine months ended September 30, 2023 or 2022.

In January 2023, the Company completed the full $ 150.0 million of share repurchases authorized by the Company’s board of directors on April 19, 2022.

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.

During the six months ended June 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an aggregate price of $ 59.7 million, at a weighted average price of $ 58.98 per share.

During the nine months ended September 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an

aggregate price of $ 59.7 million, at a weighted average price of $ 58.98 per share.

The aggregate purchase price and weighted average price per share does not include the effect of excise tax incurred on net stock repurchases.

4 unchanged sentences

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

Management believes, as of June 30, 2023, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Management believes, as of September 30, 2023, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

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

As shown in the table below, the Company’s and Bank’s capital ratios exceeded the regulatory definition of well capitalized as of June 30, 2023 and December 31, 2022.

As shown in the table below, the Company’s and Bank’s capital ratios exceeded the regulatory definition of well capitalized as of September 30, 2023 and December 31, 2022.

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

8 unchanged sentences

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

June 30, 2023

September 30, 2023

Company $ 3,287,021 12.70 % $ 1,811,941 7.00 % N/A N/A

25 unchanged sentences

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 June 30, 2023 and December 31, 2022.

however, the Federal Reserve reduced the reserve requirement ratio to zero effective March 26, 2020, therefore the total requirement was zero at both September 30, 2023 and December 31, 2022.

(8) Stock-Based Compensation

2 unchanged sentences

The table below summarizes the Company’s stock-based compensation expense:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

3 unchanged sentences

Total $ 4,441 $ 5,379 $ 17,948 $ 15,991

(in thousands except period data) June 30, 2023

(in thousands except period data) September 30, 2023

Unrecognized compensation expense related to unvested stock-settled awards $ 33,773

6 unchanged sentences

(in thousands) Level 1 Level 2 Level 3

June 30, 2023

September 30, 2023

Available-for-sale debt securities:(1)

4 unchanged sentences

Equity securities(1)(2) 29,689 10,811 —

Mortgage loans held for sale(3) — 706 —

Loans held for investment(4)

Derivative assets(5)

Securities sold not yet purchased(6)

Derivative liabilities(5)

11 unchanged sentences

(1) Investment securities are measured at fair value on a recurring basis, generally monthly.

(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.

(2) Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds, primarily related to the Company’s non-qualified deferred compensation plan.

(3) Loans held for sale 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.

1 unchanged sentence

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

(6) Securities sold not yet purchased are measured at fair value on a recurring basis, generally monthly.

(7) Non-qualified deferred compensation plan liabilities represent the fair value of the obligation to the employee, which generally corresponds to the fair value of the invested assets, and are measured at fair value on a recurring basis, generally monthly.

3 unchanged sentences

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Available-for-sale debt securities:(1)

CRT securities $ 11,756 $ — $ ( 341 ) $ — $ 676 $ 12,091

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Available-for-sale debt securities:(1)

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

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

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Available-for-sale debt securities:(1)

CRT securities $ 11,861 $ — $ ( 828 ) $ — $ 1,058 $ 12,091

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Available-for-sale debt securities:(1)

7 unchanged sentences

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

At June 30, 2023, the discount rates utilized ranged from 6.25 % to 11.37 % and the weighted-average life ranged from 4.83 years to 8.17 years.

On a combined amortized cost weighted-average basis a discount rate of 8.01 % and a weighted-average life of 5.98 years were utilized to determine the fair value of these securities at June 30, 2023.

At September 30, 2023, the discount rates utilized ranged from 6.89 % to 10.61 % and the weighted-average life ranged from 5.14 years to 7.92 years.

On a combined amortized cost weighted-average basis a discount rate of 8.20 % and a weighted-average life of 6.12 years were utilized to determine the fair value of these securities at September 30, 2023.

At December 31, 2022, the combined weighted-average discount rate and weighted-average life utilized were 8.24 % and 6.26 years, respectively.

1 unchanged sentence

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

The $ 26.0 million fair value of loans held for investment at June 30, 2023 reported above includes impaired loans with a carrying value of $ 40.4 million that were reduced by specific allowance allocations totaling $ 14.3 million based on collateral valuations utilizing Level 3 inputs.

The $ 32.8 million fair value of loans held for investment at September 30, 2023 reported above includes impaired loans with a carrying value of $ 50.4 million that were reduced by specific allowance allocations totaling $ 17.5 million based on collateral valuations utilizing Level 3 inputs.

There were no collateral-dependent loans held for investment reported at fair value at December 31, 2022.

3 unchanged sentences

(in thousands) Total Level 1 Level 2 Level 3

June 30, 2023

September 30, 2023

Financial assets:

10 unchanged sentences

Long-term debt 858,471 788,776 — 788,776 —

Securities sold not yet purchased 9,532 9,532 9,532 — —

Derivative liabilities 119,481 119,481 — 119,481 —

15 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Estimated Fair Value Estimated Fair Value

20 unchanged sentences

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

The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 10.8 million at June 30, 2023 and approximately $ 13.5 million at December 31, 2022.

The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 12.3 million at September 30, 2023 and approximately $ 13.5 million at December 31, 2022.

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

At June 30, 2023, the Company had $ 156.9 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 74.5 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet.

At September 30, 2023, the Company had $ 148.1 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 81.5 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet.

The comparative amounts at December 31, 2022, were $ 89.2 million in cash collateral pledged to counterparties and $ 72.5 million cash collateral received from counterparties.

1 unchanged sentence

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 17 risk participation agreements where it acts as a participant bank with a notional amount of $ 328.2 million at June 30, 2023, compared to 19 risk participation agreements with a notional amount of $ 291.2 million at December 31, 2022.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 9.0 million at June 30, 2023 and $ 8.9 million at December 31, 2022.

The fair value of these exposures was insignificant to the consolidated financial statements at both June 30, 2023 and December 31, 2022.

The Company is party to 16 risk participation agreements where it acts as a participant bank with a notional amount of $ 261.7 million at September 30, 2023, compared to 19 risk participation agreements with a notional amount of $ 291.2 million at December 31, 2022.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 10.4 million at September 30, 2023 and $ 8.9 million at December 31, 2022.

The fair value of these exposures was insignificant to the consolidated financial statements at both September 30, 2023 and December 31, 2022.

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 12 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 166.5 million at June 30, 2023, compared to 18 agreements having a notional amount of $ 222.0 million at December 31, 2022.

The Company is party to 13 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 197.7 million at September 30, 2023, compared to 18 agreements having a notional amount of $ 222.0 million at December 31, 2022.

Derivatives Designated as Cash Flow 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.

During the six months ended June 30, 2023, the Company recorded $ 45.5 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 26.0 million from AOCI into interest income on loans.

During the nine months ended September 30, 2023, the Company recorded $ 66.1 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 43.4 million from AOCI as a decrease to interest income on loans.

Based on current market conditions, the Company estimates that during the next 12 months, an additional $ 70.9 million will be reclassified from AOCI as a decrease to interest income.

As of June 30, 2023, the maximum length of time over which forecasted transactions are hedged is 3.25 years.

As of September 30, 2023, the maximum length of time over which forecasted transactions are hedged is 3.00 years.

(11) Accumulated Other Comprehensive Income

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Beginning balance $ ( 81,785 ) $ ( 313,196 ) $ ( 45,327 ) $ ( 440,308 )

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Ending balance $ ( 84,308 ) $ ( 377,784 ) $ ( 43,820 ) $ ( 505,912 )

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

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

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Beginning balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 )

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Ending balance $ ( 84,308 ) $ ( 377,784 ) $ ( 43,820 ) $ ( 505,912 )

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

6 unchanged sentences

(12) New Accounting Standards

There were no accounting standards or updates issued during the second quarter of 2023.

ASU 2023-05 “Business Combinations - Joint Venture Formations (Subtopic 805-60) – Recognition and Initial Measurement” (“ASU 2023-05”) addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements.

ASU 2023-05 requires certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value.

The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice.

ASU 2023-05 is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025 and is not expected to have an impact on our financial statements .

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

What changed 10-Q

Item 1. Financial Statements