What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-19 compared with 2023-07-20 · 94 added, 77 removed, 284 unchanged (38% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations for the six months ended June 30, 2023 and 2022 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or any future period.

The following discussion and analysis of the Company’s financial condition and results of operations for the nine months ended September 30, 2023 and 2022 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or any future period.

Forward-Looking Statements

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Numerous risks and other factors, many of which are beyond management’s control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

While there can be no assurance that any list of risks is complete, important risk and other factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to, credit quality and risk, the unpredictability of economic and business conditions that may impact the Company or its customers, recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity and regulatory responses to these developments, the Company’s ability to effective manage its liquidity risk and any growth plans and the availability of capital and funding, the Company’s ability to effectively manage information technology systems, cyber incidents or other failures, disruptions or security breaches, interest rates, including the impact of rising rates on the Company’s securities portfolio and funding costs, commercial and residential real estate values, adverse or unexpected economic conditions, including inflation, recession, the threat of recession, and market conditions in Texas, the United States or globally, including governmental and consumer responses to those economic and market conditions, fund availability, accounting estimates and risk management processes, the transition away from the London Interbank Offered Rate (LIBOR), legislative and regulatory changes, enforcement actions and regulatory examinations and investigations, ratings or interpretations, business strategy execution, the failure to identify, attract and retain key personnel and other employees, increased or expanded competition from banks and other financial service providers in the Company’s markets, the failure to maintain adequate regulatory capital, environmental liability associated with properties related to the Company’s lending activities, and severe weather, natural disasters, acts of war, terrorism, global conflict, or other external events, climate change and related legislative and regulatory initiatives as well as the risks more fully described in the 2022 10-K, including the “Risk Factors” section in Part I, Item 1A of the 2022 10-K, Quarterly Reports on Form 10-Q, including the “Risk Factors” section in Part II, Item 1A of this report, and in its other documents and filings with the SEC.

The information contained in this report speaks only as of its date.

Except to the extent required by applicable law or regulation, the Company disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

While there can be no assurance that any list of risks is complete, important risk and other factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to, economic or business conditions in Texas, the United States, or globally that impact TCBI or its customers;

negative credit quality developments arising from the foregoing or other factors;

recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments, including in the context of regulatory examinations and related findings and actions;

TCBI’s ability to effectively manage its liquidity risk;

TCBI’s ability to pursue and execute upon growth plans, whether as a function of capital, liquidity, or other limitations;

TCBI’s ability to effectively manage information technology systems, including third party vendors, cyber or data privacy incidents, or other failures, disruptions or security breaches;

elevated or further changes in interest rates, including the impact of interest rates on TCBI’s securities portfolio and funding costs, as well as related balance sheet implications stemming from the fair value of our assets and liabilities;

the effectiveness of TCBI’s risk management processes, strategies and monitoring;

fluctuations in commercial and residential real estate values, especially as they relate to the value of collateral supporting TCBI’s loans;

TCBI’s ability to successfully execute its business strategy, including developing and executing new lines of business and new products and services;

the failure to identify, attract, and retain key personnel and other employees;

increased or expanded competition from banks and other financial service providers in TCBI’s markets;

negative press and social media attention with respect to the banking industry or TCBI, in particular;

the transition away from the London Interbank Offered Rate (LIBOR);

legislative and regulatory changes;

severe weather, natural disasters, climate change, acts of war, terrorism, global conflict (including those already reported by the media, as well as others that may arise), or other external events, as well as related legislative and regulatory initiatives;

and the risks and factors more fully described in TCBI’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other documents and filings with the SEC.

The information contained in this communication speaks only as of its date.

Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

Recent Industry Developments

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system.

During the first nine months of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, eroding consumer confidence and increased regulatory scrutiny.

Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust.

The Company’s total deposits increased by 2% as compared to December 31, 2022, to $23.3 billion at June 30, 2023.

During the first half of 2023, the Company took a number of preemptive actions, which included pro-active outreach to clients and a robust review of its borrowing and liquidity positions to ensure that the Company is positioned to best serve its clients.

Furthermore, the Company’s capital remains at historically high levels with CET1 and Total Capital ratios of 12.2% and 16.4%, respectively, as of June 30, 2023.

Furthermore, the Company’s capital remains at historically high levels with CET1 and total capital ratios of 12.7% and 17.1%, respectively, as of September 30, 2023.

The Company’s total deposits increased by 4% as compared to December 31, 2022, to $23.9 billion at September 30, 2023.

In response to the industry-wide concerns, the Company took a number of preemptive actions, which included pro-active outreach to clients and a robust review of its borrowing and liquidity positions to ensure that the Company’s liquidity and capital positions remain strong and that the Company is positioned to best serve its clients.

Results of Operations

Selected income statement data and key performance indicators are presented in the table below:

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

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

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

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(1) Non-interest expense divided by the sum of net interest income and non-interest income.

Three months ended June 30, 2023 compared to three months ended June 30, 2022

The Company reported net income of $68.7 million and net income available to common stockholders of $64.3 million for the second quarter of 2023, compared to net income of $34.2 million and net income available to common stockholders of $29.8 million for the second quarter of 2022.

On a fully diluted basis, earnings per common share were $1.33 for the second quarter of 2023, compared to $0.59 for the same period in 2022.

ROE was 9.17% and ROA was 0.95% for the second quarter of 2023, compared to 4.35% and 0.44%, respectively, for the same period in 2022.

The increase in net income for the second quarter of 2023 compared to the second quarter of 2022 resulted primarily from increases in net interest income and non-interest income as well as a decrease in provision for credit losses, partially offset by an increase in non-interest expense.

Six months ended June 30, 2023 compared to six months ended June 30, 2022

The Company reported net income of $107.3 million and net income available to common stockholders of $98.7 million for the six months ended June 30, 2023, compared to net income of $73.8 million and net income available to common stockholders of $65.2 million for the same period in 2022.

On a fully diluted basis, earnings per common share were $2.02 for the six months ended June 30, 2023, compared to $1.28 for the same period in 2022.

ROE was 7.15% and ROA was 0.74% for the six months ended June 30, 2023, compared to 4.67% and 0.45%, respectively, for the same period in 2022.

The increase in net income for the six months ended June 30, 2023 compared to the same period in 2022 resulted primarily from increases in net interest income and non-interest income, partially offset by increases in the provision for credit losses and non-interest expense.

Three months ended September 30, 2023 compared to three months ended September 30, 2022

The Company reported net income of $61.7 million and net income available to common stockholders of $57.4 million for the third quarter of 2023, compared to net income of $41.4 million and net income available to common stockholders of $37.1 million for the third quarter of 2022.

On a fully diluted basis, earnings per common share were $1.18 for the third quarter of 2023, compared to $0.74 for the same period in 2022.

ROE was 8.08% and ROA was 0.81% for the third quarter of 2023, compared to 5.36% and 0.52%, respectively, for the same period in 2022.

The increase in net income for the third quarter of 2023 compared to the third quarter of 2022 resulted primarily from an increase in non-interest income and a decrease in non-interest expense, partially offset by a decrease in net interest income and an increase in the provision for credit losses.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

The Company reported net income of $169.0 million and net income available to common stockholders of $156.1 million for the nine months ended September 30, 2023, compared to net income of $115.2 million and net income available to common stockholders of $102.3 million for the same period in 2022.

On a fully diluted basis, earnings per common share were $3.20 for the nine months ended September 30, 2023, compared to $2.00 for the same period in 2022.

ROE was 7.46% and ROA was 0.77% for the nine months ended September 30, 2023, compared to 4.90% and 0.47%, respectively, for the same period in 2022.

The increase in net income for the nine months ended September 30, 2023 compared to the same period in 2022 resulted primarily from increases in net interest income and non-interest income, partially offset by increases in the provision for credit losses and non-interest expense.

Details of the changes in the various components of net income are discussed below.

Taxable Equivalent Net Interest Income Analysis - Quarterly(1)

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

(in thousands except percentages) Average

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Taxable Equivalent Net Interest Income Analysis - Year to Date(1)

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(dollars in thousands) Average

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The following table presents the changes in taxable equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest bearing liabilities and the changes due to differences in the average interest rate on those assets and liabilities.

Three Months Ended June 30, 2023/2022 Six Months Ended June 30, 2023/2022

Three Months Ended September 30, 2023/2022 Nine Months Ended September 30, 2023/2022

Change Change Due To(1) Net

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Net Interest Income

Net interest income was $232.0 million for the three months ended June 30, 2023, compared to $205.5 million for the same period in 2022.

The increase was primarily due to an increase in yields on average earning assets, partially offset by an increase in funding costs and a decrease in average earning assets.

Average earning assets for the three months ended June 30, 2023 decreased $2.6 billion compared to the same period in 2022, which included a $1.5 billion decrease in average interest-bearing cash and cash equivalents and a $1.5 billion decrease in average loans held for investment, mortgage finance.

Average interest-bearing liabilities increased $1.3 billion for the three months ended June 30, 2023 compared to the same period in 2022, primarily due to a $2.2 billion increase in average interest-bearing deposits.

Average non-interest bearing deposits for the three months ended June 30, 2023 decreased to $9.7 billion from $13.7 billion to the same period in 2022.

Net interest margin for the three months ended June 30, 2023 was 3.29%, compared to 2.68% for the same period in 2022.

Net interest income was $232.1 million for the three months ended September 30, 2023, compared to $239.1 million for the same period in 2022.

The decrease was primarily due to an increase in funding costs and a decrease in average earning assets, partially offset by an increase in yields on average earning assets.

Average earning assets for the three months ended September 30, 2023 decreased $1.9 billion compared to the same period in 2022, which included a $2.1 billion decrease in average total loans and a $488.8 million decrease in average interest-bearing cash and cash equivalents, partially offset by a $695.7 million increase in average investment securities.

Average interest-bearing liabilities increased $226.8 million for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to an $828.4 million increase in average interest-bearing deposits, partially offset by a $538.1 million decrease in average short-term borrowings.

Average non-interest bearing deposits for the three months ended September 30, 2023 decreased to $10.0 billion from $12.2 billion to the same period in 2022.

Net interest margin for the three months ended September 30, 2023 was 3.13%, compared to 3.05% for the same period in 2022.

The increase in net interest margin was primarily due to an increase in yields on average earnings assets and a shift in earning asset composition, partially offset by an increase in funding costs.

The increases in yields on earnings assets and cost of funds are attributed to the impact of rising interest rates.

The yield on total loans held for investment increased to 6.56% for the three months ended June 30, 2023, compared to 3.93% for the same period in 2022, and the yield on earning assets increased to 5.69% for the three months ended June 30, 2023, compared to 3.16% for the same period in 2022.

Total cost of deposits increased to 2.37% for the three months ended June 30, 2023 from 0.33% for the same period in 2022, and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.38% for the three months ended June 30, 2023, compared to 0.47% for the same period in 2022.

Net interest income was $467.3 million for the six months ended June 30, 2023, compared to $389.1 million for the same period in 2022.

The increase was primarily due to an increase in yields on average earnings assets, partially offset by rising funding costs and a decrease in total average earning assets.

Average earning assets decreased $3.9 billion for the six months ended June 30, 2023, compared to the same period in 2022, which included decreases of $2.2 billion in average interest-bearing cash and cash equivalents and $2.0 million in average loans held for investment, mortgage finance.

Average interest-bearing liabilities increased $170.1 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to an $873.9 million increase in average interest-bearing deposits partially offset by a $682.2 million decrease in average short-term borrowings.

Average non-interest bearing deposits for the six months ended June 30, 2023 decreased to $10.0 billion from $14.0 billion for the same period in 2022.

Net interest margin for the six months ended June 30, 2023 was 3.31%, compared to 2.45% for the same period of 2022.

The yield on total loans held for investment increased to 6.58% for the three months ended September 30, 2023, compared to 4.91% for the same period in 2022, and the yield on earning assets increased to 5.75% for the three months ended September 30, 2023, compared to 4.10% for the same period in 2022.

Total cost of deposits increased to 2.62% for the three months ended September 30, 2023 from 0.93% for the same period in 2022, and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.60% for the three months ended September 30, 2023, compared to 1.04% for the same period in 2022.

Net interest income was $699.4 million for the nine months ended September 30, 2023, compared to $628.2 million for the same period in 2022.

The increase was primarily due to an increase in yields on average earnings assets, partially offset by rising funding costs and a decrease in average earning assets.

Average earning assets decreased $3.2 billion for the nine months ended September 30, 2023, compared to the same period in 2022, which included decreases of $2.2 billion in average total loans and $1.6 billion in average interest-bearing cash and cash equivalents, partially offset by a $617.9 million increase in average investment securities.

Average interest-bearing liabilities increased $189.2 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to an $858.6 million increase in average interest-bearing deposits, partially offset by a $633.6 million decrease in average short-term borrowings.

Average non-interest bearing deposits for the nine months ended September 30, 2023 decreased to $10.0 billion from $13.4 billion for the same period in 2022.

Net interest margin for the nine months ended September 30, 2023 was 3.25%, compared to 2.64% for the same period of 2022.

The increase was primarily due to the effect of rising interest rates on earning asset yields and a shift in earning asset composition, partially offset by higher funding costs, also as a result of rising interest rates, compared to the same period in 2022.

The yield on total loans held for investment increased to 6.51% for the six months ended June 30, 2023, compared to 3.77% for the same period in 2022, and the yield on earning assets increased to 5.57% for the six months ended June 30, 2023, compared to 2.83% for the same period in 2022.

Total cost of deposits increased to 2.22% for the six months ended June 30, 2023 from 0.26% for the same period in 2022 and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.24% for the six months ended June 30, 2023, compared to 0.38% for the same period in 2022.

The yield on total loans held for investment increased to 6.53% for the nine months ended September 30, 2023, compared to 4.15% for the same period in 2022, and the yield on earning assets increased to 5.63% for the nine months ended September 30, 2023, compared to 3.25% for the same period in 2022.

Total cost of deposits increased to 2.36% for the nine months ended September 30, 2023 from 0.48% for the same period in 2022 and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.36% for the nine months ended September 30, 2023, compared to 0.60% for the same period in 2022.

Non-interest 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

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Total non-interest income $ 46,872 $ 25,332 $ 130,286 $ 71,855

Non-interest income increased $19.8 million during the three months ended June 30, 2023, compared to the same period in 2022.

Non-interest income increased $21.5 million during the three months ended September 30, 2023, compared to the same period in 2022.

The increase was primarily due to an increase in investment banking and trading income

Non-interest income increased by $58.4 million during the nine months ended September 30, 2023 to $130.3 million, compared to $71.9 million for the same period in 2022.

The increase was primarily due to increases in investment banking and trading income and other non-interest income.

Non-interest income increased by $36.9 million during the six months ended June 30, 2023 to $83.4 million, compared to $46.5 million for the same period in 2022.

The increase was primarily due to increases in investment banking and trading income and other non-interest income, partially offset by a decrease in brokered loans fees.

Non-interest 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

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Communications and technology 19,607 18,470 57,655 48,819

Federal Deposit Insurance Corporation insurance assessment 3,693 3,318 5,863 7,299

Federal Deposit Insurance Corporation (“FDIC”) insurance assessment 5,769 3,953 11,632 11,252

Other 12,224 11,370 37,569 35,068

Total non-interest expense $ 179,891 $ 197,047 $ 555,562 $ 514,442

Non-interest expense increased $17.3 million during the six months ended June 30, 2023, compared to the same period in 2022.

The increase was primarily due to increases in salaries and benefits, legal and professional and communications and technology expenses, partially offset by a decrease in marketing expense.

Non-interest expense for the six months ended June 30, 2023 increased $58.3 million compared to the same period in 2022, primarily due to increases in salaries and benefits, legal and professional and communications and technology expenses.

Non-interest expense decreased $17.2 million during the three months ended September 30, 2023, compared to the same period in 2022.

The decrease was primarily due to decreases in salaries and benefits and marketing expenses, partially offset by increases in communications and technology and FDIC insurance assessment expenses.

The third quarter of 2022 included $13.7 million in salaries and benefits expense related to the sale of our premium finance subsidiary.

Non-interest expense for the nine months ended September 30, 2023 increased $41.1 million compared to the same period in 2022, primarily due to increases in salaries and benefits, legal and professional and communications and technology expenses.

Analysis of Financial Condition

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See Note 1 - Operations and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for details of these portfolio segments.

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

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

Commercial $ 10,365,650 $ 9,832,676

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Total loans held for investment $ 20,613,371 $ 19,287,340

Total loans held for investment were $21.3 billion at June 30, 2023, an increase of $2.0 billion from December 31, 2022.

Total loans held for investment were $20.6 billion at September 30, 2023, an increase of $1.3 billion from December 31, 2022.

The Company experienced broad-based loan growth across all loan categories, except for consumer, as it has continued to execute on its long-term strategy.

Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 24% of total loans held for investment at June 30, 2023 compared to 21% at December 31, 2022.

Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 21% of total loans held for investment at both September 30, 2023 and December 31, 2022.

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 tend to peak at the end of each month.

The Company originates a substantial majority of all loans held for investment.

The Company also participates in syndicated loan relationships, both as a participant and as an agent.

As of June 30, 2023, the Company had $4.4 billion in syndicated loans, $1.2 billion of which the Company administered as agent.

The Company also participates in shared national credits, both as a participant and as an agent.

As of September 30, 2023, the Company had $4.8 billion in shared national credits, $1.4 billion of which the Company administered as agent.

All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates.

As of June 30, 2023, $3.0 million of syndicated loans were on non-accrual.

As of September 30, 2023, approximately $407,000 of the Company’s shared national credits were on non-accrual.

Portfolio Concentrations

Although more than 50% of the Company’s total loan exposure is outside of Texas and more than 50% of deposits are sourced outside of Texas, Texas concentration remains significant.

As of June 30, 2023, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas.

As of September 30, 2023, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas.

This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state.

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The table below summarizes non-accrual loans by portfolio segment and by type of property securing the credit.

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

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

Non-accrual loans held for investment

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Total commercial real estate — 1,263

Single family residences 1,000 —

Total consumer — 33

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See Note 6 - Financial Instruments with Off-Balance Sheet Risk in the accompanying notes to the consolidated financial statements included elsewhere in this report for presentation of the activity in the allowance for credit losses for off-balance asset credit losses.

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

The provision for credit losses on loans for the six months ended June 30, 2023 reflects an increase in non-accrual loans and growth in loans held for investment during the six months ended June 30, 2023.

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

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

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

The provision for credit losses on loans for the nine months ended September 30, 2023 reflects increases in criticized loans and total loans held for investment during the nine months ended September 30, 2023.

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

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

The table below presents key metrics related to the Company’s credit loss experience:

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Allowance for credit losses on loans to total loans held for investment 1.19 % 1.19 %

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Total provision for credit losses to average total loans held for investment(1)(2) 0.35 % 0.19 %

(1) Ratios are calculated using average balance for the six months ended June 30, 2023 and 2022, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the six months ended June 30, 2023 and 2022, respectively.

(1) Ratios are calculated using average balance for the nine months ended September 30, 2023 and 2022, respectively.

(2) Ratios are annualized utilizing provision for credit losses for the nine months ended September 30, 2023 and 2022, respectively.

The table below details net charge-offs/(recoveries) as a percentage of average total loans by portfolio segment:

Six Months Ended June 30,

Nine Months Ended September 30,

Charge-offs Net Charge-offs

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Total $ 37,090 0.25 % $ 4,870 0.03 %

(1) Ratios are annualized utilizing net charge-offs for the six months ended June 30, 2023 and 2022, respectively.

(1) Ratios are annualized utilizing net charge-offs for the nine months ended September 30, 2023 and 2022, respectively.

Liquidity and Capital Resources

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The following table summarizes the Company’s interest bearing cash and cash equivalents:

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

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

Interest bearing cash and cash equivalents $ 3,975,860 $ 4,778,623

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The Company’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships, with a significant focus on treasury management products.

As of June 30, 2023, estimated uninsured deposits represented approximately 40% of total deposits.

As of September 30, 2023, estimated uninsured deposits represented approximately 40% of total deposits.

In addition, the Company also has access to deposits through brokered channels.

The following table summarizes period-end total deposits:

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

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

Balance % of Total Balance % of Total

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The following table summarizes short-term borrowings, all of which mature within one year:

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

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

Repurchase agreements $ — $ 1,142

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The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding:

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

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

FHLB borrowing capacity relating to loans and pledged securities $ 2,921,767 $ 2,621,218

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The loan agreement contains customary financial covenants and restrictions.

No borrowings were made against this line of credit during the six months ended June 30, 2023.

The Company has long-term debt outstanding of $857.8 million as of June 30, 2023, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036.

No borrowings were made against this line of credit during the nine months ended September 30, 2023.

The Company has long-term debt outstanding of $858.5 million as of September 30, 2023, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036.

In the second quarter of 2023, the Company partially paid down $75.0 million of the senior unsecured credit-linked notes in accordance with the terms of the notes.

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Capital Resources

The Company’s equity capital averaged $3.1 billion for the six months ended June 30, 2023 compared to $3.1 billion for the same period in 2022.

The Company’s equity capital averaged $3.1 billion for the nine months ended September 30, 2023 compared to $3.1 billion for the same period in 2022.

The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future.

4 unchanged sentences

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

During the six months ended June 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an aggregate purchase 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 expense incurred on net stock repurchases.

During the nine months ended September 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an aggregate purchase 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 expense incurred on net stock repurchases.

For additional information on the Company’s capital and stockholders’ equity, see Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report.

23 unchanged sentences

Management considers a range of macroeconomic scenarios in connection with the allowance estimation process.

Within the various economic scenarios considered as of June 30, 2023, the quantitative estimate of the allowance for credit loss would increase by approximately $153.3 million under sole consideration of the most severe downside scenario.

Within the various economic scenarios considered as of September 30, 2023, the quantitative estimate of the allowance for credit loss would increase by approximately $183.7 million under sole consideration of the most severe downside scenario.

The quoted sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

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 2. Management’s Discussion and Analysis