TEXAS CAPITAL BANCSHARES INC/TX 10-Q

ITEM 1. FINANCIAL STATEMENTS TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS - UNAUDITED (in thousands except share data) September 30, 2023 December 31, 2022 Assets Cash and due from banks $ 216,916 $ 233,637 Interest bearing cash and cash equivalents 3,975,860 4,778,623 Available-for-sale debt securities 3,147,865 2,615,644 Held-to-maturity debt securities 881,352 935,514 Equity securities 40,500 33,956 Investment securities 4,069,717 3,585,114 Loans held for sale 155,073 36,357 Loans held for investment, mortgage finance 4,429,489 4,090,033 Loans held for investment 16,183,882 15,197,307 Less: Allowance for credit losses on loans 244,902 253,469 Loans held for investment, net 20,368,469 19,033,871 Premises and equipment, net 31,050 26,382 Accrued interest receivable and other assets 809,668 719,162 Goodwill and intangibles, net 1,496 1,496 Total assets $ 29,628,249 $ 28,414,642 Liabilities and Stockholders’ Equity Liabilities: Non-interest bearing deposits $ 9,352,883 $ 9,618,081 Interest bearing deposits 14,526,095 13,238,799 Total deposits 23,878,978 22,856,880 Accrued interest payable 31,149 24,000 Other liabilities 381,951 345,827 Short-term borrowings 1,400,000 1,201,142 Long-term debt 858,471 931,442 Total liabilities 26,550,549 25,359,291 Stockholders’ equity: Preferred stock, $ 0.01 par value, $ 1,000 liquidation value: Authorized shares - 10,000,000 Issued shares - 300,000 at September 30, 2023 and December 31, 2022 300,000 300,000 Common stock, $ 0.01 par value: Authorized shares - 100,000,000 Issued shares - 51,110,447 and 50,867,298 at September 30, 2023 and December 31, 2022, respectively 511 509 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 September 30, 2023 and December 31, 2022, respectively ( 175,528 ) ( 115,310 ) Accumulated other comprehensive loss, net of taxes ( 505,912 ) ( 418,943 ) Total stockholders’ equity 3,077,700 3,055,351 Total liabilities and stockholders’ equity $ 29,628,249 $ 28,414,642 See accompanying notes to consolidated financial statements. 3 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME/(LOSS) - UNAUDITED Three Months Ended September 30, Nine Months Ended September 30, (in thousands except per share data) 2023 2022 2023 2022 Interest income Interest and fees on loans $ 345,138 $ 282,474 $ 975,443 $ 688,422 Investment securities 27,070 15,002 79,840 46,969 Interest bearing cash and cash equivalents 53,561 24,596 157,568 37,561 Total interest income 425,769 322,072 1,212,851 772,952 Interest expense Deposits 160,117 60,317 417,602 94,513 Short-term borrowings 19,576 10,011 52,573 15,628 Long-term debt 14,005 12,663 43,270 34,651 Total interest expense 193,698 82,991 513,445 144,792 Net interest income 232,071 239,081 699,406 628,160 Provision for credit losses 18,000 12,000 53,000 32,000 Net interest income after provision for credit losses 214,071 227,081 646,406 596,160 Non-interest income Service charges on deposit accounts 5,297 5,797 15,477 18,014 Wealth management and trust fee income 3,509 3,631 10,653 11,594 Brokered loan fees 2,532 3,401 6,842 11,504 Investment banking and trading income 29,191 7,812 75,457 23,117 Other 6,343 4,691 21,857 7,626 Total non-interest income 46,872 25,332 130,286 71,855 Non-interest expense Salaries and benefits 110,010 128,764 351,730 331,981 Occupancy expense 9,910 9,433 29,011 27,192 Marketing 4,757 8,282 20,168 21,765 Legal and professional 17,614 16,775 47,797 38,365 Communications and technology 19,607 18,470 57,655 48,819 Federal Deposit Insurance Corporation 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 Income before income taxes 81,052 55,366 221,130 153,573 Income tax expense 19,373 13,948 52,139 38,346 Net income 61,679 41,418 168,991 115,227 Preferred stock dividends 4,313 4,313 12,938 12,938 Net income available to common stockholders $ 57,366 $ 37,105 $ 156,053 $ 102,289 Other comprehensive income/(loss): Change in unrealized gain/(loss) $ ( 102,330 ) $ ( 207,204 ) $ ( 159,108 ) $ ( 494,261 ) Amounts reclassified into net income 19,285 609 49,020 3,498 Other comprehensive income/(loss) ( 83,045 ) ( 206,595 ) ( 110,088 ) ( 490,763 ) Income tax expense/(benefit) ( 17,441 ) ( 43,384 ) ( 23,119 ) ( 103,059 ) Other comprehensive income/(loss), net of tax ( 65,604 ) ( 163,211 ) ( 86,969 ) ( 387,704 ) Comprehensive income/(loss) $ ( 3,925 ) $ ( 121,793 ) $ 82,022 $ ( 272,477 ) Basic earnings per common share $ 1.19 $ 0.74 $ 3.24 $ 2.03 Diluted earnings per common share $ 1.18 $ 0.74 $ 3.20 $ 2.00 See accompanying notes to consolidated financial statements. 4 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED Preferred Stock Common Stock Additional Treasury Stock Accumulated Other Paid-in Retained Comprehensive (in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total Balance at 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): Net income — — — — — 41,418 — — — 41,418 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 163,211 ) ( 163,211 ) Total comprehensive loss ( 121,793 ) Stock-based compensation expense recognized in earnings — — — — 5,376 — — — — 5,376 Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 ) Issuance of stock related to stock-based awards — — 19,685 1 ( 328 ) — — — — ( 327 ) 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 Comprehensive income/(loss): Net income — — — — — 61,679 — — — 61,679 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 65,604 ) ( 65,604 ) Total comprehensive income ( 3,925 ) Stock-based compensation expense recognized in earnings — — — — 4,441 — — — — 4,441 Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 ) Issuance of stock related to stock-based awards — — 22,482 — ( 430 ) — — — — ( 430 ) 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. 5 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED Preferred Stock Common Stock Additional Treasury Stock Accumulated Other Paid-in Retained Comprehensive (in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total Balance at December 31, 2021 (audited) 300,000 $ 300,000 50,618,911 $ 506 $ 1,008,559 $ 1,948,274 ( 417 ) $ ( 8 ) $ ( 47,715 ) $ 3,209,616 Comprehensive income/(loss): Net income — — — — — 115,227 — — — 115,227 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 387,704 ) ( 387,704 ) Total comprehensive loss ( 272,477 ) Stock-based compensation expense recognized in earnings — — — — 15,805 — — — — 15,805 Preferred stock dividend — — — — — ( 12,938 ) — — — ( 12,938 ) Issuance of stock related to stock-based awards — — 221,111 3 ( 4,211 ) — — — — ( 4,208 ) 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 December 31, 2022 (audited) 300,000 $ 300,000 50,867,298 $ 509 $ 1,025,593 $ 2,263,502 ( 2,083,535 ) $ ( 115,310 ) $ ( 418,943 ) $ 3,055,351 Comprehensive income/(loss): Net income — — — — — 168,991 — — — 168,991 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 86,969 ) ( 86,969 ) Total comprehensive income 82,022 Stock-based compensation expense recognized in earnings — — — — 17,948 — — — — 17,948 Preferred stock dividend — — — — — ( 12,938 ) — — — ( 12,938 ) Issuance of stock related to stock-based awards — — 243,149 2 ( 4,467 ) — — — — ( 4,465 ) Repurchase of common stock — — — — — — ( 1,011,909 ) ( 60,218 ) — ( 60,218 ) 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. 6 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Nine Months Ended September 30, (in thousands) 2023 2022 Operating activities Net income $ 168,991 $ 115,227 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Provision for credit losses 53,000 32,000 Depreciation and amortization 30,870 35,360 Net gain recognized on investment securities ( 1,423 ) — Stock-based compensation expense 17,948 15,991 Purchases and originations of loans held for sale ( 706 ) ( 1,642 ) Proceeds from sales and repayments of loans held for sale 8,980 5,050 Changes in operating assets and liabilities: Accrued interest receivable and other assets ( 76,697 ) ( 2,152 ) Accrued interest payable and other liabilities ( 14,890 ) 14,266 Net cash provided by operating activities 186,073 214,100 Investing activities Purchases of available-for-sale securities ( 849,392 ) ( 665,388 ) Proceeds from sales of available-for-sale debt securities 56,923 — Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities 169,938 388,223 Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities 57,009 66,500 Sales/(purchases) of equity securities, net ( 5,610 ) 3,421 Originations of loans held for investment, mortgage finance ( 59,161,293 ) ( 77,518,608 ) Proceeds from pay-offs of loans held for investment, mortgage finance 58,821,837 80,085,283 Net increase in loans held for investment, excluding mortgage finance loans ( 1,150,655 ) ( 2,690,164 ) Purchase of premises and equipment, net ( 12,649 ) ( 10,456 ) Net cash used in investing activities ( 2,073,892 ) ( 341,189 ) Financing activities Net increase/(decrease) in deposits 1,022,098 ( 3,610,802 ) Issuance of stock related to stock-based awards ( 4,465 ) ( 4,208 ) Preferred dividends paid ( 12,938 ) ( 12,938 ) Repurchase of common stock ( 60,218 ) ( 50,023 ) Net increase/(decrease) in short-term borrowings 198,858 ( 501,352 ) Redemption of long-term debt ( 75,000 ) — Net cash provided by/(used in) financing activities 1,068,335 ( 4,179,323 ) Net decrease in cash and cash equivalents ( 819,484 ) ( 4,306,412 ) Cash and cash equivalents at beginning of period 5,012,260 7,946,659 Cash and cash equivalents at end of period $ 4,192,776 $ 3,640,247 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 506,296 $ 134,026 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 See accompanying notes to consolidated financial statements. 7 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (1) Operations and Summary of Significant Accounting Policies Organization and Nature of Business Texas Capital Bancshares, Inc. (“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”), 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 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. The consolidated interim financial statements are unaudited, and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made present a fair presentation of the Company’s financial position and results of operations. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, the financial statements and the notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements do not include all of the information and should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change. In the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model, the most significant of which are more granular estimates of historical loss rates to incorporate probability of default and loss severities and allocations of expected losses to outstanding loan balances and off-balance sheet financial instruments. As a result of these changes, corresponding adjustments were also made to the Company’s portfolio segments to appropriately pool loans with similar risk characteristics and to the speed at which the Company reverts to historical loss rates for periods beyond which management is able to develop reasonable and supportable forecasts. The below accounting policy from the Company’s 2022 Form 10-K has been updated to incorporate these changes. Allowance for Credit Losses The Company’s allowance for credit losses is determined using a current expected credit loss (“CECL”) model. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. 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. The following is a discussion of the allowance for credit losses on loans held for investment and off-balance sheet credit exposures. See Note 1 - Operations and Summary of Significant Accounting Policies - Investment Securities - Debt Securities in the Company’s 2022 Form 10-K 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 on loans 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. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The allowance for credit losses on off-balance sheet financial instruments is recorded in other liabilities on the consolidated balance sheets, 8 Table of Contents Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term, as well as for changes in macroeconomic conditions, such as changes in unemployment rates, gross domestic product, property values, or other relevant factors. The allowance for credit losses is comprised of reserves measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are assigned a reserve based on an individual evaluation and are not included in the collective (pool) evaluation. For purposes of determining the collective (pool) allowance for credit losses, the loan portfolio is segregated into pools first by portfolio segment and then by past due status or credit grade. Each pool is assigned a loss estimate, reflecting historical loss rates that incorporate probability of default and severity of losses over the estimated remaining life of the loans. These loss estimates are then modified to incorporate a reasonable and supportable forecast of future losses at the pool level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”). A similar process is employed to calculate a reserve assigned to off-balance financial instruments, specifically unfunded loan commitments and letters of credit. Modified loss estimates are assigned based on the balance of the commitments estimated to be outstanding at the time of default. The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process. The PLQF is used to apply a qualitative adjustment across the entire portfolio of loans, while the SLQF is designed to apply a qualitative adjustment across a single portfolio segment. 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. 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, the Company reverts to the average historical loss rate, reflecting historical default probabilities and loss severities, using a reversion speed that approximates 1 to 2 years. 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 the Company’s methodology for measuring expected credit losses. A summary of the primary portfolio segments is as follows: Commercial. The commercial loan portfolio is comprised of lines of credit for working capital, term loans, reserve-based loans to energy exploration and production companies, 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, and acquisitions and are generally secured by accounts receivable, inventory, oil and gas reserves, equipment and other assets of clients’ businesses. Mortgage Finance. 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 the Company repurchases the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days. Commercial Real Estate (“CRE”). The CRE portfolio is comprised of construction/development financing and limited term financing provided to professional real estate developers, owners/managers of commercial real estate projects and properties, and residential builders/developers. Collateral properties include office buildings, warehouse/distribution buildings, shopping centers, hotels/motels, senior living, apartment buildings, residential and commercial tract developments, and raw land or lots to be developed into single-family homes. The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral. The performance of these loans is impacted by fluctuations in collateral values, the ability of the borrower to obtain permanent financing, and, in the case of loans to residential builder/developers, volatility in consumer demand. Consumer. This category of loans is comprised of loans made to consumers for personal expenditures, first and second lien mortgages made for the purpose of purchasing or constructing 1-4 family residential dwellings and home equity revolving lines of credit. 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. These loans have the potential to deteriorate to a substandard grade due to the existence of financial or administrative deficiencies. Substandard loans have a well-defined weakness or weaknesses that 9 Table of Contents jeopardizes the liquidation of the debt. 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. Substandard loans can be accruing or can be on non-accrual depending on the circumstances of the individual loans. Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable. The possibility of loss is extremely high. All doubtful loans are on non-accrual. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. 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 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. 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. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. 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. 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. (2) Earnings Per Share The following table presents the computation of basic and diluted earnings per share: Three Months Ended September 30, Nine Months Ended September 30, (in thousands except share and per share data) 2023 2022 2023 2022 Numerator: Net income $ 61,679 $ 41,418 $ 168,991 $ 115,227 Preferred stock dividends 4,313 4,313 12,938 12,938 Net income available to common stockholders $ 57,366 $ 37,105 $ 156,053 $ 102,289 Denominator: Basic earnings per common share—weighted average common shares 48,007,466 49,891,727 48,168,486 50,506,364 Effect of dilutive outstanding stock-settled awards 521,232 526,157 555,542 584,151 Dilutive earnings per common share—weighted average diluted common shares 48,528,698 50,417,884 48,724,028 51,090,515 Basic earnings per common share $ 1.19 $ 0.74 $ 3.24 $ 2.03 Diluted earnings per common share $ 1.18 $ 0.74 $ 3.20 $ 2.00 Anti-dilutive outstanding stock-settled awards 87,738 174,706 319,021 315,499 10 Table of Contents (3) Investment Securities The following is a summary of the Company’s investment securities: (in thousands) Amortized Cost(1) Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value September 30, 2023 Available-for-sale debt securities: U.S. Treasury securities $ 648,951 $ — $ ( 25,503 ) $ 623,448 U.S. government agency securities 125,000 — ( 24,026 ) 100,974 Residential mortgage-backed securities 2,838,238 — ( 426,886 ) 2,411,352 CRT securities 13,885 — ( 1,794 ) 12,091 Total available-for-sale debt securities 3,626,074 — ( 478,209 ) 3,147,865 Held-to-maturity debt securities: Residential mortgage-backed securities 881,352 — ( 150,094 ) 731,258 Total held-to-maturity debt securities 881,352 — ( 150,094 ) 731,258 Equity securities 40,500 Total investment securities(2) $ 4,069,717 December 31, 2022 Available-for-sale debt securities: U.S. Treasury securities $ 698,769 $ — $ ( 28,187 ) $ 670,582 U.S. government agency securities 125,000 — ( 22,846 ) 102,154 Residential mortgage-backed securities 2,162,364 3 ( 331,320 ) 1,831,047 CRT securities 14,713 — ( 2,852 ) 11,861 Total available-for-sale debt securities 3,000,846 3 ( 385,205 ) 2,615,644 Held-to-maturity securities: Residential mortgage-backed securities 935,514 — ( 118,600 ) 816,914 Total held-to-maturity securities 935,514 — ( 118,600 ) 816,914 Equity securities 33,956 Total investment securities(2) $ 3,585,114 (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. Debt Securities In the first quarter of 2023, the Company sold U.S. 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 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. Available-for-sale Held-to-maturity (in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 251,258 $ 247,758 $ — $ — Due after one year through five years 447,693 417,962 — — Due after five years through ten years 105,800 84,708 — — Due after ten years 2,821,323 2,397,437 881,352 731,258 Total $ 3,626,074 $ 3,147,865 $ 881,352 $ 731,258 11 Table of Contents 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 (in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss September 30, 2023 U.S. Treasury securities $ — $ — $ 623,448 $ ( 25,503 ) $ 623,448 $ ( 25,503 ) U.S. government agency securities — — 100,974 ( 24,026 ) 100,974 ( 24,026 ) Residential mortgage-backed securities 981,628 ( 51,475 ) 1,429,522 ( 375,411 ) 2,411,150 ( 426,886 ) CRT securities — — 12,091 ( 1,794 ) 12,091 ( 1,794 ) Total $ 981,628 $ ( 51,475 ) $ 2,166,035 $ ( 426,734 ) $ 3,147,663 $ ( 478,209 ) December 31, 2022 U.S. Treasury securities $ 670,582 $ ( 28,187 ) $ — $ — $ 670,582 $ ( 28,187 ) U.S. government agency securities — — 102,154 ( 22,846 ) 102,154 ( 22,846 ) Residential mortgage-backed securities 261,502 ( 9,481 ) 1,569,107 ( 321,839 ) 1,830,609 ( 331,320 ) CRT securities — — 11,861 ( 2,852 ) 11,861 ( 2,852 ) Total $ 932,084 $ ( 37,668 ) $ 1,683,122 $ ( 347,537 ) $ 2,615,206 $ ( 385,205 ) 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. government agency securities, 93 residential mortgage-backed securities and two CRT securities. The unrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. The Company does not currently intend to sell and based on current conditions it does not believe it is likely 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 accumulated other comprehensive income/(loss), net (“AOCI”). Held-to-maturity securities consist of government guaranteed securities for which no loss is expected. 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 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 September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Net gains/(losses) recognized during the period $ ( 1,262 ) $ ( 1,165 ) $ 934 $ ( 9,801 ) Less: Realized net gains/(losses) recognized on securities sold ( 70 ) ( 587 ) ( 676 ) ( 589 ) Unrealized net gains/(losses) recognized on securities still held $ ( 1,192 ) $ ( 578 ) $ 1,610 $ ( 9,212 ) 12 Table of Contents (4) Loans and Allowance for Credit Losses on Loans As discussed in Note 1 - Operations and Summary of Significant Accounting Policies, in the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model which resulted in adjustments being made to the Company’s portfolio segments. As a result, certain prior period balances below have been reclassified to conform to the current period presentation of portfolio segments. Loans are summarized by portfolio segment as follows: (in thousands) September 30, 2023 December 31, 2022 Loans held for investment(1): Commercial $ 10,365,650 $ 9,832,676 Mortgage finance 4,429,489 4,090,033 Commercial real estate 5,358,770 4,875,363 Consumer 537,229 552,848 Gross loans held for investment 20,691,138 19,350,920 Unearned income (net of direct origination costs) ( 77,767 ) ( 63,580 ) Total loans held for investment 20,613,371 19,287,340 Allowance for credit losses on loans ( 244,902 ) ( 253,469 ) Total loans held for investment, net $ 20,368,469 $ 19,033,871 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 $ 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. 13 Table of Contents The following tables summarize gross loans held for investment by year of origination and internally assigned credit grades: (in thousands) 2023 2022 2021 2020 2019 2018 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total September 30, 2023 Commercial (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 (8) Special mention 8,271 134,200 36,559 20,403 844 23,873 33,521 115 257,786 (9) Substandard - accruing 14,485 48,383 28,226 2,482 — 746 33,398 — 127,720 (9+) Non-accrual 89 37,028 340 436 15,114 10,122 — — 63,129 Total commercial $ 1,431,336 $ 2,074,919 $ 385,704 $ 187,401 $ 230,456 $ 315,213 $ 5,723,356 $ 17,265 $ 10,365,650 Mortgage finance (1-7) Pass $ 199,971 $ 35,432 $ 655,827 $ 214,615 $ 273,517 $ 3,050,127 $ — $ — $ 4,429,489 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total mortgage finance $ 199,971 $ 35,432 $ 655,827 $ 214,615 $ 273,517 $ 3,050,127 $ — $ — $ 4,429,489 Commercial real estate (1-7) Pass $ 452,034 $ 1,630,276 $ 1,097,474 $ 537,154 $ 362,540 $ 565,190 $ 458,171 $ 28,690 $ 5,131,529 (8) Special mention — 68,028 33,492 24,047 11,974 34,909 — — 172,450 (9) Substandard - accruing — 3,686 21,451 — — 29,654 — — 54,791 (9+) Non-accrual — — — — — — — — — Total commercial real estate $ 452,034 $ 1,701,990 $ 1,152,417 $ 561,201 $ 374,514 $ 629,753 $ 458,171 $ 28,690 $ 5,358,770 Consumer (1-7) Pass $ 28,726 $ 59,235 $ 88,373 $ 54,266 $ 14,359 $ 103,734 $ 186,987 $ — $ 535,680 (8) Special mention — — 500 — — 984 — 65 1,549 (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total consumer $ 28,726 $ 59,235 $ 88,873 $ 54,266 $ 14,359 $ 104,718 $ 186,987 $ 65 $ 537,229 Total $ 2,112,067 $ 3,871,576 $ 2,282,821 $ 1,017,483 $ 892,846 $ 4,099,811 $ 6,368,514 $ 46,020 $ 20,691,138 Gross charge-offs $ 7 $ 5,090 $ 20,079 $ — $ 15,243 $ 883 $ 698 $ 871 $ 42,871 (in thousands) 2022 2021 2020 2019 2018 2017 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total December 31, 2022 Commercial (1-7) Pass $ 2,022,950 $ 678,473 $ 240,511 $ 254,985 $ 322,099 $ 227,853 $ 5,694,352 $ 20,933 $ 9,462,156 (8) Special mention 9,141 7,740 3,628 37,794 11,998 4,975 95,310 2,250 172,836 (9) Substandard - accruing 18,670 71,147 514 1,666 14,933 6,305 37,407 — 150,642 (9+) Non-accrual 376 512 751 30,392 6,226 2,520 6,265 — 47,042 Total commercial $ 2,051,137 $ 757,872 $ 245,404 $ 324,837 $ 355,256 $ 241,653 $ 5,833,334 $ 23,183 $ 9,832,676 Mortgage finance (1-7) Pass $ 30,485 $ 482,477 $ 197,045 $ 267,758 $ 464,753 $ 2,647,515 $ — $ — $ 4,090,033 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total mortgage finance $ 30,485 $ 482,477 $ 197,045 $ 267,758 $ 464,753 $ 2,647,515 $ — $ — $ 4,090,033 Commercial real estate (1-7) Pass $ 1,362,160 $ 958,669 $ 670,113 $ 520,970 $ 263,240 $ 448,536 $ 465,834 $ 43,237 $ 4,732,759 (8) Special mention 3,494 6,524 46,512 5,295 19,350 4,038 — — 85,213 (9) Substandard - accruing 7,840 17,850 — 247 11,458 18,733 — — 56,128 (9+) Non-accrual — — 1,081 — — 182 — — 1,263 Total commercial real estate $ 1,373,494 $ 983,043 $ 717,706 $ 526,512 $ 294,048 $ 471,489 $ 465,834 $ 43,237 $ 4,875,363 Consumer (1-7) Pass $ 69,320 $ 95,470 $ 57,060 $ 24,773 $ 20,055 $ 89,919 $ 196,088 $ 130 $ 552,815 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — 33 — — — — 33 Total Consumer $ 69,320 $ 95,470 $ 57,060 $ 24,806 $ 20,055 $ 89,919 $ 196,088 $ 130 $ 552,848 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 14 Table of Contents The following table details activity in the allowance for credit losses on loans. The changes made to the Company’s current expected credit loss model, as discussed above and in Note 1 - Operations and Summary of Significant Accounting Policies, resulted in a reallocation of the allowance for credit losses between loan portfolio segments and allowance balances allocated to off-balance sheet financial instruments, the results of which are included in the table below. The changes made result in a higher allocation of losses to off-balance sheet financial instruments. See Note 6 - Financial Instruments with Off-Balance Sheet Risk for information regarding the allowance for credit losses on off-balance sheet financial instruments. Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories. (in thousands) Commercial Mortgage Finance Commercial Real Estate Consumer Total Nine Months Ended September 30, 2023 Beginning balance $ 185,303 $ 10,745 $ 54,268 $ 3,153 $ 253,469 Provision for credit losses on loans 20,569 ( 4,438 ) 12,935 ( 543 ) 28,523 Charge-offs 42,830 — — 41 42,871 Recoveries 5,776 — — 5 5,781 Net charge-offs (recoveries) 37,054 — — 36 37,090 Ending balance $ 168,818 $ 6,307 $ 67,203 $ 2,574 $ 244,902 Nine Months Ended September 30, 2022 Beginning balance $ 154,360 $ 6,083 $ 48,247 $ 3,176 $ 211,866 Provision for credit losses on loans 12,642 4,073 11,094 ( 192 ) 27,617 Charge-offs 6,113 — 350 — 6,463 Recoveries 1,572 — — 21 1,593 Net charge-offs (recoveries) 4,541 — 350 ( 21 ) 4,870 Ending balance $ 162,461 $ 10,156 $ 58,991 $ 3,005 $ 234,613 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 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: (in thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Non-accrual(1) Current Total Non-accrual With No Allowance September 30, 2023 Commercial $ 12,450 $ 2,242 $ 4,511 $ 19,203 $ 63,129 $ 10,283,318 $ 10,365,650 $ 12,058 Mortgage finance — — — — — 4,429,489 4,429,489 — Commercial real estate 899 — 91 990 — 5,357,780 5,358,770 — Consumer 2,009 — — 2,009 — 535,220 537,229 — Total $ 15,358 $ 2,242 $ 4,602 $ 22,202 $ 63,129 $ 20,605,807 $ 20,691,138 $ 12,058 (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 The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. 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. 15 Table of Contents 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 Deferral Term Extension Payment Deferral and Term Extension Interest Rate Reduction and Term Extension Total Percentage of Total Loans Held for Investment Three Months Ended September 30, 2023 Commercial $ 271 $ 6,372 $ — $ — $ 6,643 0.03 % Total $ 271 $ 6,372 $ — $ — $ 6,643 0.03 % 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 nine months ended September 30, 2023: Interest Rate Reduction Term Extension (in months) Total Payment Deferrals (in thousands) Three Months Ended September 30, 2023 Commercial — % 1 to 1 $ 59 Nine Months Ended September 30, 2023 Commercial 0.70 % 1 to 36 $ 5,139 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 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 Past Due 90+ Days Past Due Non-Accrual Current Total September 30, 2023 Commercial $ — $ — $ 5,893 $ 52,724 $ 58,617 Total $ — $ — $ 5,893 $ 52,724 $ 58,617 Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02 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. (5) Short-Term Borrowings and Long-Term Debt The table below presents a summary of short-term borrowings: (in thousands) September 30, 2023 December 31, 2022 Customer repurchase agreements $ — $ 1,142 Federal Home Loan Bank borrowings 1,400,000 1,200,000 Total short-term borrowings $ 1,400,000 $ 1,201,142 16 Table of Contents The table below presents a summary of long-term debt: (in thousands) September 30, 2023 December 31, 2022 Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 198,997 $ 272,492 Bank-issued 5.25 % fixed rate subordinated notes due 2026 174,392 174,196 Company-issued 4.00 % fixed rate subordinated notes due 2031 371,676 371,348 Trust preferred floating rate subordinated debentures due 2032 to 2036 113,406 113,406 Total long-term debt $ 858,471 $ 931,442 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 term of the notes. (6) Financial Instruments with Off-Balance Sheet Risk 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. The changes made to the Company’s current expected credit loss model, as discussed in Note 1 - Operations and Summary of Significant Accounting Policies, resulted in a reallocation of the allowance for credit losses between loan portfolio segments and allowance balances allocated to off-balance sheet financial instruments, the results of which are included in the table below. The changes made result in a higher allocation of losses to off-balance sheet financial instruments. See Note 4 - Loans and Allowance for Credit Losses on Loans for information regarding the allowance for credit losses on loans. (in thousands) Commercial Mortgage Finance Commercial Real Estate Consumer Total Nine Months Ended September 30, 2023 Beginning balance $ 16,550 $ — $ 5,222 $ 21 $ 21,793 Provision for off-balance sheet credit losses 15,799 13 8,533 132 24,477 Ending balance $ 32,349 $ 13 $ 13,755 $ 153 $ 46,270 Nine Months Ended September 30, 2022 Beginning balance $ 15,107 $ — $ 2,136 $ 22 $ 17,265 Provision for off-balance sheet credit losses 760 — 3,621 2 4,383 Ending balance $ 15,867 $ — $ 5,757 $ 24 $ 21,648 (in thousands) September 30, 2023 December 31, 2022 Commitments to extend credit - period end balance $ 9,704,070 $ 9,673,082 Standby letters of credit - period end balance 515,651 417,896 (7) Regulatory Ratios and Capital The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S. federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures. 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 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 nine months ended September 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an 17 Table of Contents 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. In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). 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. 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 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. 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 Federal Deposit Insurance Corporation (“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 2023, the amount of the notes that qualify as Tier 2 capital has been reduced by 60%. 18 Table of Contents 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 (dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio September 30, 2023 CET1 Company $ 3,287,021 12.70 % $ 1,811,941 7.00 % N/A N/A Bank 3,570,990 13.85 % 1,805,139 7.00 % 1,676,200 6.50 % Total capital (to risk-weighted assets) Company 4,422,650 17.09 % 2,717,911 10.50 % 2,588,487 10.00 % Bank 3,924,943 15.22 % 2,707,708 10.50 % 2,578,769 10.00 % Tier 1 capital (to risk-weighted assets) Company 3,697,021 14.28 % 2,200,214 8.50 % 1,553,092 6.00 % Bank 3,570,990 13.85 % 2,191,954 8.50 % 2,063,015 8.00 % Tier 1 capital (to average assets)(1) Company 3,697,021 12.14 % 1,218,163 4.00 % N/A N/A Bank 3,570,990 11.76 % 1,214,985 4.00 % 1,518,731 5.00 % December 31, 2022 CET1 Company $ 3,180,208 13.00 % $ 1,712,608 7.00 % N/A N/A Bank 3,408,178 13.95 % 1,710,056 7.00 % 1,587,909 6.50 % Total capital (to risk-weighted assets) Company 4,331,098 17.70 % 2,568,912 10.50 % 2,446,583 10.00 % Bank 3,987,720 16.32 % 2,565,083 10.50 % 2,442,937 10.00 % Tier 1 capital (to risk-weighted assets) Company 3,590,208 14.67 % 2,079,595 8.50 % 1,467,950 6.00 % Bank 3,568,178 14.61 % 2,076,496 8.50 % 1,954,349 8.00 % Tier 1 capital (to average assets)(1) Company 3,590,208 11.54 % 1,244,494 4.00 % N/A N/A Bank 3,568,178 11.48 % 1,243,232 4.00 % 1,554,039 5.00 % (1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum. (2) Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital buffer under the Basel III Capital Rules. 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 September 30, 2023 and December 31, 2022. (8) Stock-Based Compensation The Company has long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the Company’s board of directors or its designated committee. Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock and performance units, or any combination thereof. The table below summarizes the Company’s stock-based compensation expense: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Stock-settled awards: RSUs $ 4,441 $ 5,376 $ 17,948 $ 15,805 Cash-settled units — 3 — 186 Total $ 4,441 $ 5,379 $ 17,948 $ 15,991 19 Table of Contents (in thousands except period data) September 30, 2023 Unrecognized compensation expense related to unvested stock-settled awards $ 33,773 Weighted average period over which expense is expected to be recognized, in years 2.1 (9) Fair Value Disclosures 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 in the Company’s 2022 Form 10-K 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. Assets and liabilities measured at fair value are as follows: Fair Value Measurements Using (in thousands) Level 1 Level 2 Level 3 September 30, 2023 Available-for-sale debt securities:(1) U.S. Treasury securities $ 623,448 $ — $ — U.S. government agency securities — 100,974 — Residential mortgage-backed securities — 2,411,352 — CRT securities — — 12,091 Equity securities(1)(2) 29,689 10,811 — Mortgage loans held for sale(3) — 706 — Loans held for investment(4) — — 32,847 Derivative assets(5) — 12,347 — Securities sold not yet purchased(6) 9,532 — — Derivative liabilities(5) — 119,481 — Non-qualified deferred compensation plan liabilities(7) 18,488 — — December 31, 2022 Available-for-sale debt securities:(1) U.S. Treasury securities $ 670,582 $ — $ — U.S. government agency securities — 102,154 — Residential mortgage-backed securities — 1,831,047 — CRT securities — — 11,861 Equity securities(1)(2) 22,879 11,077 — Derivative assets(5) — 13,504 — Derivative liabilities(5) — 91,758 — Non-qualified deferred compensation plan liabilities(7) 21,177 — — (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 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. These loans held for investment are measured on a nonrecurring basis, generally annually or more often as warranted by market and economic conditions. (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. 20 Table of Contents Level 3 Valuations The following table presents a reconciliation of the level 3 fair value category measured at fair value on a recurring basis: Net Gains/(Losses) (in thousands) Balance at Beginning of Period Purchases / Additions Sales / Reductions Realized Unrealized Balance at End of Period Three Months Ended September 30, 2023 Available-for-sale debt securities:(1) CRT securities $ 11,756 $ — $ ( 341 ) $ — $ 676 $ 12,091 Three Months Ended September 30, 2022 Available-for-sale debt securities:(1) CRT securities $ 11,670 $ — $ — $ — $ 32 $ 11,702 Loans held for sale(2) 4,266 571 ( 450 ) — — 4,387 Nine Months Ended September 30, 2023 Available-for-sale debt securities:(1) CRT securities $ 11,861 $ — $ ( 828 ) $ — $ 1,058 $ 12,091 Nine Months Ended September 30, 2022 Available-for-sale debt securities:(1) Tax-exempt asset-backed securities $ 180,033 $ — $ ( 170,626 ) $ — $ ( 9,407 ) $ — CRT securities 11,846 — — — ( 144 ) 11,702 Loans held for sale(2) 7,658 1,898 ( 5,050 ) — ( 119 ) 4,387 (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 other non-interest income on the consolidated statements of income and other comprehensive income/(loss). CRT securities 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 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. 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. 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. 21 Table of Contents Fair Value of Financial Instruments A summary of the carrying amounts and estimated fair values of financial instruments is as follows: Carrying Amount Estimated Fair Value (in thousands) Total Level 1 Level 2 Level 3 September 30, 2023 Financial assets: Cash and cash equivalents $ 4,192,776 $ 4,192,776 $ 4,192,776 $ — $ — Available-for-sale debt securities 3,147,865 3,147,865 623,448 2,512,326 12,091 Held-to-maturity debt securities 881,352 731,258 — 731,258 — Equity securities 40,500 40,500 29,689 10,811 — Loans held for sale 155,073 155,073 126,990 28,083 — Loans held for investment, net 20,368,469 20,312,747 — — 20,308,632 Derivative assets 12,347 12,347 — 12,347 — Financial liabilities: Total deposits 23,878,978 23,891,910 — — 23,891,910 Short-term borrowings 1,400,000 1,400,000 — 1,400,000 — 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 — December 31, 2022 Financial assets: Cash and cash equivalents $ 5,012,260 $ 5,012,260 $ 5,012,260 $ — $ — 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 — 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 — 22 Table of Contents (10) Derivative Financial Instruments The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table. September 30, 2023 December 31, 2022 Estimated Fair Value Estimated Fair Value (in thousands) Notional Amount Asset Derivative Liability Derivative Notional Amount Asset Derivative Liability Derivative Derivatives designated as hedges Cash flow hedges: Interest rate contracts: Swaps hedging loans $ 3,100,000 $ — $ 111,760 $ 3,000,000 $ — $ 86,378 Non-hedging derivatives Customer-initiated and other derivatives: Foreign currency forward contracts 3,192 36 21 — — — Interest rate contracts: Swaps 5,224,649 100,796 100,794 4,396,367 83,529 83,529 Caps and floors written 587,252 7 6,194 220,142 — 2,583 Caps and floors purchased 587,252 6,186 7 220,142 2,583 — Forward contracts 8,518,091 30,308 29,509 1,569,326 4,431 4,053 Gross derivatives 137,333 248,285 90,543 176,543 Netting adjustment - offsetting derivative assets/liabilities ( 47,683 ) ( 47,683 ) ( 5,164 ) ( 5,164 ) Netting adjustment - cash collateral received/posted ( 77,303 ) ( 81,121 ) ( 71,875 ) ( 79,621 ) Net derivatives included on the consolidated balance sheets $ 12,347 $ 119,481 $ 13,504 $ 91,758 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. 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 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. 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 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 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 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 September 30, 2023, the maximum length of time over which forecasted transactions are hedged is 3.00 years. 23 Table of Contents (11) 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 Three Months Ended September 30, 2023 Beginning balance $ ( 81,785 ) $ ( 313,196 ) $ ( 45,327 ) $ ( 440,308 ) Change in unrealized gain/(loss) ( 20,572 ) ( 81,758 ) — ( 102,330 ) Amounts reclassified into net income 17,378 — 1,907 19,285 Total other comprehensive income/(loss) ( 3,194 ) ( 81,758 ) 1,907 ( 83,045 ) Income tax expense/(benefit) ( 671 ) ( 17,170 ) 400 ( 17,441 ) Total other comprehensive income/(loss), net of tax ( 2,523 ) ( 64,588 ) 1,507 ( 65,604 ) Ending balance $ ( 84,308 ) $ ( 377,784 ) $ ( 43,820 ) $ ( 505,912 ) Three Months Ended September 30, 2022 Beginning balance $ ( 316 ) $ ( 220,090 ) $ ( 51,802 ) $ ( 272,208 ) Change in unrealized gain/(loss) ( 78,177 ) ( 129,027 ) — ( 207,204 ) Amounts reclassified into net income ( 1,760 ) — 2,369 609 Total other comprehensive income/(loss) ( 79,937 ) ( 129,027 ) 2,369 ( 206,595 ) Income tax expense/(benefit) ( 16,786 ) ( 27,095 ) 497 ( 43,384 ) Total other comprehensive income/(loss), net of tax ( 63,151 ) ( 101,932 ) 1,872 ( 163,211 ) Ending balance $ ( 63,467 ) $ ( 322,022 ) $ ( 49,930 ) $ ( 435,419 ) Nine Months Ended September 30, 2023 Beginning balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 ) Change in unrealized gain/(loss) ( 66,101 ) ( 93,007 ) — ( 159,108 ) Amounts reclassified into net income 43,426 — 5,594 49,020 Total other comprehensive income/(loss) ( 22,675 ) ( 93,007 ) 5,594 ( 110,088 ) Income tax expense/(benefit) ( 4,761 ) ( 19,532 ) 1,174 ( 23,119 ) Total other comprehensive income/(loss), net of tax ( 17,914 ) ( 73,475 ) 4,420 ( 86,969 ) Ending balance $ ( 84,308 ) $ ( 377,784 ) $ ( 43,820 ) $ ( 505,912 ) Nine Months Ended September 30, 2022 Beginning balance $ — $ ( 47,715 ) $ — $ ( 47,715 ) Change in unrealized gain/(loss) ( 77,873 ) ( 347,223 ) ( 69,165 ) ( 494,261 ) Amounts reclassified into net income ( 2,464 ) — 5,962 3,498 Total other comprehensive income/(loss) ( 80,337 ) ( 347,223 ) ( 63,203 ) ( 490,763 ) Income tax expense/(benefit) ( 16,870 ) ( 72,916 ) ( 13,273 ) ( 103,059 ) Total other comprehensive income/(loss), net of tax ( 63,467 ) ( 274,307 ) ( 49,930 ) ( 387,704 ) Ending balance $ ( 63,467 ) $ ( 322,022 ) $ ( 49,930 ) $ ( 435,419 ) (12) New Accounting Standards 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 . 24 Table of Contents