What changed in this filing

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Item 1. Business

2024-02-13 compared with 2023-02-09 · 94 added, 125 removed, 246 unchanged (47% of the section changed)

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”).

TCBI is a registered bank holding company and has elected to be a financial holding company.

The Company is headquartered in Dallas, with primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, the five largest metropolitan areas of Texas.

Substantially all business activities are conducted through the Bank.

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

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

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

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

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

(“TCBI” or the “Company”) is a registered bank holding company and a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs and individual customers.

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

Substantially all of the Company’s business activities are conducted through its wholly-owned subsidiary bank Texas Capital Bank (the “Bank”).

The Company was incorporated as a Delaware corporation in 1996 and commenced banking operations in 1998.

Business Strategy and Markets

The Company was founded with an entrepreneurial culture and a mission to build a commercial banking presence across Texas.

Drawing on the business and community ties of management and its banking experience, the Company’s strategy has been to establish an independent bank that has focused primarily on commercial businesses, entrepreneurs and professionals in each of the five major metropolitan markets of Texas.

On September 1, 2021, management announced key updates to the Company’s long-term strategy, focused on building a Texas-based full-service financial services firm that can seamlessly serve the best clients in its markets through the entirety of their life cycles.

As a core tenant of TCBI’s vision to be the premier financial services firm in Texas, the Company will maintain financial resiliency for its shareholders which will also allow it to serve its clients, access markets, and support its communities through the cycle.

Last year, 2022, was a year focused on strategic alignment, including, reorganizing the Company’s operating model around client delivery emphasizing client experience;

realigning the expense base and investing in technology;

expanding coverage, products and services;

and enhancing accountability while maintaining financial resilience.

The Company is well positioned with best-in-class levels of liquidity, credit reserves and capital.

Drawing on the banking experience and business and community ties of management, the Company’s strategy has evolved to become a Texas-based full-service financial services firm that can seamlessly serve the best clients in its markets through the entirety of their life cycles.

A core tenant of this strategy is the maintenance of financial resiliency through market and rate cycles enabling the Company to serve its clients, access markets, and support its communities through changing market conditions.

The Company is well positioned with a wide range of relevant products and services along with best-in-class levels of liquidity, credit reserves and capital.

The Company’s business is concentrated in Texas which is a highly competitive market for banking services.

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The largest banking organizations operating in Texas are headquartered outside of the state and are controlled by out-of-state organizations.

TCBI also competes with other providers of financial services, such as non-bank lenders, commercial finance and leasing companies, consumer finance companies, financial technology companies, securities firms, insurance companies, full-service brokerage firms and discount brokerage firms, credit unions and savings and loan associations.

TCBI also competes with other providers of financial services, such as non-bank financial institutions, commercial finance and leasing companies, consumer finance companies, financial technology companies, securities firms, insurance companies, full-service brokerage firms and discount brokerage firms, credit unions and savings and loan associations.

As a tenant of TCBI’s strategic plan, the Company believes that commercial businesses, entrepreneurs and professionals are interested in banking with a company both headquartered and with decision-making authority based in Texas.

The Company’s banking centers in its target markets are served by experienced bankers with expertise in the specific industries found in their market areas and established community ties.

The Company believes it is positioned to offer clients more

responsive and personalized service and advice than its competitors.

The Company believes it is positioned to offer clients more responsive and personalized service and advice than its competitors.

By providing effective service to these customers, the Company believes it will be able to establish “first call” relationships, and provide all the banking needs of its customers, thereby enhancing its relevance and financial returns.

While the Texas market continues to be central to growth and success, the Company has built several lines of business that offer specialized products and services to businesses and individuals regionally and nationwide, including mortgage finance, homebuilder finance, investment banking and Bask Bank.

Bask Bank is an online banking division that offers depositors American Airlines AAdvantage® miles in lieu of cash interest as well as traditional interest bearing deposit products such as savings accounts and certificates of deposit (“CDs”).

While the Texas market continues to be central to its growth and success, the Company has built several lines of business that offer specialized products and services to businesses and individuals regionally and nationwide, including mortgage finance, homebuilder finance, investment banking and Bask Bank.

Bask Bank is an online division of the Bank that offers depositors American Airlines AAdvantage® miles in lieu of cash interest as well as traditional interest bearing deposit products such as savings accounts and certificates of deposit.

The Company believes these business lines help to mitigate its geographic concentration risk in Texas.

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The credit standards are set by a standing Credit Policy Committee with the assistance of the Chief Credit Officer, who is charged with ensuring that all loans in the portfolio meet the credit standards.

The Credit Policy Committee is comprised of senior Bank officers, including the Chief Risk Officer, the Chief Credit Officer and other Bank officers as deemed appropriate, and is subject to oversight by the Risk Committee of the Company's board of directors.

The Credit Policy

Committee is comprised of senior Bank officers, including the Chief Risk Officer, the Chief Credit Officer and other Bank officers as deemed appropriate, and is subject to oversight by the Risk Committee of the Company's board of directors.

The Company believes it maintains an appropriately diversified loan portfolio.

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In addition, prospective loans are analyzed based on current industry concentrations in the loan portfolio to prevent an unacceptable concentration of loans in any particular industry.

The Company believes its credit standards are consistent with achieving its business objectives in the markets the business serves and are an important part of the Company’s risk mitigation strategy.

The Company believes that it is differentiated from its competitors by its focus on and targeted marketing to its core customers and by its ability to tailor its products to the individual needs of its customers.

The Company generally extends variable rate loans in which the interest rate fluctuates with a specified reference rate and frequently provide for a minimum floor rate.

The Company believes its credit standards are consistent with achieving its business objectives in the markets it serves and are an important part of the Company’s risk mitigation strategy.

The Company believes that it is differentiated from its competitors by its client selection, focus on and targeted marketing to its core customers and by its ability to tailor its products to the individual needs of its customers.

The Company generally extends variable rate loans in which the interest rate fluctuates with a specified reference rate and may provide for a minimum floor rate.

The use of variable rate loans is designed to protect the Company from risks associated with interest rate fluctuations since the rates of interest earned will automatically reflect such fluctuations.

In 2017, the U.K.

Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021.

The administrator of LIBOR extended publication of the most commonly used U.S.

dollar LIBOR settings to June 30, 2023 and ceased publishing other LIBOR settings on December 31, 2021.

federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S.

dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.

On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Board of Governors of the Federal Reserve System (“Federal Reserve”) based on the Secured Overnight Financing Rate Data (“SOFR”) for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.

On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023.

The Company has significant but declining exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which mature after

June 30, 2023.

The Company established a working group, consisting of key stakeholders from throughout the company, to monitor developments relating to LIBOR changes and to guide the transition.

This team has worked to successfully ensure that technology systems are prepared for the transition, loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders have been apprised of the transition.

Based on the transition progress to date, the Company ceased originating LIBOR-based products and began originating alternative indexed products in December 2021.

The Company will continue to transition all remaining LIBOR-based products to an alternative benchmark.

The Company will also continue to evaluate the transition process and align its trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates, if necessary and as needed.

Treasury Solutions and Deposit Products

Texas Capital Bank offers treasury solutions and deposit products to meet its customers evolving needs.

For Commercial customers, the Company offers a full suite of deposit solutions including checking, money market savings, and sweep accounts with competitive industry rates.

For commercial business customers, the Company offers a full suite of deposit solutions including checking, money market savings, and sweep accounts with competitive industry rates.

Treasury products offered include state of the art payment and receivables solutions ranging from instant payments, wire, ACH, commercial card, merchant, and lockbox solutions underpinned by a commercial grade digital platform supporting a broad range of payment initiation, information reporting and liquidity management solutions.

The personal banking deposit products include checking accounts, savings accounts, money market accounts and certificates of deposit.

Personal banking deposit products offered by the Bank include checking accounts, savings accounts, money market accounts and certificates of deposit.

Personal banking deposit customers have online and mobile access to fully manage their accounts leveraging features that include funds transfers, peer-to-peer payments, bill pay, wire transfer requests, remote check deposit and more.

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Human Capital

The Company’s goal is to attract, develop, retain and plan for succession of key talent and executives to achieve strategic objectives.

The Company’s focus is to attract, develop, engage and retain the best talent, and to plan for succession of key talent and executives to achieve strategic objectives.

The Company is continually investing in its workforce to further emphasize diversity and inclusion and to foster its employees' growth and career development.

Further, the Company is continually evaluating the resources available to employees to address work, life, financial and health-related matters, as the health, safety and well-being of employees and customers is of paramount importance.

As part of the Company’s commitment to address diversity, equity and inclusion (“DEI”), a DEI Council, co-chaired by the Chief Executive Officer and Chief Human Resources Officer, is made up of colleagues from departments across the organization that aims to steer DEI strategies and initiatives.

The DEI Council is working to develop DEI goals and metrics that align to the Company’s business strategy.

Further, the Company is regularly evaluating the resources available to employees to address professional, financial and health-related matters, as the health, safety and well-being of employees and customers is of paramount importance.

The Compensation and Human Capital Committee of the Board of Directors provides input and oversight of human capital management, including talent management, executive succession planning, diversity and inclusion and company culture.

At the Company, diversity, equity and inclusion (“DEI”) is an integral part of the strategy to build a strong culture where employees can reach their full potential professionally and personally.

In 2023, the Company continued its inclusion efforts through cultural celebrations and employee engagement activities across markets, and the Company broadened communications internally and externally as it highlighted the stories and experiences of diverse leaders.

Listening tours were conducted with employees to get their perspective of what DEI means to them and where the Company has opportunity to improve.

In 2022, we launched Employee Resource Groups (“ERGs”).

In 2023, the Company focused on ensuring charters were clear and leadership was in place.

The Company also prioritized proactive planning, strong execution, and defined processes.

With new leadership teams in place, there was an exponential growth in employee engagement and programming.

Employee participation increased by 40% and programming tripled year over year.

In addition to advancing educational awareness, the ERGs led the way in creating opportunities for our employees to give back to the communities the Company serves through volunteerism.

The Company offers a comprehensive benefits program to its employees and designs compensation programs to attract, retain and motivate employees that align with Company performance.

During 2022, the Company enhanced its performance management process, and implemented a more defined process for succession planning deeper into the organization.

The Company also continued enhancements to its training and development program during 2022, which included the creation of job profiles for roles across the Company with skills, knowledge, and abilities to empower employees to focus on targeted skill development and career ownership.

Further, the Company launched a leadership model with business-critical competencies for focused coaching and development.

The Company’s performance management process is designed for succession planning deeper into the organization.

The Company utilizes feedback from exit interviews to drive improvements where possible and reduced attrition by 6% in 2023.

The Company also continued enhancements to its training and development program during 2023, which included the completion of job profiles for roles across the Company with skills, knowledge, and abilities to empower employees to focus on targeted skill development and career ownership.

Further, the Company expanded its use of leadership models, which identify the critical skills and behaviors necessary to be successful at every level, and success profiles, that describe the critical knowledge, skills and abilities needed for every role.

To help employees be successful in their roles, the Company implemented a new Human Capital Management System, which among other things, resulted in more streamlined HR processes, and creating a more favorable employee experience and engagement in HR-related activities.

At December 31, 2023, the Company had 1,987 employees, nearly all of whom are full time and of which approximately 42% were female and 43% self-identify as ethnically diverse.

Due to the Company’s significant Texas-based operations and branch-lite network, the majority of its employees are based in Texas.

None of the Company’s employees is represented by a collective bargaining agreement, and management considers relations with employees to be good.

None of the Company’s employees are represented by a collective bargaining agreement, and management considers relations with employees to be good.

Regulation and Supervision

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TCBI’s activities are governed by the Bank Holding Company Act of 1956, as amended (the “BHCA”).

It is subject to primary regulation, supervision and examination by the Federal Reserve pursuant to the BHCA.

It is subject to primary regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) pursuant to the BHCA.

The Company files quarterly reports and other information with the Federal Reserve.

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The Bank has a wholly owned non-bank subsidiary, TCBI Securities, Inc.

(“TCBI Securities”), doing business as Texas Capital Securities, that is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority (“FINRA”).

(“TCBI Securities”), doing business as Texas Capital Securities, that is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority

TCBI Securities is subject to the jurisdiction of several regulatory bodies, including the SEC, FINRA, and state securities regulators.

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Additionally, TCBI could in certain circumstances be required to guarantee the capital restoration plan of the Bank if it became undercapitalized.

consistent with the organization’s expected future capital needs, asset quality and financial condition.

It is the policy of the Federal Reserve that bank holding companies may maintain their existing rate of cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s expected future capital needs, asset quality and financial condition.

As a general matter, the Federal Reserve expects a bank holding company’s board of directors to inform it and to eliminate, defer or significantly reduce the bank holding company’s dividends if (i) the bank holding company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) the bank holding company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

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The Bank is subject to continuous regulation, supervision and examination by the Texas Department of Banking and the FDIC.

The regulators monitor all areas of the Bank’s operations, including security devices and procedures, adequacy of capitalization and loss reserves, accounting treatment and impact on capital determinations, loans, investments, borrowings, deposits, liquidity, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe and sound lending and deposit gathering practices.

liquidity, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe and sound lending and deposit gathering practices.

Among other things, the Bank is required by its regulators to maintain specified capital ratios, file quarterly reports of its financial condition and results of operations and to obtain an annual audit of its financial statements.

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The Basel III Capital Rules became effective for the Company on January 1, 2015, with certain transition provisions phasing in over a period that ended on January 1, 2019.

The Basel III Capital Rules, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists 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 the other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

The Basel III Capital Rules, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists 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 the other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

The Basel III Capital Rules also specify a capital measure for Tier 2 capital, which includes subordinated debt and a portion of the allowance for credit losses, in each case, subject to certain regulatory requirements.

The Company’s preferred stock constitutes Additional Tier 1 capital and subordinated notes constitute Tier 2 capital.

The Basel III Capital Rules set the Tier 1 risk-based capital requirement and the total risk-based capital requirement to a minimum of 6.0% and 8.0%, respectively, each plus a 2.5% capital conservation buffer composed entirely of CET1, producing targeted ratios of 8.5% and 10.5%, respectively.

The Basel III Capital Rules set the CET1 risk-based capital requirement, the Tier 1 risk-based capital requirement and the total risk-based capital requirement to a minimum of 4.5%, 6.0% and 8.0%, respectively, each plus a 2.5% capital conservation buffer composed entirely of CET1, producing targeted ratios of 7.0%, 8.5% and 10.5%, respectively.

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.

The leverage ratio requirement under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to total assets, is 4.0%.

The Company and the Bank must maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a leverage ratio equal to or greater than 5.0%.

The Company has met the capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis since it commenced filing of the applicable reports with its federal banking regulators, and as of December 31, 2022 the Bank's CET1 ratio and total risk-based capital ratio were in excess of the amounts required for the Bank to be classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations, which is discussed in more detail below.

Because the Company had less than $15 billion in total consolidated assets as of December 31, 2009, it is allowed to continue to classify its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.

As a non-advanced approaches banking organization, the Company has elected to exclude the effects of certain accumulated other comprehensive income (“AOCI”) items included in stockholders’ equity for the determination of regulatory capital and capital ratios under the Basel III Capital Rules.

In December 2017, the Basel Committee published the last version of the Basel III regulatory reforms, which are commonly referred to as “Basel IV.” The Basel IV standards revised, among other things the Basel Committee’s standardized approach for credit risk and provide a new standardized approach for operational risk capital.

Under the current U.S.

capital rules, operational risk capital requirements and a capital floor apply only to banking organizations that are subject to the advanced approaches framework.

The impact of the Basel IV standards on the Company and the Bank will depend on the manner in which it is implemented by the federal banking regulators.

The leverage ratio requirement under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deduction), is 4.0%.

Under the Basel III Capital Rules, the Company and the Bank must maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a leverage ratio equal to or greater than 4.0%.

The Company has met the capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis since it commenced filing of the applicable reports with its federal banking regulators, and as of December 31, 2023 the Bank's CET1 risk-based capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were in excess of the amounts required for the Bank to be classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations, which is discussed in more detail below.

However, the treatment of existing trust preferred securities as capital may be subject to further regulatory change prior to their maturity, which could require the Company to seek additional capital.

As a non-advanced approaches banking organization, the Company has elected to exclude the effects of certain accumulated other comprehensive income (“AOCI”)

items included in stockholders’ equity for the determination of regulatory capital and capital ratios under the Basel III Capital Rules.

In August 2020, the U.S.

federal banking agencies adopted a final rule altering the definition of eligible retained income in their respective capital rules.

Under the new rule, eligible retained income is the greater of a firm’s (i) net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii) average net income over the preceding four quarters.

An institution’s eligible retained income, when considered in conjunction with capital ratios and the capital conservation buffer, provides limitations on capital distributions (including dividends and share repurchases) and certain executive compensation arrangements for the quarter following the calculation.

As of December 31, 2023, the Company was permitted to use 100% of its eligible retained income for these purposes in the first quarter of 2024.

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 accounting principles generally accepted in the United States (“GAAP”).

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Under this system, insured depository institutions are ranked in one of five capital categories as described below.

Regulators are required to take mandatory supervisory actions and are authorized to take other discretionary actions of increasing severity with respect

to insured depository institutions in the three undercapitalized categories.

Regulators are required to take mandatory supervisory actions and are authorized to take other discretionary actions of increasing severity with respect to insured depository institutions in the three undercapitalized categories.

The five capital categories for insured depository institutions under the prompt corrective action regulations consist of:

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A “significantly undercapitalized” institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management and other restrictions.

The FDIC has only very limited discretion in dealing with a “critically undercapitalized” institution and generally must appoint a receiver or conservator if the capital deficiency is not corrected promptly.

The FDIC has only very limited discretion in dealing with a

“critically undercapitalized” institution and generally must appoint a receiver or conservator if the capital deficiency is not corrected promptly.

Under the Federal Deposit Insurance Act, as amended (the “FDIA”), “critically undercapitalized” banks may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt (subject to certain limited exceptions).

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Concentration of credit risks, interest rate risk (imbalances in rates, maturities or sensitivities) and risks arising from non-traditional activities, as well as an institution’s ability to manage these risks, are important factors taken into account by regulatory agencies in assessing an organization’s overall capital adequacy.

The FDIC and the Federal Reserve also use a leverage ratio as an additional tool to evaluate the capital adequacy of banking organizations.

The leverage ratio is a company’s Tier 1 capital divided by its average total consolidated assets.

Banks and bank holding companies are required to maintain a minimum leverage ratio of 4.0%, unless a different minimum is specified by an appropriate regulatory authority.

In order to be considered well capitalized the leverage ratio must be at least 5.0%.

As of December 31, 2022, the Bank’s leverage ratio was in excess of the amount required for the Bank to be classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations.

The risk-based and leverage capital ratios established by federal banking regulators are minimum supervisory ratios generally applicable to banking organizations that meet specified criteria, assuming that they otherwise have received the highest regulatory ratings in their most recent examinations.

Banking organizations not meeting these criteria are expected to operate with capital positions in excess of the minimum ratios.

Regulators can, from time to time, change their policies or interpretations of banking practices to require changes in risk weights assigned to the Bank's assets or changes in the factors

considered in order to evaluate capital adequacy, which may require the Bank to obtain additional capital to support existing asset levels or future growth or reduce asset balances in order to meet minimum acceptable capital ratios.

Regulators can, from time to time, change their policies or interpretations of banking practices to require changes in risk weights assigned to the Bank's assets or changes in the factors considered in order to evaluate capital adequacy, which may require the Bank to obtain additional capital to support existing asset levels or future growth or reduce asset balances in order to meet minimum acceptable capital ratios.

Liquidity Requirements .

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In response to this requirement, the Company developed dedicated staffing, economic models, policies and procedures to implement stress testing on an annual basis, the results of which were furnished to regulators.

However, the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 (the “Regulatory Relief Act”) amended portions of the Dodd-Frank Act, requiring stress testing, among other things.

Specifically, the Regulatory Relief Act terminated TCBI’s stress testing requirements, however, the Company created its own stress testing framework and continues to perform certain stress tests as a matter of good governance and risk management and has incorporated the economic models and information developed through the stress testing program into the Company’s risk management and business, capital and liquidity planning activities, which are subject to continuing regulatory oversight.

However, the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 (the “Regulatory Relief Act”) terminated TCBI’s stress testing requirements, however, the Company created its own stress testing framework and continues to perform certain stress tests as a matter of good governance and risk management and has incorporated the economic models and information developed through the stress testing program into the Company’s risk management and business, capital and liquidity planning activities, which are subject to continuing regulatory oversight.

Privacy and Data Security.

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The Bank is required to comply with state laws regarding consumer privacy if they are more protective than the GLB Act.

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision.

If established, the enhanced cyber risk management standards would be designed to help reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system.

The advance notice of proposed rulemaking addresses five categories of cyber standards:

(1) cyber risk governance;

(2) cyber risk management;

(3) internal dependency management;

(4) external dependency management;

and (5) incident response, cyber resilience and situational awareness.

In November 2021, the federal banking agencies approved a final rule that, among other things, would require banking organizations to notify their primary federal regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification incident.”

The federal banking agencies have adopted guidelines for safeguarding confidential, personal customer information.

The guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

In addition, various U.S.

regulators have increased their focus on cyber security through guidance, examinations and regulations.

Banking organizations are required to notify their primary federal regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification incident.”

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

In March 2022, the SEC proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934.

Specifically, the proposed amendments require current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk.

Additionally, the proposed rules would require registrants to provide updates about previously reported cybersecurity incidents in their periodic reports.

Further, the proposed rules would require the cybersecurity disclosures to be presented in Inline eXtensible Business Reporting Language (“Inline XBRL”).

In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934.

Specifically, the final rule requires current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk.

Cybersecurity for a discussion of the Company’s cybersecurity risk management, strategy and governance.

Privacy and data security areas are expected to receive increased attention at the federal level.

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Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs that meet specified requirements.

In addition, other

jurisdictions in which customers do business, such as the European Union, have adopted similar requirements.

In addition, other jurisdictions in which customers do business, such as the European Union, have adopted similar requirements.

This trend of activity is expected to continue to expand, requiring continual monitoring of developments in the states and nations in which the Company’s customers are located and ongoing investments in its information systems and compliance capabilities.

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The Bank's strategic focus on serving commercial customers in regional and national markets from a limited number of branches makes it more challenging for it to satisfy CRA requirements as compared to banks of comparable size that focus on providing retail banking services in markets where they maintain a network of full-service branches.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit;

(ii) update where activities count for CRA credit;

(iii) create a more transparent and objective method for measuring CRA performance;

and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.

The FDIC did not finalize these revisions to its CRA rule.

The OCC finalized its CRA rule in 2020, but rescinded it effective January 1, 2022 and replaced it with the OCC’s prior CRA rule.

On May 5, 2022 the federal banking regulators issued a joint proposed rule that would substantially revise how an insured depository institution’s CRA performance is evaluated.

If the proposed rule is finalized as proposed, it may become more challenging and/or costly for the Bank to receive a rating of at least “satisfactory” on its CRA exam.

On October 24, 2023, the Office of the Comptroller of the Currency (“OCC”), Federal Reserve, and FDIC issued a final rule to modernize their respective CRA regulations.

The revised rules substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027.

Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities.

The final rules are likely to make it more challenging and/or costly for the Bank to receive a rating of at least “satisfactory” on its CRA exam.

The USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act and the Bank Secrecy Act.

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Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with relevant laws or regulations, could have serious legal, reputational and financial consequences for the institution.

Because of the significance of regulatory emphasis on these requirements, the Company has expended, and expects to continue to expend, significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing compliance with the Bank Secrecy Act on an ongoing basis.

programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing compliance with the Bank Secrecy Act on an ongoing basis.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021.

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The FDIA requires federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions that relate to, among other things:

(i) internal controls, information systems and

audit systems;

(i) internal controls, information systems and audit systems;

(ii) loan documentation;

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Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.

Additional restrictions on transactions with affiliates and insiders are discussed in the Dodd-Frank Act section below.

Restrictions on Payment of Dividends by the Bank.

The sole source of funding of TCBI’s financial obligations has consisted of proceeds of capital markets transactions and cash payments from the Bank for debt service and dividend payments with respect to the preferred stock issued to the Company by the Bank.

TCBI may seek reliance upon receipt of dividends paid by the Bank to meet its financial obligations.

The sole source of funding of TCBI’s financial obligations has consisted of proceeds of capital markets transactions and cash payments from the Bank.

The Bank is subject to federal banking law requirements concerning the payment of dividends, including, under the FDICIA, the Bank may not pay any dividend if it is undercapitalized or if payment would cause it to become undercapitalized.

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Deposit Insurance.

The Bank’s deposits are insured through the DIF, which is administered by the FDIC, up to limits established by applicable law, currently $250,000 per depositor.

The Bank’s deposits are insured through the DIF, which is administered by the FDIC, up to limits established by applicable law, currently $250,000 per depositor, per account ownership category, per bank.

The FDIC determines quarterly deposit insurance assessments consisting of a percentage of an assessment base equal to the Bank’s average consolidated total assets less average tangible equity capital and the assignment of one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors.

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The FDIC may also prohibit any FDIC-insured institution from engaging in any activity it determines to pose a serious risk to the DIF.

For 2022, minimum and maximum assessment rates (inclusive of possible adjustments) for institutions the size of the Bank ranged from 1.5 to 40 basis points.

As a “large” institution for purposes of determining FDIC insurance assessments, the Bank

was until December 31, 2018, subject to additional surcharges to rebuild the DIF to a reserve ratio (DIF balance divided by total insured deposits) equal to 1.35%.

The Dodd-Frank Act.

In 2010, the Dodd-Frank Act became law and has had a broad impact on the financial services industry, imposing significant regulatory and compliance changes.

The following discussion provides a brief summary of certain provisions of the Dodd-Frank Act that may have an effect on the Company.

The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which the statutorily prescribed collateral amounts must be maintained for covered credit transactions must be satisfied.

Insider transaction limitations are expanded through the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements and securities lending or borrowing transactions.

Restrictions on certain asset sales to and from certain insiders to an institution were also expanded to include a broader range of insiders, to always require the transactions be on market terms and, in certain circumstances, to also require approval of the transaction by a majority of the disinterested members of the institution’s board.

The Dodd-Frank Act increases the risk of “secondary actor liability” for lenders that provide financing or other services to customers offering financial products or services to consumers, as the Bank does in its mortgage finance and lender finance lines of business.

The Dodd-Frank Act can impose liability on a service provider for knowingly or recklessly providing substantial assistance to a customer found to have engaged in unfair, deceptive or abusive practices that injure a consumer.

This exposure contributes to increased compliance and other costs in connection with the administration of credit extended to entities engaged in providing financial products and services to consumers.

The Dodd-Frank Act may impact the profitability of the Company’s business activities, require changes to certain of its business practices, impose more stringent compliance requirements, capital, liquidity and leverage requirements or otherwise adversely affect the business.

These developments may also require the Company to invest significant management attention and resources to evaluate and make changes to the business as necessary to comply with new and changing statutory and regulatory requirements, including interpretations thereto.

For 2023, the FDIC assigned assessment rates based on a scorecard considering CAMELS component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure, all subject to certain adjustments.

As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%.

The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years.

On October 18, 2022, the FDIC adopted an amended restoration plan to increase the likelihood that the reserve ratio would be restored to at least 1.35% by September 30, 2028.

The FDIC’s amended restoration plan increases the initial base deposit insurance assessment rate schedules uniformly by 2 basis points, which began the first quarterly assessment period of 2023.

The FDIC could further increase the deposit insurance assessments for certain insured depository institutions, including the Bank, if the DIF reserve ratio is not restored as projected.

In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the DIF associated with several bank failures that occurred during early 2023.

The assessment base for the special assessment is equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, beginning the first quarterly assessment period of 2024.

The Volcker Rule .

The Dodd-Frank Act amended the BHCA to require the federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading in designated types of financial instruments and from investing in and sponsoring certain hedge funds and private equity funds.

The Volcker Rule has not had a material effect on the Company’s operations because it does not engage in the businesses prohibited by the Volcker Rule.

The Volcker Rule has not had a material effect on the Company’s operations.

Unanticipated effects of the Volcker Rule’s provisions or future interpretations may have an adverse effect on business or services provided to the Bank by other financial institutions.

Debit Card Interchange Fees.

Dodd-Frank includes a set of rules requiring that interchange transaction fees for electronic debit transactions be reasonable and proportional to certain costs associated with processing the transactions.

Interchange fees for electronic debit transactions are limited to 21 cents plus 0.05% of the transaction, plus an additional one cent per transaction fraud adjustment.

These rules impose requirements regarding routing and exclusivity of electronic debit transactions, and generally require that debit cards be usable in at least two unaffiliated networks.

On October 25, 2023, the FRB proposed to lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction.

The proposal would also establish a regular process for updating the maximum amount every other year going forward.

We continue to monitor the development of these proposed rule revisions.

Future Legislation and Regulation .

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

What changed 10-K

Item 1. Business