TEXAS CAPITAL BANCSHARES INC/TX 10-Q

ITEM 1. FINANCIAL STATEMENTS TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS - UNAUDITED (in thousands except share data) June 30, 2024 December 31, 2023 Assets Cash and due from banks $ 221,727 $ 200,493 Interest bearing cash and cash equivalents 2,691,352 3,042,357 Available-for-sale debt securities 3,483,231 3,225,892 Held-to-maturity debt securities 831,513 865,477 Equity securities 74,232 51,825 Investment securities 4,388,976 4,143,194 Loans held for sale 36,785 44,105 Loans held for investment, mortgage finance 5,078,161 3,978,328 Loans held for investment 16,700,569 16,362,230 Less: Allowance for credit losses on loans 267,297 249,973 Loans held for investment, net 21,511,433 20,090,585 Premises and equipment, net 69,464 32,366 Accrued interest receivable and other assets 933,761 801,670 Goodwill and intangibles, net 1,496 1,496 Total assets $ 29,854,994 $ 28,356,266 Liabilities and Stockholders’ Equity Liabilities: Non-interest bearing deposits $ 7,987,715 $ 7,328,276 Interest bearing deposits 15,830,612 15,043,563 Total deposits 23,818,327 22,371,839 Accrued interest payable 23,841 33,234 Other liabilities 502,228 392,904 Short-term borrowings 1,675,000 1,500,000 Long-term debt 659,997 859,147 Total liabilities 26,679,393 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 June 30, 2024 and December 31, 2023 300,000 300,000 Common stock, $ 0.01 par value: Authorized shares - 100,000,000 Issued shares - 51,474,581 and 51,142,979 at June 30, 2024 and December 31, 2023, respectively 515 511 Additional paid-in capital 1,050,114 1,045,576 Retained earnings 2,494,572 2,435,393 Treasury stock - 5,286,503 and 3,905,067 shares at cost at June 30, 2024 and December 31, 2023, respectively ( 301,868 ) ( 220,334 ) Accumulated other comprehensive loss, net of taxes ( 367,732 ) ( 362,004 ) Total stockholders’ equity 3,175,601 3,199,142 Total liabilities and stockholders’ equity $ 29,854,994 $ 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 June 30, Six Months Ended June 30, (in thousands except per share data) 2024 2023 2024 2023 Interest income Interest and fees on loans $ 345,251 $ 332,867 $ 676,130 $ 630,305 Investment securities 33,584 27,478 65,728 52,770 Interest bearing cash and cash equivalents 43,233 41,571 97,588 104,007 Total interest income 422,068 401,916 839,446 787,082 Interest expense Deposits 181,280 137,391 356,880 257,485 Short-term borrowings 12,749 18,253 25,532 32,997 Long-term debt 11,457 14,282 25,443 29,265 Total interest expense 205,486 169,926 407,855 319,747 Net interest income 216,582 231,990 431,591 467,335 Provision for credit losses 20,000 7,000 39,000 35,000 Net interest income after provision for credit losses 196,582 224,990 392,591 432,335 Non-interest income Service charges on deposit accounts 5,911 5,158 12,250 10,180 Wealth management and trust fee income 3,699 3,715 7,266 7,144 Brokered loan fees 2,131 2,415 4,042 4,310 Investment banking and advisory fees 25,048 19,101 43,472 33,665 Trading income 5,650 8,397 10,362 12,601 Other 7,985 7,225 14,351 15,514 Total non-interest income 50,424 46,011 91,743 83,414 Non-interest expense Salaries and benefits 118,840 113,050 247,567 241,720 Occupancy expense 10,666 9,482 20,403 19,101 Marketing 5,996 6,367 12,032 15,411 Legal and professional 11,273 15,669 27,468 30,183 Communications and technology 22,013 20,525 43,127 38,048 Federal Deposit Insurance Corporation insurance assessment 5,570 3,693 13,991 5,863 Other 14,051 12,858 26,214 25,345 Total non-interest expense 188,409 181,644 390,802 375,671 Income before income taxes 58,597 89,357 93,532 140,078 Income tax expense 16,935 20,706 25,728 32,766 Net income 41,662 68,651 67,804 107,312 Preferred stock dividends 4,312 4,312 8,625 8,625 Net income available to common stockholders $ 37,350 $ 64,339 $ 59,179 $ 98,687 Other comprehensive income/(loss) Change in unrealized gain/(loss) $ ( 13,939 ) $ ( 99,731 ) $ ( 56,282 ) $ ( 56,778 ) Amounts reclassified into net income 19,825 16,762 39,533 29,735 Other comprehensive income/(loss) 5,886 ( 82,969 ) ( 16,749 ) ( 27,043 ) Income tax expense/(benefit) ( 6,268 ) ( 17,423 ) ( 11,021 ) ( 5,678 ) Other comprehensive income/(loss), net of tax 12,154 ( 65,546 ) ( 5,728 ) ( 21,365 ) Comprehensive income $ 53,816 $ 3,105 $ 62,076 $ 85,947 Basic earnings per common share $ 0.80 $ 1.34 $ 1.26 $ 2.05 Diluted earnings per common share $ 0.80 $ 1.33 $ 1.25 $ 2.02 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 March 31, 2023 300,000 $ 300,000 50,947,306 $ 509 $ 1,031,905 $ 2,297,850 ( 3,095,444 ) $ ( 175,528 ) $ ( 374,762 ) $ 3,079,974 Comprehensive income/(loss): Net income — — — — — 68,651 — — — 68,651 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 65,546 ) ( 65,546 ) Total comprehensive income 3,105 Stock-based compensation expense recognized in earnings — — — — 5,069 — — — — 5,069 Preferred stock dividend — — — — — ( 4,312 ) — — — ( 4,312 ) Issuance of stock related to stock-based awards — — 140,659 2 ( 1,911 ) — — — — ( 1,909 ) Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927 Balance at March 31, 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 Comprehensive income/(loss): Net income — — — — — 41,662 — — — 41,662 Change in other comprehensive income/(loss), net of taxes — — — — — — — — 12,154 12,154 Total comprehensive income 53,816 Stock-based compensation expense recognized in earnings — — — — 5,246 — — — — 5,246 Preferred stock dividend — — — — — ( 4,312 ) — — — ( 4,312 ) Issuance of stock related to stock-based awards — — 53,901 1 199 — — — — 200 Repurchase of common stock — — — — — — ( 852,098 ) ( 50,011 ) — ( 50,011 ) Balance at June 30, 2024 300,000 $ 300,000 51,474,581 $ 515 $ 1,050,114 $ 2,494,572 ( 5,286,503 ) $ ( 301,868 ) $ ( 367,732 ) $ 3,175,601 See accompanying notes to consolidated financial statements. 5 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED Preferred Stock Common Stock Additional Treasury Stock Accumulated Other Paid-in Retained Comprehensive (in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total Balance at December 31, 2022 (audited) 300,000 $ 300,000 50,867,298 $ 509 $ 1,025,593 $ 2,263,502 ( 2,083,535 ) $ ( 115,310 ) $ ( 418,943 ) $ 3,055,351 Comprehensive income/(loss): Net income — — — — — 107,312 — — — 107,312 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 21,365 ) ( 21,365 ) Total comprehensive income 85,947 Stock-based compensation expense recognized in earnings — — — — 13,507 — — — — 13,507 Preferred stock dividend — — — — — ( 8,625 ) — — — ( 8,625 ) Issuance of stock related to stock-based awards — — 220,667 2 ( 4,037 ) — — — — ( 4,035 ) Repurchase of common stock — — — — — — ( 1,011,909 ) ( 60,218 ) — ( 60,218 ) Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927 Balance at 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/(loss): Net income — — — — — 67,804 — — — 67,804 Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 5,728 ) ( 5,728 ) Total comprehensive income 62,076 Stock-based compensation expense recognized in earnings — — — — 13,272 — — — — 13,272 Preferred stock dividend — — — — — ( 8,625 ) — — — ( 8,625 ) Issuance of stock related to stock-based awards — — 331,602 4 ( 8,734 ) — — — — ( 8,730 ) Repurchase of common stock — — — — — — ( 1,381,436 ) ( 81,534 ) — ( 81,534 ) Balance at June 30, 2024 300,000 $ 300,000 51,474,581 $ 515 $ 1,050,114 $ 2,494,572 ( 5,286,503 ) $ ( 301,868 ) $ ( 367,732 ) $ 3,175,601 See accompanying notes to consolidated financial statements. 6 Table of Contents TEXAS CAPITAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (in thousands) 2024 2023 Operating activities Net income $ 67,804 $ 107,312 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Provision for credit losses 39,000 35,000 Depreciation and amortization 24,835 19,717 Net gain recognized on investment securities ( 3,604 ) ( 2,685 ) Stock-based compensation expense 14,755 13,507 Proceeds from sales and repayments of loans held for sale 25,731 7,260 Changes in operating assets and liabilities: Accrued interest receivable and other assets ( 24,042 ) ( 42,383 ) Accrued interest payable and other liabilities ( 15,017 ) ( 47,067 ) Net cash provided by operating activities 129,462 90,661 Investing activities Purchases of available-for-sale debt securities ( 693,894 ) ( 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 416,701 106,988 Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities 35,712 37,075 Sales/(purchases) of equity securities, net ( 18,803 ) 2,292 Originations of loans held for investment, mortgage finance ( 37,081,520 ) ( 35,597,043 ) Proceeds from pay-offs of loans held for investment, mortgage finance 35,981,687 34,588,264 Net increase in loans held for investment, excluding mortgage finance loans ( 379,469 ) ( 1,058,046 ) Purchase of premises and equipment, net ( 42,246 ) ( 4,878 ) Net cash used in investing activities ( 1,781,832 ) ( 2,717,816 ) Financing activities Net increase/(decrease) in deposits 1,446,488 461,360 Issuance of stock related to stock-based awards ( 8,730 ) ( 4,035 ) Preferred dividends paid ( 8,625 ) ( 8,625 ) Repurchase of common stock ( 81,534 ) ( 60,218 ) Net increase/(decrease) in short-term borrowings 175,000 148,858 Redemption of long-term debt ( 200,000 ) ( 75,000 ) Net cash provided by financing activities 1,322,599 462,340 Net increase/(decrease) in cash and cash equivalents ( 329,771 ) ( 2,164,815 ) Cash and cash equivalents at beginning of period 3,242,850 5,012,260 Cash and cash equivalents at end of period $ 2,913,079 $ 2,847,445 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 464,930 $ 314,089 Cash paid during the period for income taxes 47,988 43,286 Transfers of loans from held for investment to held for sale 18,411 — See accompanying notes to consolidated financial statements. 7 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (1) Operations and Summary of Significant Accounting Policies Organization and Nature of Business Texas Capital Bancshares, Inc. (“TCBI” or the “Company”), a Delaware corporation, was incorporated in 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”). TCBI is 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 June 30, Six Months Ended June 30, (in thousands except share and per share data) 2024 2023 2024 2023 Numerator: Net income $ 41,662 $ 68,651 $ 67,804 $ 107,312 Preferred stock dividends 4,312 4,312 8,625 8,625 Net income available to common stockholders $ 37,350 $ 64,339 $ 59,179 $ 98,687 Denominator: Basic earnings per common share—weighted average common shares 46,546,243 47,906,624 46,925,761 48,166,977 Effect of dilutive outstanding stock-settled awards 326,255 514,652 371,569 569,405 Dilutive earnings per common share—weighted average diluted common shares 46,872,498 48,421,276 47,297,330 48,736,382 Basic earnings per common share $ 0.80 $ 1.34 $ 1.26 $ 2.05 Diluted earnings per common share $ 0.80 $ 1.33 $ 1.25 $ 2.02 Anti-dilutive outstanding stock-settled awards 38,461 533,363 105,680 341,728 8 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 June 30, 2024 Available-for-sale debt securities: U.S. Treasury securities $ 403,641 $ — $ ( 15,483 ) $ 388,158 U.S. government agency securities 125,000 — ( 18,791 ) 106,209 Residential mortgage-backed securities 3,307,715 6,277 ( 337,456 ) 2,976,536 CRT securities 13,136 — ( 808 ) 12,328 Total available-for-sale debt securities 3,849,492 6,277 ( 372,538 ) 3,483,231 Held-to-maturity debt securities: Residential mortgage-backed securities 831,513 — ( 112,603 ) 718,910 Total held-to-maturity debt securities 831,513 — ( 112,603 ) 718,910 Equity securities 74,232 Total investment securities(2) $ 4,388,976 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 o f $ 12.0 million and $ 9.5 million at June 30, 2024 and December 31, 2023, respectively, related to available-for-sale debt securities and $ 1.3 million and $ 1.4 million at June 30, 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 during the first six months 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 June 30, 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 453,642 432,220 — — Due after five years through ten years 105,433 89,394 — — Due after ten years 3,290,417 2,961,617 831,513 718,910 Total $ 3,849,492 $ 3,483,231 $ 831,513 $ 718,910 9 Table of Contents The table below presents the weighted average yields for the Company’s available-for-sale debt securities for the six months ended June 30, 2024. Weighted average yields are calculated based on amortized cost on a tax-exempt basis assuming a 21% federal 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 1.25 5.46 Due after ten years — — 3.36 — Total 2.71 % 1.13 % 3.35 % 5.46 % 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 June 30, 2024 U.S. Treasury securities $ — $ — $ 388,158 $ ( 15,483 ) $ 388,158 $ ( 15,483 ) U.S. government agency securities — — 106,209 ( 18,791 ) 106,209 ( 18,791 ) Residential mortgage-backed securities 335,741 ( 4,305 ) 2,272,460 ( 333,151 ) 2,608,201 ( 337,456 ) CRT securities — — 12,328 ( 808 ) 12,328 ( 808 ) Total $ 335,741 $ ( 4,305 ) $ 2,779,155 $ ( 368,233 ) $ 3,114,896 $ ( 372,538 ) 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 June 30, 2024, the Company ha d 108 available-for-sale debt securities in an unrealized loss position, comprised of 10 U.S. Treasury securities, five U.S. government agency securities, 91 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 June 30, 2024 and December 31, 2023, no allowance for credit losses was established for available-for-sale or held-to-maturity d ebt securities. At June 30, 2024 and December 31, 2023, debt securities with carrying values of approximat ely $ 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net gains/(losses) recognized during the period $ ( 59 ) $ 951 $ 3,975 $ 2,196 Less: Realized net gains/(losses) recognized on securities sold 59 ( 10 ) 371 ( 606 ) Unrealized net gains/(losses) recognized on securities still held $ ( 118 ) $ 961 $ 3,604 $ 2,802 10 Table of Contents (4) Loans and Allowance for Credit Losses on Loans Loans are summarized by portfolio segment as follows: (in thousands) June 30, 2024 December 31, 2023 Loans held for investment(1): Commercial $ 10,533,930 $ 10,410,766 Mortgage finance 5,078,161 3,978,328 Commercial real estate 5,689,094 5,500,774 Consumer 557,951 530,948 Gross loans held for investment 21,859,136 20,420,816 Unearned income (net of direct origination costs) ( 80,406 ) ( 80,258 ) Total loans held for investment 21,778,730 20,340,558 Allowance for credit losses on loans ( 267,297 ) ( 249,973 ) Total loans held for investment, net $ 21,511,433 $ 20,090,585 Loans held for sale: Mortgage loans, at fair value $ 424 $ 706 Non-mortgage loans, at lower of cost or fair value 36,361 43,399 Total loans held for sale $ 36,785 $ 44,105 (1) Excludes accrued interest receivable of $ 121.9 million and $ 118.1 million at June 30, 2024 and December 31, 2023, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets. 11 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 June 30, 2024 Commercial (1-7) Pass $ 517,216 $ 1,357,069 $ 1,369,181 $ 338,328 $ 100,090 $ 211,499 $ 6,149,823 $ 14,768 $ 10,057,974 (8) Special mention — 66,078 111,902 22,457 3,872 8,374 50,228 250 263,161 (9) Substandard - accruing — 23,648 29,184 8,404 124 27,386 40,277 — 129,023 (9+) Non-accrual — 6,460 2,957 153 2,039 25,449 43,970 2,744 83,772 Total commercial $ 517,216 $ 1,453,255 $ 1,513,224 $ 369,342 $ 106,125 $ 272,708 $ 6,284,298 $ 17,762 $ 10,533,930 Mortgage finance (1-7) Pass $ — $ — $ — $ — $ — $ — $ 5,078,161 $ — $ 5,078,161 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — — — — (9+) Non-accrual — — — — — — — — — Total mortgage finance $ — $ — $ — $ — $ — $ — $ 5,078,161 $ — $ 5,078,161 Commercial real estate (1-7) Pass $ 113,652 $ 876,609 $ 1,734,435 $ 1,009,872 $ 408,437 $ 858,189 $ 280,761 $ 25,408 $ 5,307,363 (8) Special mention 174 1,019 205,632 17,442 24,393 81,484 — — 330,144 (9) Substandard - accruing — — 13,491 15,831 — 22,000 — — 51,322 (9+) Non-accrual — — — 265 — — — — 265 Total commercial real estate $ 113,826 $ 877,628 $ 1,953,558 $ 1,043,410 $ 432,830 $ 961,673 $ 280,761 $ 25,408 $ 5,689,094 Consumer (1-7) Pass $ 31,244 $ 27,983 $ 53,661 $ 77,266 $ 46,291 $ 111,547 $ 207,975 $ — $ 555,967 (8) Special mention — — — — — — — — — (9) Substandard - accruing — — — — — — 1,000 — 1,000 (9+) Non-accrual — — — — — 984 — — 984 Total consumer $ 31,244 $ 27,983 $ 53,661 $ 77,266 $ 46,291 $ 112,531 $ 208,975 $ — $ 557,951 Total $ 662,286 $ 2,358,866 $ 3,520,443 $ 1,490,018 $ 585,246 $ 1,346,912 $ 11,852,195 $ 43,170 $ 21,859,136 Gross charge-offs $ — $ 7,543 $ 311 $ 3,512 $ — $ 7,173 $ 4,438 $ — $ 22,977 (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 12 Table of Contents The following table details activity in the allowance for credit losses on loans. 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 Six Months Ended June 30, 2024 Beginning balance $ 171,437 $ 4,173 $ 71,829 $ 2,534 $ 249,973 Provision for credit losses on loans 26,200 1,445 12,245 153 40,043 Charge-offs 17,541 — 5,436 — 22,977 Recoveries 258 — — — 258 Net charge-offs (recoveries) 17,283 — 5,436 — 22,719 Ending balance $ 180,354 $ 5,618 $ 78,638 $ 2,687 $ 267,297 Six Months Ended June 30, 2023 Beginning balance $ 185,303 $ 10,745 $ 54,268 $ 3,153 $ 253,469 Provision for credit losses on loans 18,198 ( 3,660 ) ( 1,730 ) ( 785 ) 12,023 Charge-offs 29,584 — — — 29,584 Recoveries 1,430 — — 5 1,435 Net charge-offs (recoveries) 28,154 — — ( 5 ) 28,149 Ending balance $ 175,347 $ 7,085 $ 52,538 $ 2,373 $ 237,343 The Company recorded a $ 40.0 million provision for credit losses on loans for the six months ended June 30, 2024, compared to $ 12.0 million for the same period of 2023. The $ 40.0 million provision for credit losses on loans resulted primarily from growth in loans held for investment and $ 22.7 million in net charge-offs recorded during the six months ended June 30, 2024. Net charge-offs of $ 22.7 million were recorded during the six months ended June 30, 2024, compared to net charge-offs of $ 28.1 million during the same period of 2023. Criticized loans totaled $ 859.7 million at June 30, 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 June 30, 2024, the Company had $ 41.9 million in collateral-dependent commercial loans, collateralized by business assets, 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 June 30, 2024 Commercial $ 12,050 $ 6,092 $ 286 $ 18,428 $ 83,772 $ 10,431,730 $ 10,533,930 $ 13,035 Mortgage finance — — — — — 5,078,161 5,078,161 — Commercial real estate — — — — 265 5,688,829 5,689,094 — Consumer 1,975 — — 1,975 984 554,992 557,951 984 Total $ 14,025 $ 6,092 $ 286 $ 20,403 $ 85,021 $ 21,753,712 $ 21,859,136 $ 14,019 (1) As of June 30, 2024, $ 1.2 million of non-accrual loans were earning interest income on a cash basis compared to $ 358,000 as of December 31, 2023. Additionally, $ 161,000 of interest income was recognized on non-accrual loans for the six months ended June 30, 2024 compared to $ 37,000 for the same period in 2023. Accrued interest of $ 668,000 and $ 1.6 million was reversed during the six months ended June 30, 2024 and June 30, 2023, respectively. 13 Table of Contents Modifications to Borrowers Experiencing Financial Difficulty The table below details gross loans held for investment as of June 30, 2024 and June 30, 2023 made to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 2024 and June 30, 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 June 30, 2024 Commercial $ 16,147 $ 253 $ 7,439 $ — $ 23,839 0.11 % — % 3 to 13 $ 1,176 Commercial real estate — 15,831 — — 15,831 0.07 % — % 3 — Total $ 16,147 $ 16,084 $ 7,439 $ — $ 39,670 0.18 % Three Months Ended June 30, 2023 Commercial $ — $ 261 $ 3,378 $ — $ 3,639 0.02 % — % 4 to 12 $ 358 Total $ — $ 261 $ 3,378 $ — $ 3,639 0.02 % Six Months Ended June 30, 2024 Commercial $ 24,207 $ 703 $ 7,439 $ — $ 32,349 0.15 % — % 3 to 13 $ 1,853 Commercial real estate — 15,831 — — 15,831 0.07 % — % 3 — Total $ 24,207 $ 16,534 $ 7,439 $ — $ 48,180 0.22 % Six Months Ended June 30, 2023 Commercial $ 31,356 $ 1,144 $ 6,562 $ 14,532 $ 53,594 0.25 % 0.70 % 4 to 36 $ 5,080 Total $ 31,356 $ 1,144 $ 6,562 $ 14,532 $ 53,594 0.25 % The table below details gross loans held for investment as of June 30, 2024 and June 30, 2023 that experienced a default during the periods presented 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 Term Extension Payment Deferral and Term Extension Total Three Months Ended June 30, 2024 Commercial $ — $ — $ — $ — Total $ — $ — $ — $ — Three Months Ended June 30, 2023 Commercial $ — $ 161 $ — $ 161 Commercial $ — $ 161 $ — $ 161 Six Months Ended June 30, 2024 Commercial $ — $ — $ 1,570 $ 1,570 Total $ — $ — $ 1,570 $ 1,570 Six Months Ended June 30, 2023 Commercial $ — $ 161 $ — $ 161 Commercial $ — $ 161 $ — $ 161 14 Table of Contents The table below provides an age analysis of gross loans held for investment as of June 30, 2024 made to borrowers experiencing financial difficulty that were modified in the prior twelve months, and as of June 30, 2023 for loans that were modified since January 1, 2023, the date of adoptions of Accounting Standards Update 2022-02: (in thousands) 30-89 Days Past Due 90+ Days Past Due Non-Accrual Current Total June 30, 2024 Commercial $ — $ — $ 11,297 $ 30,757 $ 42,054 Commercial real estate — — — 15,831 15,831 Total $ — $ — $ 11,297 $ 46,588 $ 57,885 June 30, 2023 Commercial $ — $ — $ 6,723 $ 46,871 $ 53,594 Total $ — $ — $ 6,723 $ 46,871 $ 53,594 (5) Short-Term Borrowings and Long-Term Debt The table below presents a summary of short-term borrowings: (in thousands) June 30, 2024 December 31, 2023 Federal Home Loan Bank borrowings $ 1,675,000 $ 1,500,000 Total short-term borrowings $ 1,675,000 $ 1,500,000 The table below presents a summary of long-term debt: (in thousands) June 30, 2024 December 31, 2023 Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ — $ 199,499 Bank-issued 5.25 % fixed rate subordinated notes due 2026 174,587 174,457 Company-issued 4.00 % fixed rate subordinated notes due 2031 372,004 371,785 Trust preferred floating rate subordinated debentures due 2032 to 2036 113,406 113,406 Total long-term debt $ 659,997 $ 859,147 During the second quarter of 2024, the bank-issued senior unsecured credit-linked notes were redeemed in full. (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. (in thousands) Commercial Mortgage Finance Commercial Real Estate Consumer Total Six Months Ended June 30, 2024 Beginning balance $ 36,040 $ 6 $ 10,147 $ 169 $ 46,362 Provision for off-balance sheet credit losses 1,222 23 ( 2,363 ) 75 ( 1,043 ) Ending balance $ 37,262 $ 29 $ 7,784 $ 244 $ 45,319 Six Months Ended June 30, 2023 Beginning balance $ 16,550 $ — $ 5,222 $ 21 $ 21,793 Provision for off-balance sheet credit losses 17,187 — 5,693 97 22,977 Ending balance $ 33,737 $ — $ 10,915 $ 118 $ 44,770 (in thousands) June 30, 2024 December 31, 2023 Commitments to extend credit - period end balance $ 8,934,459 $ 9,749,085 Standby letters of credit - period end balance 518,824 595,079 15 Table of Contents (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) require 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 six months ended June 30, 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 six months ended June 30, 2024, the Company repurchased 1,381,436 shares of its common stock for an aggregate price, including excise tax expense, of $ 81.5 million, at a weighted average price of $ 58.57 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. The ratios presented below include the effects of the election to utilize the five-year CECL transition described above. 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%. 16 Table of Contents The table below summarizes the Company’s and the Bank’s actual and required capital ratios under the Basel III Capital Rules 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 June 30, 2024 and December 31, 2023. June 30, 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 $ 3,244,124 11.62 % $ 3,264,609 12.65 % Tier 1 capital (to risk-weighted assets) 8.50 % 6.00 % 3,654,124 13.09 % 3,674,609 14.24 % Total capital (to risk-weighted assets) 10.50 % 10.00 % 4,370,026 15.65 % 4,405,575 17.07 % Tier 1 capital (to average assets)(1) 4.00 % N/A 3,654,124 12.15 % 3,674,609 12.21 % The Bank CET1 capital (to risk-weighted assets) 7.00 % 6.50 % $ 3,646,438 13.16 % $ 3,599,919 14.01 % Tier 1 capital (to risk-weighted assets) 8.50 % 8.00 % 3,646,438 13.16 % 3,599,919 14.01 % Total capital (to risk-weighted assets) 10.50 % 10.00 % 3,990,336 14.40 % 3,959,100 15.41 % Tier 1 capital (to average assets)(1) 4.00 % 5.00 % 3,646,438 12.21 % 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Stock-settled awards: RSUs $ 5,246 $ 5,069 $ 13,272 $ 13,507 Cash-settled units 975 — 1,483 — Total $ 6,221 $ 5,069 $ 14,755 $ 13,507 (in thousands except period data) June 30, 2024 Unrecognized compensation expense related to unvested stock-settled awards $ 25,772 Weighted average period over which stock-settled awards expense is expected to be recognized, in years 1.8 Unrecognized compensation expense related to cash-settled units $ 10,685 Weighted average period over which cash-settled units expense is expected to be recognized, in years 2.7 (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. 17 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 June 30, 2024 Available-for-sale debt securities:(1) U.S. Treasury securities $ 388,158 $ — $ — U.S. government agency securities — 106,209 — Residential mortgage-backed securities — 2,976,536 — CRT securities — — 12,328 Equity securities(1)(2) 58,197 16,035 — Mortgage loans held for sale(3) — 424 — Loans held for investment(4) — — 18,007 Derivative assets(5) — 11,292 — Securities sold not yet purchased(6) 33,359 — — Derivative liabilities(5) — 72,160 — Non-qualified deferred compensation plan liabilities(7) 20,602 — — 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. 18 Table of Contents Level 3 Valuations The following table presents a reconciliation of the level 3 fair value category measured at fair value on a recurring basis: Net Gains/(Losses) (in thousands) Balance at Beginning of Period Purchases / Additions Sales / Reductions Realized Unrealized Balance at End of Period Three Months Ended June 30, 2024 Available-for-sale debt securities:(1) CRT securities $ 12,261 $ — $ ( 291 ) $ — $ 358 $ 12,328 Three Months Ended June 30, 2023 Available-for-sale debt securities:(1) CRT securities $ 11,928 $ — $ ( 281 ) $ — $ 109 $ 11,756 Six Months Ended June 30, 2024 Available-for-sale debt securities:(1) CRT securities $ 11,995 $ — $ ( 500 ) $ — $ 833 $ 12,328 Six Months Ended June 30, 2023 Available-for-sale debt securities:(1) CRT securities $ 11,861 $ — $ ( 487 ) $ — $ 382 $ 11,756 (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). 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 June 30, 2024, the discount rates utilized ranged from 5.15 % to 6.99 % and the weighted-average life ranged from 4.63 years to 7.17 years. On a combined amortized cost weighted-average basis a discount rate of 5.83 % and a weighted-average life of 5.57 years were utilized to determine the fair value of these securities at June 30, 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 $ 18.0 million fair value of loans held for investment at June 30, 2024 reported above includes impaired loans with a carrying value of $ 42.8 million that were reduced by specific allowance allocations totaling $ 24.8 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. 19 Table of Contents Fair Value of Financial Instruments A summary of the carrying amounts and estimated fair values of financial instruments is as follows: Carrying Amount Estimated Fair Value (in thousands) Total Level 1 Level 2 Level 3 June 30, 2024 Financial assets: Cash and cash equivalents $ 2,913,079 $ 2,913,079 $ 2,913,079 $ — $ — Available-for-sale debt securities 3,483,231 3,483,231 388,158 3,082,745 12,328 Held-to-maturity debt securities 831,513 718,910 — 718,910 — Equity securities 74,232 74,232 58,197 16,035 — Loans held for sale 36,785 36,785 — 9,584 27,201 Loans held for investment, net 21,511,433 21,466,288 — — 21,466,288 Derivative assets 11,292 11,292 — 11,292 — Financial liabilities: Total deposits 23,818,327 23,823,172 — — 23,823,172 Short-term borrowings 1,675,000 1,675,000 — 1,675,000 — Long-term debt 659,997 611,134 — 611,134 — Securities sold not yet purchased 33,359 33,359 33,359 — — Derivative liabilities 72,160 72,160 — 72,160 — 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 — 20 Table of Contents (10) Derivative Financial Instruments The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table. June 30, 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 $ — $ 60,428 $ 2,850,000 $ 668 $ 57,961 Non-hedging derivatives Customer-initiated and other derivatives: Foreign currency forward contracts 123,234 425 382 4,824 52 31 Interest rate contracts: Swaps 5,831,879 63,772 63,772 5,673,822 65,247 69,863 Caps and floors written 1,146,878 117 6,335 637,971 1,654 2,228 Caps and floors purchased 1,146,878 6,335 117 637,971 2,228 1,654 Forward contracts 16,228,437 25,633 24,685 8,665,675 39,123 38,570 Gross derivatives 96,282 155,719 108,972 170,307 Netting adjustment - offsetting derivative assets/liabilities ( 39,904 ) ( 39,904 ) ( 37,346 ) ( 37,346 ) Netting adjustment - cash collateral received/posted ( 45,086 ) ( 43,655 ) ( 38,682 ) ( 62,044 ) Net derivatives included on the consolidated balance sheets $ 11,292 $ 72,160 $ 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 $ 11.3 million at June 30, 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 June 30, 2024, the Company had $ 98.9 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet an d $ 46.9 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 ri sk participation agreements where it acts as a participant bank with a notional amount of $ 227.0 million at June 30, 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 $ 6.1 million at June 30, 2024 and $ 4.5 million at December 31, 2023. The fair value of these exposures was insignificant to the consolidated financial statements at both June 30, 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 part y to 15 ri sk participation agreements where the Company acts as the lead bank having a notional amount of $ 202.9 million at June 30, 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 six months ended June 30, 2024, the Company recorded $ 36.6 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 36.1 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 $ 55.2 million related to active and terminated hedges will be reclassified from AOCI as a decrease to interest income. As of June 30, 2024, the maximum length of time over which forecasted transactions are hedged i s 1.67 years. 21 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 June 30, 2024 Beginning balance $ ( 53,544 ) $ ( 285,238 ) $ ( 41,104 ) $ ( 379,886 ) Change in unrealized gain/(loss) ( 8,738 ) ( 5,201 ) — ( 13,939 ) Amounts reclassified into net income 18,114 — 1,711 19,825 Total other comprehensive income/(loss) 9,376 ( 5,201 ) 1,711 5,886 Income tax expense/(benefit) 1,047 ( 6,880 ) ( 435 ) ( 6,268 ) Total other comprehensive income/(loss), net of tax 8,329 1,679 2,146 12,154 Ending balance $ ( 45,215 ) $ ( 283,559 ) $ ( 38,958 ) $ ( 367,732 ) Three Months Ended June 30, 2023 Beginning balance $ ( 46,916 ) $ ( 281,063 ) $ ( 46,783 ) $ ( 374,762 ) Change in unrealized gain/(loss) ( 59,057 ) ( 40,674 ) — ( 99,731 ) Amounts reclassified into net income 14,919 — 1,843 16,762 Total other comprehensive income/(loss) ( 44,138 ) ( 40,674 ) 1,843 ( 82,969 ) Income tax expense/(benefit) ( 9,269 ) ( 8,541 ) 387 ( 17,423 ) Total other comprehensive income/(loss), net of tax ( 34,869 ) ( 32,133 ) 1,456 ( 65,546 ) Ending balance $ ( 81,785 ) $ ( 313,196 ) $ ( 45,327 ) $ ( 440,308 ) Six Months Ended June 30, 2024 Beginning balance $ ( 45,749 ) $ ( 273,806 ) $ ( 42,449 ) $ ( 362,004 ) Change in unrealized gain/(loss) ( 36,611 ) ( 19,671 ) — ( 56,282 ) Amounts reclassified into net income 36,120 — 3,413 39,533 Total other comprehensive income/(loss) ( 491 ) ( 19,671 ) 3,413 ( 16,749 ) Income tax expense/(benefit) ( 1,025 ) ( 9,918 ) ( 78 ) ( 11,021 ) Total other comprehensive income/(loss), net of tax 534 ( 9,753 ) 3,491 ( 5,728 ) Ending balance $ ( 45,215 ) $ ( 283,559 ) $ ( 38,958 ) $ ( 367,732 ) Six Months Ended June 30, 2023 Beginning balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 ) Change in unrealized gain/(loss) ( 45,529 ) ( 11,249 ) — ( 56,778 ) Amounts reclassified into net income 26,048 — 3,687 29,735 Total other comprehensive income/(loss) ( 19,481 ) ( 11,249 ) 3,687 ( 27,043 ) Income tax expense/(benefit) ( 4,090 ) ( 2,362 ) 774 ( 5,678 ) Total other comprehensive income/(loss), net of tax ( 15,391 ) ( 8,887 ) 2,913 ( 21,365 ) Ending balance $ ( 81,785 ) $ ( 313,196 ) $ ( 45,327 ) $ ( 440,308 ) 22 Table of Contents