TEXAS CAPITAL BANCSHARES INC/TX 10-Q

tcbi-20240331 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2024 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to Commission file number 001-34657 TEXAS CAPITAL BANCSHARES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 75-2679109 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 2000 McKinney Avenue Suite 700 Dallas TX USA 75201 (Address of principal executive offices) (Zip Code) 214 / 932-6600 (Registrant’s telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share TCBI Nasdaq Stock Market 5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per share TCBIO Nasdaq Stock Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer x Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ý On April 17, 2024, the number of shares set forth below was outstanding with respect to each of the issuer’s classes of common stock: Common Stock, par value $0.01 per share 46,653,108 Table of Contents Texas Capital Bancshares, Inc. Form 10-Q Quarter Ended March 31, 2024 Index Part I.—Financial Information Item 1. Financial Statements - Unaudited 3 Consolidated Balance Sheets 3 Consolidated Statements of Income and Other Comprehensive Income 4 Consolidated Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 29 Item 4. Controls and Procedures 31 Part II.—Other Information Item 1. Legal Proceedings 32 Item 1A. Risk Factors 32 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32 Item 6. Exhibits 33 Signatures 34 Table of Contents PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS - UNAUDITED (in thousands except share data) March 31, 2024 December 31, 2023 Assets Cash and due from banks $ 167,985 $ 200,493 Interest bearing cash and cash equivalents 3,148,157 3,042,357 Available-for-sale debt securities 3,491,510 3,225,892 Held-to-maturity debt securities 849,283 865,477 Equity securities 73,487 51,825 Investment securities 4,414,280 4,143,194 Loans held for sale 37,750 44,105 Loans held for investment, mortgage finance 4,153,313 3,978,328 Loans held for investment 16,677,691 16,362,230 Less: Allowance for credit losses on loans 263,962 249,973 Loans held for investment, net 20,567,042 20,090,585 Premises and equipment, net 49,899 32,366 Accrued interest receivable and other assets 793,976 801,670 Goodwill and intangibles, net 1,496 1,496 Total assets $ 29,180,585 $ 28,356,266 Liabilities and Stockholders’ Equity Liabilities: Non-interest bearing deposits $ 8,478,215 $ 7,328,276 Interest bearing deposits 15,475,822 15,043,563 Total deposits 23,954,037 22,371,839 Accrued interest payable 32,352 33,234 Other liabilities 413,711 392,904 Short-term borrowings 750,000 1,500,000 Long-term debt 859,823 859,147 Total liabilities 26,009,923 25,157,124 Stockholders’ equity: Preferred stock, $ 0.01 par value, $ 1,000 liquidation value: Authorized shares - 10,000,000 Issued shares - 300,000 at March 31, 2024 and December 31, 2023 300,000 300,000 Common stock, $ 0.01 par value: Authorized shares - 100,000,000 Issued shares - 51,420,680 and 51,142,979 at March 31, 2024 and December 31, 2023, respectively 514 511 Additional paid-in capital 1,044,669 1,045,576 Retained earnings 2,457,222 2,435,393 Treasury stock - 4,434,405 and 3,905,067 shares at cost at March 31, 2024 and December 31, 2023, respectively ( 251,857 ) ( 220,334 ) Accumulated other comprehensive loss, net of taxes ( 379,886 ) ( 362,004 ) Total stockholders’ equity 3,170,662 3,199,142 Total liabilities and stockholders’ equity $ 29,180,585 $ 28,356,266 See accompanying notes to consolidated financial statements. 3 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME - UNAUDITED Three Months Ended March 31, (in thousands except per share data) 2024 2023 Interest income Interest and fees on loans $ 330,879 $ 297,438 Investment securities 32,144 25,292 Interest bearing cash and cash equivalents 54,355 62,436 Total interest income 417,378 385,166 Interest expense Deposits 175,600 120,094 Short-term borrowings 12,783 14,744 Long-term debt 13,986 14,983 Total interest expense 202,369 149,821 Net interest income 215,009 235,345 Provision for credit losses 19,000 28,000 Net interest income after provision for credit losses 196,009 207,345 Non-interest income Service charges on deposit accounts 6,339 5,022 Wealth management and trust fee income 3,567 3,429 Brokered loan fees 1,911 1,895 Investment banking and advisory fees 18,424 14,564 Trading income 4,712 4,204 Other 6,366 8,289 Total non-interest income 41,319 37,403 Non-interest expense Salaries and benefits 128,727 128,670 Occupancy expense 9,737 9,619 Marketing 6,036 9,044 Legal and professional 16,195 14,514 Communications and technology 21,114 17,523 Federal Deposit Insurance Corporation insurance assessment 8,421 2,170 Other 12,163 12,487 Total non-interest expense 202,393 194,027 Income before income taxes 34,935 50,721 Income tax expense 8,793 12,060 Net income 26,142 38,661 Preferred stock dividends 4,313 4,313 Net income available to common stockholders $ 21,829 $ 34,348 Other comprehensive income/(loss) Change in unrealized gain/(loss) $ ( 42,343 ) $ 42,953 Amounts reclassified into net income 19,708 12,973 Other comprehensive income/(loss) ( 22,635 ) 55,926 Income tax expense/(benefit) ( 4,753 ) 11,745 Other comprehensive income/(loss), net of tax ( 17,882 ) 44,181 Comprehensive income $ 8,260 $ 82,842 Basic earnings per common share $ 0.46 $ 0.71 Diluted earnings per common share $ 0.46 $ 0.70 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 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: Net income — — — — — 38,661 — — — 38,661 Change in other comprehensive income/(loss), net of taxes — — — — — — — — 44,181 44,181 Total comprehensive income 82,842 Stock-based compensation expense recognized in earnings — — — — 8,438 — — — — 8,438 Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 ) Issuance of stock related to stock-based awards — — 80,008 — ( 2,126 ) — — — — ( 2,126 ) Repurchase of common stock — — — — — — ( 1,011,909 ) ( 60,218 ) — ( 60,218 ) Balance at March 31, 2023 300,000 $ 300,000 50,947,306 $ 509 $ 1,031,905 $ 2,297,850 ( 3,095,444 ) $ ( 175,528 ) $ ( 374,762 ) $ 3,079,974 Balance at December 31, 2023 (audited) 300,000 $ 300,000 51,142,979 $ 511 $ 1,045,576 $ 2,435,393 ( 3,905,067 ) $ ( 220,334 ) $ ( 362,004 ) $ 3,199,142 Comprehensive income: Net income — — — — — 26,142 — — — 26,142 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 17,882 ) ( 17,882 ) Total comprehensive income 8,260 Stock-based compensation expense recognized in earnings — — — — 8,026 — — — — 8,026 Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 ) Issuance of stock related to stock-based awards — — 277,701 3 ( 8,933 ) — — — — ( 8,930 ) Repurchase of common stock — — — — — — ( 529,338 ) ( 31,523 ) — ( 31,523 ) Balance at March 31, 2024 300,000 $ 300,000 51,420,680 $ 514 $ 1,044,669 $ 2,457,222 ( 4,434,405 ) $ ( 251,857 ) $ ( 379,886 ) $ 3,170,662 See accompanying notes to consolidated financial statements. 5 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, (in thousands) 2024 2023 Operating activities Net income $ 26,142 $ 38,661 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Provision for credit losses 19,000 28,000 Depreciation and amortization 10,906 8,683 Net gain recognized on investment securities ( 4,034 ) ( 1,734 ) Stock-based compensation expense 8,534 8,438 Proceeds from sales and repayments of loans held for sale 15,605 8,749 Changes in operating assets and liabilities: Accrued interest receivable and other assets 48,253 ( 28,286 ) Accrued interest payable and other liabilities ( 28,586 ) ( 44,308 ) Net cash provided by operating activities 95,820 18,203 Investing activities Purchases of available-for-sale debt securities ( 596,610 ) ( 849,391 ) Proceeds from sales of available-for-sale debt securities — 56,923 Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities 317,717 45,716 Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities 17,064 17,489 Sales/(purchases) of equity securities, net ( 17,628 ) 2,487 Originations of loans held for investment, mortgage finance ( 16,389,564 ) ( 14,897,110 ) Proceeds from pay-offs of loans held for investment, mortgage finance 16,214,579 14,926,573 Net increase in loans held for investment, excluding mortgage finance loans ( 335,475 ) ( 837,100 ) Purchase of premises and equipment, net ( 20,043 ) ( 1,363 ) Net cash used in investing activities ( 809,960 ) ( 1,535,776 ) Financing activities Net increase/(decrease) in deposits 1,582,198 ( 677,183 ) Issuance of stock related to stock-based awards ( 8,930 ) ( 2,126 ) Preferred dividends paid ( 4,313 ) ( 4,313 ) Repurchase of common stock ( 31,523 ) ( 60,218 ) Net increase/(decrease) in short-term borrowings ( 750,000 ) 898,858 Net cash provided by financing activities 787,432 155,018 Net increase/(decrease) in cash and cash equivalents 73,292 ( 1,362,555 ) Cash and cash equivalents at beginning of period 3,242,850 5,012,260 Cash and cash equivalents at end of period $ 3,316,142 $ 3,649,705 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 267,955 $ 142,623 Cash paid/(refunded) during the period for income taxes ( 909 ) 451 Transfers of loans from held for investment to held for sale 9,250 — See accompanying notes to consolidated financial statements. 6 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 1996 and commenced banking operations in 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 primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, 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, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 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. (2) Earnings Per Share The following table presents the computation of basic and diluted earnings per share: Three Months Ended March 31, (in thousands except share and per share data) 2024 2023 Numerator: Net income $ 26,142 $ 38,661 Preferred stock dividends 4,313 4,313 Net income available to common stockholders $ 21,829 $ 34,348 Denominator: Basic earnings per common share—weighted average common shares 47,278,681 48,264,121 Effect of dilutive outstanding stock-settled awards 432,511 616,604 Dilutive earnings per common share—weighted average diluted common shares 47,711,192 48,880,725 Basic earnings per common share $ 0.46 $ 0.71 Diluted earnings per common share $ 0.46 $ 0.70 Anti-dilutive outstanding stock-settled awards 127,145 252,308 7 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 March 31, 2024 Available-for-sale debt securities: U.S. Treasury securities $ 401,652 $ — $ ( 16,099 ) $ 385,553 U.S. government agency securities 125,000 — ( 19,230 ) 105,770 Residential mortgage-backed securities 3,312,491 6,977 ( 331,542 ) 2,987,926 CRT securities 13,427 — ( 1,166 ) 12,261 Total available-for-sale debt securities 3,852,570 6,977 ( 368,037 ) 3,491,510 Held-to-maturity debt securities: Residential mortgage-backed securities 849,283 — ( 112,172 ) 737,111 Total held-to-maturity debt securities 849,283 — ( 112,172 ) 737,111 Equity securities 73,487 Total investment securities(2) $ 4,414,280 December 31, 2023 Available-for-sale debt securities: U.S. Treasury securities $ 651,112 $ — $ ( 14,639 ) $ 636,473 U.S. government agency securities 125,000 — ( 18,408 ) 106,592 Residential mortgage-backed securities 2,782,734 540 ( 312,442 ) 2,470,832 CRT securities 13,636 — ( 1,641 ) 11,995 Total available-for-sale debt securities 3,572,482 540 ( 347,130 ) 3,225,892 Held-to-maturity securities: Residential mortgage-backed securities 865,477 — ( 101,633 ) 763,844 Total held-to-maturity securities 865,477 — ( 101,633 ) 763,844 Equity securities 51,825 Total investment securities(2) $ 4,143,194 (1) Excludes accrued interest receivable of $ 10.4 million and $ 9.5 million at March 31, 2024 and December 31, 2023, respectively, related to available-for-sale debt securities and $ 1.4 million and $ 1.4 million at March 31, 2024 and December 31, 2023, 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 The Company did not sell any available-for-sale debt securities in the first quarter of 2024. 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 March 31, 2024, 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 $ — $ — $ — $ — Due after one year through five years 451,652 429,431 — — Due after five years through ten years 105,716 88,977 — — Due after ten years 3,295,202 2,973,102 849,283 737,111 Total $ 3,852,570 $ 3,491,510 $ 849,283 $ 737,111 8 Table of Contents The table below presents the weighted average yields for the Company’s available-for-sale debt securities for the three months ended March 31, 2024. Weighted average yields are calculated based on amortized cost on a tax-exempt basis assuming a 21% tax rate, where applicable. U.S. Treasury securities U.S. government agency securities Residential mortgage-backed securities CRT securities Due within one year — % — % — % — % Due after one year through five years 2.71 1.00 — — Due after five years through ten years — 1.21 1.23 5.45 Due after ten years — — 3.32 — Total 2.71 % 1.13 % 3.31 % 5.45 % 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 March 31, 2024 U.S. Treasury securities $ — $ — $ 385,553 $ ( 16,099 ) $ 385,553 $ ( 16,099 ) U.S. government agency securities — — 105,771 ( 19,230 ) 105,771 ( 19,230 ) Residential mortgage-backed securities 395,176 ( 4,230 ) 2,291,560 ( 327,312 ) 2,686,736 ( 331,542 ) CRT securities — — 12,261 ( 1,166 ) 12,261 ( 1,166 ) Total $ 395,176 $ ( 4,230 ) $ 2,795,145 $ ( 363,807 ) $ 3,190,321 $ ( 368,037 ) December 31, 2023 U.S. Treasury securities $ — $ — $ 636,473 $ ( 14,639 ) $ 636,473 $ ( 14,639 ) U.S. government agency securities — — 106,592 ( 18,408 ) 106,592 ( 18,408 ) Residential mortgage-backed securities 910,999 ( 19,751 ) 1,501,340 ( 292,691 ) 2,412,339 ( 312,442 ) CRT securities — — 11,995 ( 1,641 ) 11,995 ( 1,641 ) Total $ 910,999 $ ( 19,751 ) $ 2,256,400 $ ( 327,379 ) $ 3,167,399 $ ( 347,130 ) At March 31, 2024, the Company had 112 available-for-sale debt securities in an unrealized loss position, comprised of 10 U.S. Treasury securities, five U.S. government agency securities, 95 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 March 31, 2024 and December 31, 2023, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities. At March 31, 2024 and December 31, 2023, debt securities with carrying values of approximately $ 1.5 million and $ 1.6 million, respectively, were pledged to secure certain customer deposits. 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. 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 March 31, (in thousands) 2024 2023 Net gains/(losses) recognized during the period $ 4,034 $ 1,245 Less: Realized net gains/(losses) recognized on securities sold 312 ( 596 ) Unrealized net gains/(losses) recognized on securities still held $ 3,722 $ 1,841 9 Table of Contents (4) Loans and Allowance for Credit Losses on Loans Loans are summarized by portfolio segment as follows: (in thousands) March 31, 2024 December 31, 2023 Loans held for investment(1): Commercial $ 10,383,184 $ 10,410,766 Mortgage finance 4,153,313 3,978,328 Commercial real estate 5,822,461 5,500,774 Consumer 549,963 530,948 Gross loans held for investment 20,908,921 20,420,816 Unearned income (net of direct origination costs) ( 77,917 ) ( 80,258 ) Total loans held for investment 20,831,004 20,340,558 Allowance for credit losses on loans ( 263,962 ) ( 249,973 ) Total loans held for investment, net $ 20,567,042 $ 20,090,585 Loans held for sale: Mortgage loans, at fair value $ 700 $ 706 Non-mortgage loans, at lower of cost or fair value 37,050 43,399 Total loans held for sale $ 37,750 $ 44,105 (1) Excludes accrued interest receivable of $ 114.0 million and $ 118.1 million at March 31, 2024 and December 31, 2023, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets. 10 Table of Contents The following tables summarize gross loans held for investment by year of origination and internally assigned credit grades: (in thousands) 2024 2023 2022 2021 2020 2019 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total March 31, 2024 Commercial (1-7) Pass $ 259,505 $ 1,520,538 $ 1,318,364 $ 273,069 $ 121,851 $ 279,527 $ 6,133,867 $ 15,177 $ 9,921,898 (8) Special mention — 41,444 89,022 33,634 274 8,444 72,605 — 245,423 (9) Substandard - accruing — 21,802 48,945 16,246 17,859 3,478 27,017 — 135,347 (9+) Non-accrual — 12,835 3,204 — 1,891 23,159 39,427 — 80,516 Total commercial $ 259,505 $ 1,596,619 $ 1,459,535 $ 322,949 $ 141,875 $ 314,608 $ 6,272,916 $ 15,177 $ 10,383,184 Mortgage finance (1-7) Pass $ — $ — $ — $ — $ — $ — $ 4,153,313 $ — $ 4,153,313 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total mortgage finance $ — $ — $ — $ — $ — $ — $ 4,153,313 $ — $ 4,153,313 Commercial real estate (1-7) Pass $ 25,635 $ 783,034 $ 1,765,387 $ 1,104,942 $ 462,880 $ 996,932 $ 261,278 $ 25,810 $ 5,425,898 (8) Special mention — 1,019 240,303 268 24,416 72,393 — — 338,399 (9) Substandard - accruing — — 12,545 17,127 — 17,143 — — 46,815 (9+) Non-accrual — — — — — 11,349 — — 11,349 Total commercial real estate $ 25,635 $ 784,053 $ 2,018,235 $ 1,122,337 $ 487,296 $ 1,097,817 $ 261,278 $ 25,810 $ 5,822,461 Consumer (1-7) Pass $ 15,677 $ 28,709 $ 53,989 $ 77,692 $ 45,897 $ 113,642 $ 212,667 $ — $ 548,273 (8) Special mention — — — — 689 — — 17 706 (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — 984 — — 984 Total consumer $ 15,677 $ 28,709 $ 53,989 $ 77,692 $ 46,586 $ 114,626 $ 212,667 $ 17 $ 549,963 Total $ 300,817 $ 2,409,381 $ 3,531,759 $ 1,522,978 $ 675,757 $ 1,527,051 $ 10,900,174 $ 41,004 $ 20,908,921 Gross charge-offs $ — $ 6,731 $ 311 $ 3,512 $ — $ 232 $ 83 $ — $ 10,869 (in thousands) 2023 2022 2021 2020 2019 2018 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total December 31, 2023 Commercial (1-7) Pass $ 1,546,257 $ 1,408,672 $ 279,266 $ 144,699 $ 142,301 $ 157,808 $ 6,284,464 $ 16,580 $ 9,980,047 (8) Special mention 22,148 118,991 35,619 285 823 13,385 40,647 89 231,987 (9) Substandard - accruing 12,477 50,876 9,334 18,547 — 78 38,372 — 129,684 (9+) Non-accrual 9,395 34,229 340 2,085 15,080 7,840 79 — 69,048 Total commercial $ 1,590,277 $ 1,612,768 $ 324,559 $ 165,616 $ 158,204 $ 179,111 $ 6,363,562 $ 16,669 $ 10,410,766 Mortgage finance (1-7) Pass $ — $ — $ — $ — $ — $ — $ 3,978,328 $ — $ 3,978,328 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total mortgage finance $ — $ — $ — $ — $ — $ — $ 3,978,328 $ — $ 3,978,328 Commercial real estate (1-7) Pass $ 561,801 $ 1,689,325 $ 1,042,953 $ 419,703 $ 317,480 $ 559,026 $ 575,928 $ 28,175 $ 5,194,391 (8) Special mention — 136,801 32,937 24,440 34,181 22,833 7,895 — 259,087 (9) Substandard - accruing — 2,232 — — — 28,573 4,141 — 34,946 (9+) Non-accrual — — 12,350 — — — — — 12,350 Total commercial real estate $ 561,801 $ 1,828,358 $ 1,088,240 $ 444,143 $ 351,661 $ 610,432 $ 587,964 $ 28,175 $ 5,500,774 Consumer (1-7) Pass $ 31,876 $ 56,425 $ 78,096 $ 47,423 $ 14,141 $ 102,691 $ 199,171 $ — $ 529,823 (8) Special mention — — — — — — 100 41 141 (9) Substandard - accruing — — — — — 984 — — 984 (9+) Non-accrual — — — — — — — — — Total Consumer $ 31,876 $ 56,425 $ 78,096 $ 47,423 $ 14,141 $ 103,675 $ 199,271 $ 41 $ 530,948 Total $ 2,183,954 $ 3,497,551 $ 1,490,895 $ 657,182 $ 524,006 $ 893,218 $ 11,129,125 $ 44,885 $ 20,420,816 Gross charge-offs $ 8,364 $ 5,090 $ 25,578 $ — $ 15,243 $ 883 $ 698 $ 871 $ 56,727 11 Table of Contents The following table details activity in the allowance for credit losses on loans. As discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the Company’s 2023 Form 10-K, 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, prior period balances in the table below have been reclassified to conform to the current period presentation of portfolio segments. 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 Three Months Ended March 31, 2024 Beginning balance $ 171,437 $ 4,173 $ 71,829 $ 2,534 $ 249,973 Provision for credit losses on loans 19,976 1,825 2,786 166 24,753 Charge-offs 7,544 — 3,325 — 10,869 Recoveries 105 — — — 105 Net charge-offs (recoveries) 7,439 — 3,325 — 10,764 Ending balance $ 183,974 $ 5,998 $ 71,290 $ 2,700 $ 263,962 Three Months Ended March 31, 2023 Beginning balance $ 185,303 $ 10,745 $ 54,268 $ 3,153 $ 253,469 Provision for credit losses on loans 34,380 ( 3,345 ) ( 3,810 ) 144 27,369 Charge-offs 20,732 — — — 20,732 Recoveries 819 — — 3 822 Net charge-offs (recoveries) 19,913 — — ( 3 ) 19,910 Ending balance $ 199,770 $ 7,400 $ 50,458 $ 3,300 $ 260,928 The Company recorded a $ 24.8 million provision for credit losses on loans for the three months ended March 31, 2024, compared to $ 27.4 million for the same period of 2023. The $ 24.8 million provision for credit losses on loans resulted primarily from increases in criticized and non-accrual loans, growth in loans held for investment and $ 10.8 million in net charge-offs recorded during the three months ended March 31, 2024. Net charge-offs of $ 10.8 million were recorded during the three months ended March 31, 2024, compared to net charge-offs of $ 19.9 million during the same period of 2023. Criticized loans totaled $ 859.5 million at March 31, 2024, compared to $ 738.2 million at December 31, 2023. 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 March 31, 2024, the Company had $ 47.1 million in collateral-dependent commercial loans, collateralized by business assets, $ 11.3 million in collateral-dependent commercial real estate loans, collateralized by real estate, and $ 1.0 million in collateral-dependent consumer loans, collateralized by real estate. 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 March 31, 2024 Commercial $ 3,340 $ 759 $ 3,406 $ 7,505 $ 80,516 $ 10,295,163 $ 10,383,184 $ 14,889 Mortgage finance — — — — — 4,153,313 4,153,313 — Commercial real estate — — 268 268 11,349 5,810,844 5,822,461 — Consumer 689 — — 689 984 548,290 549,963 984 Total $ 4,029 $ 759 $ 3,674 $ 8,462 $ 92,849 $ 20,807,610 $ 20,908,921 $ 15,873 (1) As of March 31, 2024, $ 1.3 million of non-accrual loans were earning interest income on a cash basis compared to $ 358,000 as of December 31, 2023. Additionally, $ 18,000 of interest income was recognized on non-accrual loans for the three months ended March 31, 2024 compared to none for the same period in 2023, respectively. Accrued interest of $ 487,000 and $ 1.5 million was reversed during the three months ended March 31, 2024 and March 31, 2023, respectively. 12 Table of Contents Modifications to Borrowers Experiencing Financial Difficulty The table below details gross loans held for investment as of March 31, 2024 and March 31, 2023 made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 and March 31, 2023 by type of modification granted and the financial effect of those modifications: Financial Statement Impact ($ in thousands) Payment Deferral Term Extension Payment Deferral and Term Extension Interest Rate Reduction and Term Extension Total Percentage of Loans Held for Investment Interest Rate Reduction Term Extension (in months) Payment Deferrals Three Months Ended March 31, 2024 Commercial $ 11,575 $ 300 $ — $ — $ 11,875 0.06 % — % 12 $ 3,650 Total $ 11,575 $ 300 $ — $ — $ 11,875 0.06 % Three Months Ended March 31, 2023 Commercial $ 31,431 $ 1,800 $ 3,477 $ 14,933 $ 51,641 0.26 % 0.70 % 6 to 36 $ 4,723 Total $ 31,431 $ 1,800 $ 3,477 $ 14,933 $ 51,641 0.26 % The table below details loans that experienced a default during the three months ended March 31, 2024, subsequent to being granted a modification in the prior twelve months. Default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first. (in thousands) Payment Deferral Payment Deferral and Term Extension Total Three Months Ended March 31, 2024 Commercial $ 3,129 $ 1,756 $ 4,885 Total $ 3,129 $ 1,756 $ 4,885 The table below provides an age analysis of gross loans held for investment as of March 31, 2024 made to borrowers experiencing financial difficulty that were modified in the prior twelve months: (in thousands) 30-89 Days Past Due 90+ Days Past Due Non-Accrual Current Total March 31, 2024 Commercial $ 259 $ — $ 12,463 $ 34,253 $ 46,975 Commercial real estate — — — 18,581 18,581 Total $ 259 $ — $ 12,463 $ 52,834 $ 65,556 (5) Short-Term Borrowings and Long-Term Debt The table below presents a summary of short-term borrowings: (in thousands) March 31, 2024 December 31, 2023 Federal Home Loan Bank borrowings 750,000 1,500,000 Total short-term borrowings $ 750,000 $ 1,500,000 The table below presents a summary of long-term debt: (in thousands) March 31, 2024 December 31, 2023 Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 200,000 $ 199,499 Bank-issued 5.25 % fixed rate subordinated notes due 2026 174,522 174,457 Company-issued 4.00 % fixed rate subordinated notes due 2031 371,895 371,785 Trust preferred floating rate subordinated debentures due 2032 to 2036 113,406 113,406 Total long-term debt $ 859,823 $ 859,147 13 Table of Contents (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. As discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the Company’s 2023 Form 10-K, 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, prior period balances in the table below have been reclassified to conform to the current period presentation of portfolio segments. (in thousands) Commercial Mortgage Finance Commercial Real Estate Consumer Total Three Months Ended March 31, 2024 Beginning balance $ 36,040 $ 6 $ 10,147 $ 169 $ 46,362 Provision for off-balance sheet credit losses ( 3,728 ) 28 ( 2,048 ) ( 5 ) ( 5,753 ) Ending balance $ 32,312 $ 34 $ 8,099 $ 164 $ 40,609 Three Months Ended March 31, 2023 Beginning balance $ 16,550 $ — $ 5,222 $ 21 $ 21,793 Provision for off-balance sheet credit losses 1,335 — ( 711 ) 7 631 Ending balance $ 17,885 $ — $ 4,511 $ 28 $ 22,424 (in thousands) March 31, 2024 December 31, 2023 Commitments to extend credit - period end balance $ 9,470,887 $ 9,749,085 Standby letters of credit - period end balance 551,421 595,079 (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 Capital Rules adopted by U.S. federal banking agencies, among other things, (i) establish 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 other components of capital and (iv) define the scope of the deductions/adjustments to the capital measures. Additionally, the Basel III Capital Rules require that the Company maintain a 2.5 % capital conservation buffer comprised of CET1, with respect to each of CET1, Tier 1 and total capital to risk-weighted asset ratios. 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 three months ended March 31, 2024 or during 2023. On January 17, 2024, the Company’s board of directors authorized a new share repurchase program under which the Company could repurchase up to $ 150.0 million in shares of its outstanding common stock, which is set to expire on January 31, 2025. During the three months ended March 31, 2024, the Company repurchased 529,338 shares of its common stock for an aggregate price, including excise tax expense, of $ 31.5 million, at a weighted average price of $ 59.27 per share. 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 has elected to utilize the five-year transition option. 14 Table of Contents 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 2024, the amount of the notes that qualify as Tier 2 capital has been reduced by 80%. The table below summarizes the Company’s and the Bank’s actual and required capital ratios under the Basel III Capital Rules and other standards. As shown in the table below, the Company’s and Bank’s capital ratios exceeded the regulatory definition of well capitalized as of March 31, 2024 and December 31, 2023. The ratios presented below include the effects of the election to utilize the five-year CECL transition described above. March 31, 2024 December 31, 2023 (dollars in thousands) Minimum Capital Required(2) Capital Required to be Well Capitalized Capital Amount Ratio Capital Amount Ratio The Company CET1 capital (to risk-weighted assets) 7.00 % N/A $ 3,251,260 12.38 % $ 3,264,609 12.65 % Tier 1 capital (to risk-weighted assets) 8.50 % 6.00 % 3,661,260 13.95 % 3,674,609 14.24 % Total capital (to risk-weighted assets) 10.50 % 10.00 % 4,368,943 16.64 % 4,405,575 17.07 % Tier 1 capital (to average assets)(1) 4.00 % N/A 3,661,260 12.40 % 3,674,609 12.21 % The Bank CET1 capital (to risk-weighted assets) 7.00 % 6.50 % 3,612,873 13.84 % 3,599,919 14.01 % Tier 1 capital (to risk-weighted assets) 8.50 % 8.00 % 3,612,873 13.84 % 3,599,919 14.01 % Total capital (to risk-weighted assets) 10.50 % 10.00 % 3,948,661 15.13 % 3,959,100 15.41 % Tier 1 capital (to average assets)(1) 4.00 % 5.00 % 3,612,873 12.30 % 3,599,919 12.00 % (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. (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 March 31, (in thousands) 2024 2023 Stock-settled awards: RSUs $ 8,026 $ 8,438 Cash-settled units 508 — Total $ 8,534 $ 8,438 (in thousands except period data) March 31, 2024 Unrecognized compensation expense related to unvested stock-settled awards $ 32,201 Weighted average period over which expense is expected to be recognized, in years 2.0 (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 Accounting Standards Codification 820, Fair Value Measurements and Disclosures. See Note 1 - Operations and Summary of Significant Accounting Policies in our 2023 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. 15 Table of Contents Assets and liabilities measured at fair value are as follows: Fair Value Measurements Using (in thousands) Level 1 Level 2 Level 3 March 31, 2024 Available-for-sale debt securities:(1) U.S. Treasury securities $ 385,553 $ — $ — U.S. government agency securities — 105,770 — Residential mortgage-backed securities — 2,987,926 — CRT securities — — 12,261 Equity securities(1)(2) 57,421 16,066 — Mortgage loans held for sale(3) — 700 — Loans held for investment(4) — — 30,467 Derivative assets(5) — 11,613 — Securities sold not yet purchased(6) 34,705 — — Derivative liabilities(5) — 85,030 — Non-qualified deferred compensation plan liabilities(7) 19,966 — — December 31, 2023 Available-for-sale debt securities:(1) U.S. Treasury securities $ 636,473 $ — $ — U.S. government agency securities — 106,592 — Residential mortgage-backed securities — 2,470,832 — CRT securities — — 11,995 Equity securities(1)(2) 40,661 11,164 — Mortgage loans held for sale(3) — 706 — Loans held for investment(4) — — 38,341 Derivative assets(5) — 32,944 — Securities sold not yet purchased(6) 10,602 — — Derivative liabilities(5) — 70,917 — Non-qualified deferred compensation plan liabilities(7) 20,387 — — (1) Available-for-sale debt securities and equity 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. (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. 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 March 31, 2024 Available-for-sale debt securities:(1) CRT securities $ 11,995 $ — $ ( 209 ) $ — $ 475 $ 12,261 Three Months Ended March 31, 2023 Available-for-sale debt securities:(1) CRT securities $ 11,861 $ — $ — $ — $ 67 $ 11,928 (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). 16 Table of Contents CRT securities The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3 inputs, the most significant of which were a discount rate and weighted-average life. At March 31, 2024, the discount rates utilized ranged from 5.43 % to 7.99 % and the weighted-average life ranged from 4.76 years to 7.42 years. On a combined amortized cost weighted-average basis a discount rate of 6.36 % and a weighted-average life of 5.73 years were utilized to determine the fair value of these securities at March 31, 2024. At December 31, 2023, the combined weighted-average discount rate and weighted-average life utilized were 6.57 % and 6.06 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 $ 30.5 million fair value of loans held for investment at March 31, 2024 reported above includes impaired loans with a carrying value of $ 59.4 million that were reduced by specific allowance allocations totaling $ 28.9 million based on collateral valuations utilizing Level 3 inputs. The $ 38.3 million fair value of loans held for investment at December 31, 2023 reported above includes impaired loans with a carrying value of $ 58.3 million that were reduced by specific allowance allocations totaling $ 20.0 million based on collateral valuations utilizing Level 3 inputs. 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 March 31, 2024 Financial assets: Cash and cash equivalents $ 3,316,142 $ 3,316,142 $ 3,316,142 $ — $ — Available-for-sale debt securities 3,491,510 3,491,510 385,553 3,093,696 12,261 Held-to-maturity debt securities 849,283 737,111 — 737,111 — Equity securities 73,487 73,487 57,421 16,066 — Loans held for sale 37,750 37,750 9,250 28,500 — Loans held for investment, net 20,567,042 20,452,964 — — 20,452,964 Derivative assets 11,613 11,613 — 11,613 — Financial liabilities: Total deposits 23,954,037 23,953,821 — — 23,953,821 Short-term borrowings 750,000 750,000 — 750,000 — Long-term debt 859,823 798,890 — 798,890 — Securities sold not yet purchased 34,705 34,705 34,705 — — Derivative liabilities 85,030 85,030 — 85,030 — December 31, 2023 Financial assets: Cash and cash equivalents $ 3,242,850 $ 3,242,850 $ 3,242,850 $ — $ — Available-for-sale debt securities 3,225,892 3,225,892 636,473 2,577,424 11,995 Held-to-maturity debt securities 865,477 763,844 — 763,844 — Equity securities 51,825 51,825 40,661 11,164 — Loans held for sale 44,105 44,105 15,000 29,105 — Loans held for investment, net 20,090,585 20,050,974 — — 20,050,974 Derivative assets 32,944 32,944 — 32,944 — Financial liabilities: Total deposits 22,371,839 22,379,452 — — 22,379,452 Short-term borrowings 1,500,000 1,500,000 — 1,500,000 — Long-term debt 859,147 801,309 — 801,309 — Securities sold not yet purchased 10,602 10,602 10,602 — — Derivative liabilities 70,917 70,917 — 70,917 — 17 Table of Contents (10) Derivative Financial Instruments The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table. March 31, 2024 December 31, 2023 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 $ 2,850,000 $ — $ 68,771 $ 2,850,000 $ 668 $ 57,961 Non-hedging derivatives Customer-initiated and other derivatives: Foreign currency forward contracts 327,276 396 316 4,824 52 31 Interest rate contracts: Swaps 5,681,887 72,254 72,254 5,673,822 65,247 69,863 Caps and floors written 1,124,522 127 9,880 637,971 1,654 2,228 Caps and floors purchased 1,124,522 9,880 127 637,971 2,228 1,654 Forward contracts 14,478,341 23,652 22,907 8,665,675 39,123 38,570 Gross derivatives 106,309 174,255 108,972 170,307 Netting adjustment - offsetting derivative assets/liabilities ( 36,754 ) ( 36,754 ) ( 37,346 ) ( 37,346 ) Netting adjustment - cash collateral received/posted ( 57,942 ) ( 52,471 ) ( 38,682 ) ( 62,044 ) Net derivatives included on the consolidated balance sheets $ 11,613 $ 85,030 $ 32,944 $ 70,917 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 $ 11.6 million at March 31, 2024 and approximately $ 32.9 million at December 31, 2023. Collateral levels are monitored and adjusted on a regular basis for changes in the value of derivative instruments. At March 31, 2024, the Company had $ 109.5 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 58.7 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet. The comparative amounts at December 31, 2023, were $ 119.0 million in cash collateral pledged to counterparties and $ 42.3 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 14 risk participation agreements where it acts as a participant bank with a notional amount of $ 229.0 million at March 31, 2024, compared to 14 risk participation agreements with a notional amount of $ 230.7 million at December 31, 2023. The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 6.4 million at March 31, 2024 and $ 4.5 million at December 31, 2023. The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 2024 and December 31, 2023. 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 16 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 211.3 million at March 31, 2024, compared to 15 agreements having a notional amount of $ 204.8 million at December 31, 2023. 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 three months ended March 31, 2024, the Company recorded $ 27.9 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 18.0 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 $ 58.1 million related to active and terminated hedges will be reclassified from AOCI as a decrease to interest income. As of March 31, 2024, the maximum length of time over which forecasted transactions are hedged is 1.92 years. 18 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 March 31, 2024 Beginning balance $ ( 45,749 ) $ ( 273,806 ) $ ( 42,449 ) $ ( 362,004 ) Change in unrealized gain/(loss) ( 27,873 ) ( 14,470 ) — ( 42,343 ) Amounts reclassified into net income 18,006 — 1,702 19,708 Total other comprehensive income/(loss) ( 9,867 ) ( 14,470 ) 1,702 ( 22,635 ) Income tax expense/(benefit) ( 2,072 ) ( 3,038 ) 357 ( 4,753 ) Total other comprehensive income/(loss), net of tax ( 7,795 ) ( 11,432 ) 1,345 ( 17,882 ) Ending balance $ ( 53,544 ) $ ( 285,238 ) $ ( 41,104 ) $ ( 379,886 ) Three Months Ended March 31, 2023 Beginning balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 ) Change in unrealized gain/(loss) 13,528 29,425 — 42,953 Amounts reclassified into net income 11,129 — 1,844 12,973 Total other comprehensive income/(loss) 24,657 29,425 1,844 55,926 Income tax expense/(benefit) 5,179 6,179 387 11,745 Total other comprehensive income/(loss), net of tax 19,478 23,246 1,457 44,181 Ending balance $ ( 46,916 ) $ ( 281,063 ) $ ( 46,783 ) $ ( 374,762 ) (12) New Accounting Standards Accounting Standards Update 2024-01 “Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”) clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle. ASU 2024-01 is effective January 1, 2025, including interim periods, and is not expected to have a significant impact on our financial statements. Accounting Standards Update 2024-02 “Codification Improvements” (“ASU 2024-02”) amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to have a significant impact on our financial statements. 19 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or any future period. Forward-Looking Statements This report contains “forward-looking statements” within the meaning of and pursuant to the Private Securities Litigation Reform Act of 1995 regarding, among other things, the Company’s financial condition, results of operations, business plans and future performance. These statements are not historical in nature and may often be identified by the use of words such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, trends, guidance, expectations and future plans. Because forward-looking statements relate to future results and occurrences, they are subject to inherent and various uncertainties, risks, and changes in circumstances that are difficult to predict, may change over time, are based on management’s expectations and assumptions at the time the statements are made and are not guarantees of future results. Numerous risks and other factors, many of which are beyond management’s control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. While there can be no assurance that any list of risks is complete, important risks and other factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to, economic or business conditions in Texas, the United States, or globally that impact TCBI or its customers; negative credit quality developments arising from the foregoing or other factors; TCBI’s ability to effectively manage its liquidity and maintain adequate regulatory capital to support it businesses; TCBI’s ability to pursue and execute upon growth plans, whether as a function of capital, liquidity, or other limitations; TCBI’s ability to successfully execute its business strategy, including developing and executing new lines of business and new products and services; the extensive regulations to which TCBI is subject and its ability to comply with applicable governmental regulations, including legislative and regulatory changes; TCBI’s ability to effectively manage information technology systems, including third party vendors, cyber or data privacy incidents, or other failures, disruptions or security breaches; elevated or further changes in interest rates, including the impact of interest rates on TCBI’s securities portfolio and funding costs, as well as related balance sheet implications stemming from the fair value of our assets and liabilities; the effectiveness of TCBI’s risk management processes, strategies and monitoring; fluctuations in commercial and residential real estate values, especially as they relate to the value of collateral supporting TCBI’s loans; the failure to identify, attract, and retain key personnel and other employees; increased or expanded competition from banks and other financial service providers in TCBI’s markets; adverse developments in the banking industry and the potential impact of such developments on customer confidence, liquidity and regulatory responses to these developments, including the context of regulatory examinations and related findings and actions; negative press and social media attention with respect to the banking industry or TCBI, in particular; claims, litigation or regulatory investigations and actions that TCBI may become subject to; severe weather, natural disasters, climate change, acts of war, terrorism, global conflict (including those already reported by the media, as well as others that may arise), or other external events, as well as related legislative and regulatory initiatives; and the risks and factors more fully described in TCBI’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other documents and filings with the SEC. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 20 Table of Contents Results of Operations Selected income statement data and key performance indicators are presented in the table below: Three Months Ended March 31, (dollars in thousands except per share data) 2024 2023 Net interest income $ 215,009 $ 235,345 Provision for credit losses 19,000 28,000 Non-interest income 41,319 37,403 Non-interest expense 202,393 194,027 Income before income taxes 34,935 50,721 Income tax expense 8,793 12,060 Net income 26,142 38,661 Preferred stock dividends 4,313 4,313 Net income available to common stockholders $ 21,829 $ 34,348 Basic earnings per common share $ 0.46 $ 0.71 Diluted earnings per common share $ 0.46 $ 0.70 Net interest margin 3.03 % 3.33 % Return on average assets (“ROA”) 0.36 % 0.53 % Return on average common equity (“ROE”) 3.03 % 5.06 % Efficiency ratio(1) 79.0 % 71.1 % Non-interest income to average earning assets 0.59 % 0.54 % Non-interest expense to average earning assets 2.89 % 2.78 % (1) Non-interest expense divided by the sum of net interest income and non-interest income. Three months ended March 31, 2024 compared to three months ended March 31, 2023 The Company reported net income of $26.1 million and net income available to common stockholders of $21.8 million for the three months ended March 31, 2024, compared to net income of $38.7 million and net income available to common stockholders of $34.3 million for the same period in 2023. On a fully diluted basis, earnings per common share were $0.46 for the three months ended March 31, 2024, compared to $0.70 for the same period in 2023. ROE was 3.03% and ROA was 0.36% for the three months ended March 31, 2024, compared to 5.06% and 0.53%, respectively, for the same period in 2023. The decrease in net income for the three months ended March 31, 2024 compared to the same period in 2023 resulted primarily from a decrease in net interest income and an increase in non-interest expense, partially offset by a decrease in provision for credit losses and an increase in non-interest income. Details of the changes in the various components of net income are discussed below. 21 Table of Contents Taxable Equivalent Net Interest Income Analysis - Year to Date(1) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 (dollars in thousands) Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Assets Investment securities(2) $ 4,299,368 $ 32,144 2.77 % $ 4,060,456 $ 25,292 2.31 % Interest bearing cash and cash equivalents 4,051,627 54,355 5.40 % 5,541,341 62,436 4.57 % Loans held for sale 51,164 1,184 9.31 % 43,472 938 8.75 % Loans held for investment, mortgage finance(4) 3,517,707 31,455 3.60 % 3,286,804 37,419 4.62 % Loans held for investment(3)(4) 16,522,089 298,306 7.26 % 15,598,854 259,240 6.74 % Less: Allowance for credit losses on loans 249,936 — — 252,727 — — Loans held for investment, net 19,789,860 329,761 6.70 % 18,632,931 296,659 6.46 % Total earning assets 28,192,019 417,444 5.88 % 28,278,200 385,325 5.45 % Cash and other assets 1,058,463 1,041,745 Total assets $ 29,250,482 $ 29,319,945 Liabilities and Stockholders’ Equity Transaction deposits $ 2,006,493 $ 16,858 3.38 % $ 776,500 $ 3,853 2.01 % Savings deposits 11,409,677 136,790 4.82 % 11,195,402 105,707 3.83 % Time deposits 1,719,325 21,952 5.14 % 1,430,657 10,534 2.99 % Total interest bearing deposits 15,135,495 175,600 4.67 % 13,402,559 120,094 3.63 % Short-term borrowings 912,088 12,783 5.64 % 1,242,881 14,744 4.81 % Long-term debt 859,509 13,986 6.54 % 931,796 14,983 6.52 % Total interest bearing liabilities 16,907,092 202,369 4.81 % 15,577,236 149,821 3.90 % Non-interest bearing deposits 8,637,775 10,253,731 Other liabilities 509,286 436,621 Stockholders’ equity 3,196,329 3,052,357 Total liabilities and stockholders’ equity $ 29,250,482 $ 29,319,945 Net interest income $ 215,075 $ 235,504 Net interest margin 3.03 % 3.33 % (1) Taxable equivalent rates used where applicable. (2) Yields on investment securities are calculated using available-for-sale securities at amortized cost. (3) Average balances included non-accrual loans. (4) In the first quarter of 2024, enhancements were made to our methodology for applying relationship pricing credits to mortgage client loans. To conform to the current period presentation, certain prior period interest income amounts have been reclassified from loans held for investment, mortgage finance to loans held for investment and related yields have been adjusted accordingly. 22 Table of Contents Volume/Rate Analysis The following table presents the changes in taxable equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest bearing liabilities and the changes due to differences in the average interest rate on those assets and liabilities. Three Months Ended March 31, 2024/2023 Net Change Change Due To(1) (in thousands) Volume Yield/Rate(2) Interest income Investment securities $ 6,852 $ 1,376 $ 5,476 Interest bearing cash and cash equivalents (8,081) (16,973) 8,892 Loans held for sale 246 168 78 Loans held for investment, mortgage finance (5,964) 2,660 (8,624) Loans held for investment 39,066 15,514 23,552 Total interest income 32,119 2,745 29,374 Interest expense Transaction deposits 13,005 6,164 6,841 Savings deposits 31,083 2,046 29,037 Time deposits 11,418 2,152 9,266 Short-term borrowings (1,961) (3,967) 2,006 Long-term debt (997) (1,175) 178 Total interest expense 52,548 5,220 47,328 Net interest income $ (20,429) $ (2,475) $ (17,954) (1) Yield/rate and volume variances are allocated to yield/rate. (2) Taxable equivalent rates used where applicable assuming a 21% tax rate. Net Interest Income Net interest income was $215.0 million for the three months ended March 31, 2024, compared to $235.3 million for the same period in 2023. The decrease was primarily due to rising funding costs, partially offset by an increase in yields on average earnings assets. Average earning assets decreased $86.2 million for the three months ended March 31, 2024, compared to the same period in 2023, which included a decrease of $1.5 billion in average interest-bearing cash and cash equivalents, partially offset by increases of $1.2 billion in average total loans and $238.9 million in average investment securities. Average interest-bearing liabilities increased $1.3 billion for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to an increase of $1.7 billion in average interest-bearing deposits, partially offset by a $330.8 million decrease in average short-term borrowings. Average non-interest bearing deposits for the three months ended March 31, 2024 decreased to $8.6 billion from $10.3 billion for the same period in 2023. Net interest margin for the three months ended March 31, 2024 was 3.03%, compared to 3.33% for the same period of 2023. The decrease was primarily due to the effect of rising interest rates on funding costs and a shift in earning asset composition, partially offset by higher earning asset yields, also as a result of rising interest rates, compared to the same period in 2023. The yield on total loans held for investment increased to 6.70% for the three months ended March 31, 2024, compared to 6.46% for the same period in 2023, and the yield on earning assets increased to 5.88% for the three months ended March 31, 2024, compared to 5.45% for the same period in 2023. Total cost of deposits increased to 2.97% for the three months ended March 31, 2024 from 2.06% for the same period in 2023 and total funding costs, including non-interest bearing deposits and stockholders' equity, increased to 2.83% for the three months ended March 31, 2024, compared to 2.10% for the same period in 2023. 23 Table of Contents Non-interest Income Three Months Ended March 31, (in thousands) 2024 2023 Service charges on deposit accounts $ 6,339 $ 5,022 Wealth management and trust fee income 3,567 3,429 Brokered loan fees 1,911 1,895 Investment banking and advisory fees 18,424 14,564 Trading income 4,712 4,204 Other 6,366 8,289 Total non-interest income $ 41,319 $ 37,403 Non-interest income increased $3.9 million during the three months ended March 31, 2024 to $41.3 million, compared to $37.4 million for the same period in 2023. The increase was primarily due to an increase in investment banking and advisory fees. Non-interest Expense Three Months Ended March 31, (in thousands) 2024 2023 Salaries and benefits $ 128,727 $ 128,670 Occupancy expense 9,737 9,619 Marketing 6,036 9,044 Legal and professional 16,195 14,514 Communications and technology 21,114 17,523 Federal Deposit Insurance Corporation (“FDIC”) insurance assessment 8,421 2,170 Other 12,163 12,487 Total non-interest expense $ 202,393 $ 194,027 Non-interest expense for the three months ended March 31, 2024 increased $8.4 million, compared to the same period in 2023, primarily due to increases in legal and professional expense, communications and technology expense and FDIC insurance assessment resulting from an additional $3.0 million FDIC special assessment recorded in the first quarter of 2024, partially offset by a decrease in marketing expense. The increase in legal and professional expense in the first quarter of 2024 resulted from a $5.0 million legal settlement expense, partially offset by declines in professional services. Analysis of Financial Condition Loans Held for Investment The following table summarizes the Company’s loans held for investment by portfolio segment. See Note 1 - Operations and Summary of Significant Accounting Policies in the 2023 Form 10-K for details of these portfolio segments. (in thousands) March 31, 2024 December 31, 2023 Commercial $ 10,383,184 $ 10,410,766 Mortgage finance 4,153,313 3,978,328 Commercial real estate 5,822,461 5,500,774 Consumer 549,963 530,948 Gross loans held for investment 20,908,921 20,420,816 Unearned income (net of direct origination costs) (77,917) (80,258) Total loans held for investment $ 20,831,004 $ 20,340,558 Total loans held for investment were $20.8 billion at March 31, 2024, an increase of $490.4 million from December 31, 2023. The Company experienced loan growth in all loan categories, except for commercial, as it has continued to execute on its long-term strategy. Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 20% and 19% of gross loans held for investment at March 31, 2024 and December 31, 2023, respectively. Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates, and tend to peak at the end of each month. The Company originates a substantial majority of all loans held for investment. The Company also participates in shared national credits, both as a participant and as an agent. As of March 31, 2024, the Company had $5.2 billion in shared national credits, $1.1 billion of which the Company administered as agent. All syndicated loans, whether the Company acts as agent or 24 Table of Contents participant, are underwritten to the same standards as all other loans the Company originates. As of March 31, 2024, approximately $3.1 million of the Company’s shared national credits were on non-accrual. Portfolio Concentrations Although more than 50% of the Company’s total loan exposure is outside of Texas and more than 50% of deposits are sourced outside of Texas, Texas concentration remains significant. As of March 31, 2024, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses. Non-performing Assets Non-performing assets include non-accrual loans and leases and repossessed assets. The table below summarizes non-accrual loans by portfolio segment and by type of property securing the credit. (dollars in thousands) March 31, 2024 December 31, 2023 Non-accrual loans held for investment Commercial: Business assets $ 65,325 $ 63,094 Oil and gas properties 2,071 2,543 Accounts receivable and inventory 6,952 — Machinery and equipment 3,191 3,332 Unsecured 1,743 — Other 1,234 79 Total commercial 80,516 69,048 Commercial real estate: Hotel/motel 11,349 12,350 Total commercial real estate 11,349 12,350 Consumer Single family residences 984 — Total consumer 984 — Total non-accrual loans held for investment 92,849 81,398 Non-accrual loans held for sale(1) 9,250 — Other real estate owned (“OREO”) — — Total non-performing assets $ 102,099 $ 81,398 Non-accrual loans held for investment to total loans held for investment 0.45 % 0.40 % Total non-performing assets to total assets 0.35 % 0.29 % Allowance for credit losses on loans to non-accrual loans held for investment 2.8x 3.1x Loans held for investment past due 90 days and accruing $ 3,674 $ 19,523 Loans held for investment past due 90 days to total loans held for investment 0.02 % 0.10 % Loans held for sale past due 90 days and accruing $ 147 $ — (1) March 31, 2024 includes one non-accrual loan previously reported in loans held for investment that was transferred at fair value to held for sale as of March 31, 2024. Summary of Credit Loss Experience The provision for credit losses, comprised of a provision for loans and off-balance sheet credit losses, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses at each balance sheet date. As discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the 2023 Form 10-K, 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, prior period balances in the tables below have been reclassified to conform to the current period presentation of portfolio segments. 25 Table of Contents The Company recorded a provision for credit losses of $19.0 million for the three months ended March 31, 2024, compared to a provision of $28.0 million for the three months ended March 31, 2023. The provision for credit losses for the three months ended March 31, 2024 reflects increases in criticized and non-accrual loans, growth in loans held for investment and $10.8 million in net charge-offs recorded during the three months ended March 31, 2024. The Company recorded $10.8 million in net charge-offs during the three months ended March 31, 2024, compared to $19.9 million in net charge-offs during the same period in 2023. Criticized loans totaled $859.5 million at March 31, 2024, compared to $738.2 million at December 31, 2023. The table below presents key metrics related to the Company’s credit loss experience: March 31, 2024 March 31, 2023 Allowance for credit losses on loans to total loans held for investment 1.27 % 1.30 % Allowance for credit losses on loans to average total loans held for investment(1) 1.32 % 1.38 % Total allowance for credit losses to total loans held for investment 1.46 % 1.41 % Total provision for credit losses to average total loans held for investment(1)(2) 0.38 % 0.60 % (1) Ratios are calculated using average balance for the three months ended March 31, 2024 and 2023, respectively. (2) Ratios are annualized utilizing provision for credit losses for the three months ended March 31, 2024 and 2023, respectively. The table below details net charge-offs/(recoveries) as a percentage of average total loans by portfolio segment: Three Months Ended March 31, 2024 2023 (dollars in thousands) Net Charge-offs Net Charge-offs to Average Loans(1) Net Charge-offs Net Charge-offs to Average Loans(1) Commercial $ 7,439 0.29 % $ 19,913 0.79 % Mortgage finance — — % — — % Commercial real estate 3,325 0.24 % — — % Consumer — — % (3) — % Total $ 10,764 0.22 % $ 19,910 0.43 % (1) Ratios are calculated using net charge-offs for the three months ended March 31, 2024 and 2023, respectively. Liquidity and Capital Resources Liquidity In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs. The Company’s objectives in managing its liquidity are to maintain the ability to meet loan commitments, repurchase investment securities and repay deposits and other liabilities in accordance with their terms, without an adverse impact on current or future earnings. The Company’s liquidity strategy is guided by policies, formulated and monitored by senior management and the Asset and Liability Management Committee (“ALCO”), which take into account the demonstrated marketability of the Company’s assets, the sources and stability of its funding and the level of unfunded commitments. The Company regularly evaluates all of its various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. The Company’s principal source of funding is customer deposits, supplemented by short-term borrowings, primarily from federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings, which are generally used to fund mortgage finance assets, and long-term debt. The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and government sponsored entities to support the liquidity of mortgage finance assets. The following table summarizes the Company’s interest bearing cash and cash equivalents: (dollars in thousands) March 31, 2024 December 31, 2023 Interest bearing cash and cash equivalents $ 3,148,157 $ 3,042,357 Interest bearing cash and cash equivalents as a percent of: Total loans held for investment 15.1 % 15.0 % Total earning assets 11.2 % 11.1 % Total deposits 13.1 % 13.6 % The Company’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships, with a significant 26 Table of Contents focus on treasury management products. In addition, the Company also has access to deposits through brokered channels. The following table summarizes period-end total deposits: March 31, 2024 December 31, 2023 (dollars in thousands) Balance % of Total Balance % of Total Customer deposits $ 23,351,853 97.5 % $ 21,454,568 95.9 % Brokered deposits 602,184 2.5 % 917,271 4.1 % Total deposits $ 23,954,037 100.0 % $ 22,371,839 100.0 % Estimated uninsured assessable deposits, including accrued interest, were 42% of total deposits at March 31, 2024 ,compared to 43% of total deposits at December 31, 2023. The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The Company has short-term borrowing sources available to supplement deposits and meet its funding needs. Such borrowings are generally used to fund mortgage finance loans, due to their liquidity, short duration and interest spreads available. These borrowing sources include federal funds purchased from downstream correspondent bank relationships (which consist of banks that are smaller than the Bank) and from upstream correspondent bank relationships (which consist of banks that are larger than the Bank), customer repurchase agreements and advances from the FHLB and the Federal Reserve. The following table summarizes short-term borrowings, all of which mature within one year: (in thousands) March 31, 2024 December 31, 2023 Repurchase agreements $ — $ — FHLB borrowings 750,000 1,500,000 Total short-term and other borrowings $ 750,000 $ 1,500,000 The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding: (in thousands) March 31, 2024 December 31, 2023 FHLB borrowing capacity relating to loans and pledged securities $ 4,053,570 $ 2,602,092 FHLB borrowing capacity relating to unencumbered securities 4,214,852 3,737,615 Total FHLB borrowing capacity(1) $ 8,268,422 $ 6,339,707 Unused federal funds lines available from commercial banks $ 1,158,000 $ 1,188,000 Unused Federal Reserve borrowings capacity $ 4,309,048 $ 4,094,801 Unused revolving line of credit(2) $ 75,000 $ 100,000 (1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and certain pledged securities. (2) Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2025. Proceeds may be used for general corporate purposes, including funding regulatory capital infusions into the Bank. The loan agreement contains customary financial covenants and restrictions. No borrowings were made against this line of credit during the three months ended March 31, 2024 or 2023. The Company has long-term debt outstanding of $859.8 million as of March 31, 2024, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036. See Note 5 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information. The Company may consider raising additional capital, if needed, in public or private offerings of debt or equity securities to supplement deposits and meet its long-term funding needs. As the Company is a holding company and is a separate operating entity from the Bank, the Company’s primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. See Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information regarding dividend restrictions and “Liquidity Risks” included in Part I, Item 1A of the 2023 Form 10-K. Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of its existing indebtedness, the Company may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding debt or capital structure. For example, the Company periodically evaluates and may engage in liability management transactions, including repurchases or redemptions of outstanding subordinated notes, which may be funded by the issuance of, or exchanges of, newly issued unsecured borrowings to actively manage the debt maturity profile and interest cost. Capital Resources The Company’s equity capital averaged $3.2 billion for the three months ended March 31, 2024 compared to $3.1 billion for the same period in 2023. The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future. 27 Table of Contents On January 17, 2024, 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. Remaining repurchase authorization under the January 18, 2023 share repurchase program was terminated upon authorization of this new program. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. The share repurchase program is set to expire on January 31, 2025, and the program may be suspended or discontinued at any time. During the three months ended March 31, 2024, the Company repurchased 529,338 shares of its common stock for an aggregate purchase price, including excise tax expense, of $31.5 million, at a weighted average price of $59.27 per share. For additional information on the Company’s capital and stockholders’ equity, see Note 7 - Regulatory Ratios and Capital, in the accompanying notes to the consolidated financial statements included elsewhere in this report. Critical Accounting Estimates SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. The Company follows financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in the Company’s 2023 Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting policy. Allowance for Credit Losses Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification 326, Credit Losses . The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in the Company’s portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. The allowance for credit losses on off-balance sheet financial instruments is recorded in other liabilities on the consolidated balance sheets. For purposes of determining the 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. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective (pool) evaluation. 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. Modifications to loss estimates are made 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 sheet 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. A reserve is recorded upon origination or purchase of a loan. See “Summary of Credit Loss Experience” above and Note 4 - Loans and Allowance for Credit Losses on Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses. Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of March 31, 2024, the quantitative estimate of the allowance for credit loss would increase by approximately $135.1 million under sole consideration of the most severe downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration. 28 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk represents the potential economic loss on trading and non-trading portfolios and financial instruments due to adverse price movements in markets including interest rates, foreign exchange rates, credit spreads, commodity prices and equity and related implied volatility levels. The Company is subject to market risk primarily through the effect of changes in interest rates on its portfolio of assets held for purposes other than trading and interest rate derivative instruments that are used for managing interest rate risk. In addition, the Company has exposure to market risk through its trading desk that engages in fixed income and equity securities, derivatives and foreign exchange transactions to support the investing and hedging activities of customers. The Company uses Value-at-Risk (“VaR”) as a means to measure, monitor, and limit aggregate market risk on the trading portfolio. VaR is a statistical risk measure estimating potential loss at the 95th percentile based on a one-year history of market risk factors associated with the trading portfolio. VaR provides a consistent cross-asset measure for risk profiles and allows for diversification benefit based on historical correlations across market moves. As of March 31, 2024, the Company’s exposure through its trading desk does not pose a significant market risk to the Company. All statistical models involve a degree of uncertainty and VaR is calculated at a statistical confidence interval of the 95th percentile based on one-year daily historic market moves. Larger economic losses are possible, particularly during stressed macroeconomic and market conditions. The responsibility for managing market risk rests with the ALCO, which operates under policy guidelines established by the Company’s board of directors. Oversight of the Company’s compliance with the guidelines is the ongoing responsibility of the ALCO, with exceptions reported to the Executive Risk Committee and the board of directors, if necessary, on a quarterly basis. Interest Rate Risk Management The Company’s interest rate sensitivity as of March 31, 2024 is illustrated in the following table. The table reflects rate-sensitive positions as of March 31, 2024 and is not necessarily indicative of positions on other dates. The table does not take into account the effect of the Company’s derivatives designated as cash flow hedges. The balances of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest rate-sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. Certain variable rate loans have embedded floors which limit the decline in yield on those loans at times when market interest rates are extraordinarily low. The degree of asset sensitivity, spreads on loans and net interest margin may be reduced until rates increase by an amount sufficient to eliminate the effects of floors. The adverse effect of floors as market rates increase may also be offset by the positive gap, the extent to which rates on deposits and other funding sources lag increasing market rates for loans and changes in composition of funding. (in thousands) 0-3 months 4-12 months 1-3 years 3+ years Total Assets Interest bearing cash and cash equivalents $ 3,148,157 $ — $ — $ — $ 3,148,157 Investment securities(1) 86,071 874 385,553 3,941,782 4,414,280 Variable loans 19,253,845 190,265 112,835 284,467 19,841,412 Fixed loans 27,903 93,248 186,062 798,046 1,105,259 Total loans(2) 19,281,748 283,513 298,897 1,082,513 20,946,671 Total interest sensitive assets $ 22,515,976 $ 284,387 $ 684,450 $ 5,024,295 $ 28,509,108 Liabilities Interest bearing customer deposits $ 13,783,234 $ — $ — $ — $ 13,783,234 CDs 681,487 999,888 10,930 283 1,692,588 Total interest bearing deposits 14,464,721 999,888 10,930 283 15,475,822 Short-term borrowings 750,000 — — — 750,000 Long-term debt 313,406 — 174,522 371,895 859,823 Total borrowings 1,063,406 — 174,522 371,895 1,609,823 Total interest sensitive liabilities $ 15,528,127 $ 999,888 $ 185,452 $ 372,178 $ 17,085,645 GAP $ 6,987,849 $ (715,501) $ 498,998 $ 4,652,117 $ — Cumulative GAP $ 6,987,849 $ 6,272,348 $ 6,771,346 $ 11,423,463 $ 11,423,463 Non-interest bearing deposits 8,478,215 Stockholders’ equity 3,170,662 Total $ 11,648,877 (1) Available-for-sale debt securities and equity securities based on fair market value. (2) Total loans include gross loans held for investment and loans held for sale. 29 Table of Contents While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing interest rates on the value of funding derived from non-interest bearing deposits and stockholders’ equity. Management performs a sensitivity analysis to identify interest rate risk exposure on net interest income. Management also quantifies and measures interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income relative to changes in interest rates over the next twelve months based on different interest rate scenarios. These are a static rate scenario and “shock test” scenarios, as described below. These scenarios are based on interest rates as of the last day of a reporting period published by independent sources and incorporate relevant spreads of instruments that are actively traded in the open market. The Federal Reserve’s federal funds target affects short-term borrowing; the prime lending rate, SOFR, Bloomberg Short Term Yield Index and other alternative indexes are the basis for most of the variable-rate loan pricing. The 10-year treasury rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. These are the Company’s primary interest rate exposures. Interest rate derivative contracts may be used to manage exposure to adverse fluctuations in these primary interest rate exposures as is discussed in more detail under the heading Use of Derivatives to Manage Interest Rate and Other Risks below. For modeling purposes, the “shock test” scenarios as of March 31, 2024 and March 31, 2023 assume immediate, sustained 100 and 200 basis point increases in interest rates as well as 100 and 200 basis point decreases in interest rates. The Company will continue to evaluate these scenarios as interest rates change. The Company’s interest rate risk exposure model incorporates assumptions regarding the level of interest rate, including indeterminable maturity deposits (non-interest bearing deposits, interest bearing transaction accounts and savings accounts) and loan and security prepayment behaviors for a given level of market rate change. In the current environment of changing short-term rates, deposit pricing can vary by product and customer. These assumptions have been developed through a combination of historical analysis and projection of future expected pricing behavior. Changes in prepayment behavior of mortgage-backed securities and residential and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of these changes is factored into the simulation model results and indicated interest rate sensitivity as follows: Annualized Hypothetical Change in Net Interest Income March 31, 2024 March 31, 2023 + 200 basis points 2.8 % 6.7 % + 100 basis points 1.5 % 3.4 % - 100 basis points (4.5) % (4.6) % - 200 basis points (9.2) % (9.3) % The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions, customer behavior and management strategies, among other factors. Use of Derivatives to Manage Interest Rate and Other Risks In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations. To manage the sensitivity of earnings and capital to interest rate, prepayment, credit, price and foreign currency fluctuations (asset and liability management positions), the Company may enter into derivative transactions. In addition, the Company enters into interest rate and foreign exchange derivative contracts to support the business requirements of its customers (customer-related positions). For additional information regarding derivatives, see Note 10 - Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this report. 30 Table of Contents ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company’s management, with the supervision and participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Company has concluded that, as of the end of such period, its disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed in the reports that the Company files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 31 Table of Contents PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is subject to various claims and legal actions that may arise in the ordinary course of conducting its business. Management does not expect the disposition of any of these matters to have a material adverse impact on the Company’s financial statements or results of operations. ITEM 1A. RISK FACTORS There have been no material changes in the risk factors previously disclosed in the 2023 Form 10-K. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company repurchased shares of its common stock in the open market during the three months ended March 31, 2024 as follows: Total Number of Approximate Dollar Value Shares Purchased as Part of Shares That May Yet Total Number of Average Price Paid of Publicly Announced Be Purchased Under the Shares Purchased per Share Plans or Programs(1) Plans or Programs(1) January 2024 — $ — — $ 150,000,000 February 2024 112,215 58.23 112,215 143,466,072 March 2024 417,123 59.55 417,123 118,624,951 Total 529,338 $ 59.27 529,338 $ 118,624,951 (1) On January 17, 2024, 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, excluding the effect of excise tax expense incurred on net stock repurchases. Remaining repurchase authorization under the January 18, 2023 share repurchase program was terminated upon authorization of this new program. Any repurchases under the repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory requirements and other considerations. The share repurchase program is set to expire on January 31, 2025, and the program may be suspended or discontinued at any time. 32 Table of Contents ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Exhibits 10.1 Form of 2024 Time-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan+* 10.2 Form of 2024 Performance-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan+* 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act* 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act* 32.1 Section 1350 Certification of Chief Executive Officer** 32.2 Section 1350 Certification of Chief Financial Officer** 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith ** Furnished herewith + Management contract or compensatory plan arrangement 33 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXAS CAPITAL BANCSHARES, INC. Date: April 18, 2024 /s/ J. Matthew Scurlock J. Matthew Scurlock Chief Financial Officer (Duly authorized officer and principal financial officer) 34