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What changed in TEXAS CAPITAL BANCSHARES INC/TX's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TEXAS CAPITAL BANCSHARES INC/TX's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+332 added−384 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-09)

Top changes in TEXAS CAPITAL BANCSHARES INC/TX's 2023 10-K

332 paragraphs added · 384 removed · 236 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

58 edited+28 added−41 removed98 unchanged
Biggest changeThe Volcker Rule has not had a material effect on the Company’s operations because it does not engage in the businesses prohibited by the Volcker Rule. Unanticipated effects of the Volcker Rule’s provisions or future interpretations may have an adverse effect on business or services provided to the Bank by other financial institutions. Future Legislation and Regulation .
Biggest changeUnanticipated effects of the Volcker Rule’s provisions or future interpretations may have an adverse effect on business or services provided to the Bank by other financial institutions. Debit Card Interchange Fees. Dodd-Frank includes a set of rules requiring that interchange transaction fees for electronic debit transactions be reasonable and proportional to certain costs associated with processing the transactions.
Community Reinvestment Act. The Community Reinvestment Act of 1977 (the “CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.
The Community Reinvestment Act of 1977 (the “CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.
The regulators monitor all areas of the Bank’s operations, including security devices and procedures, adequacy of capitalization and loss reserves, accounting treatment and impact on capital determinations, loans, investments, borrowings, deposits, liquidity, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe and sound lending and deposit gathering practices.
The regulators monitor all areas of the Bank’s operations, including security devices and procedures, adequacy of capitalization and loss reserves, accounting treatment and impact on capital determinations, loans, investments, borrowings, deposits, 8 liquidity, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe and sound lending and deposit gathering practices.
Because of the significance of regulatory emphasis on these requirements, the Company has expended, and expects to continue to expend, significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing compliance with the Bank Secrecy Act on an ongoing basis.
Because of the significance of regulatory emphasis on these requirements, the Company has expended, and expects to continue to expend, significant staffing, technology and financial resources to maintain 12 programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing compliance with the Bank Secrecy Act on an ongoing basis.
In addition, prospective loans are analyzed based on current industry concentrations in the loan portfolio to prevent an unacceptable concentration of loans in any particular industry. The Company believes its credit standards are consistent with achieving its business objectives in the markets the business serves and are an important part of the Company’s risk mitigation strategy.
In addition, prospective loans are analyzed based on current industry concentrations in the loan portfolio to prevent an unacceptable concentration of loans in any particular industry. The Company believes its credit standards are consistent with achieving its business objectives in the markets it serves and are an important part of the Company’s risk mitigation strategy.
(“TCBI Securities”), doing business as Texas Capital Securities, that is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority (“FINRA”). TCBI Securities is subject to the jurisdiction of several regulatory bodies, including the SEC, FINRA, and state securities regulators. Bank Holding Company Regulation .
(“TCBI Securities”), doing business as Texas Capital Securities, that is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority 7 (“FINRA”). TCBI Securities is subject to the jurisdiction of several regulatory bodies, including the SEC, FINRA, and state securities regulators. Bank Holding Company Regulation .
As a non-advanced approaches banking organization, the Company has elected to exclude the effects of certain accumulated other comprehensive income (“AOCI”) items included in stockholders’ equity for the determination of regulatory capital and capital ratios under the Basel III Capital Rules.
As a non-advanced approaches banking organization, the Company has elected to exclude the effects of certain accumulated other comprehensive income (“AOCI”) 9 items included in stockholders’ equity for the determination of regulatory capital and capital ratios under the Basel III Capital Rules.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted. Available Information Under the Securities Exchange Act of 1934, the Company is required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted. 14 Available Information Under the Securities Exchange Act of 1934, the Company is required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
While the Texas market continues to be central to growth and success, the Company has built several lines of business that offer specialized products and services to businesses and individuals regionally and nationwide, including mortgage finance, homebuilder finance, investment banking and Bask Bank.
While the Texas market continues to be central to its growth and success, the Company has built several lines of business that offer specialized products and services to businesses and individuals regionally and nationwide, including mortgage finance, homebuilder finance, investment banking and Bask Bank.
The Credit Policy Committee is comprised of senior Bank officers, including the Chief Risk Officer, the Chief Credit Officer and other Bank officers as deemed appropriate, and is subject to oversight by the Risk Committee of the Company's board of directors. The Company believes it maintains an appropriately diversified loan portfolio.
The Credit Policy 5 Committee is comprised of senior Bank officers, including the Chief Risk Officer, the Chief Credit Officer and other Bank officers as deemed appropriate, and is subject to oversight by the Risk Committee of the Company's board of directors. The Company believes it maintains an appropriately diversified loan portfolio.
The Bank is subject to federal banking law requirements concerning the payment of dividends, including, under the FDICIA, the Bank may not pay any dividend if it is undercapitalized or if payment would cause it to become undercapitalized. Limits on Compensation .
The Bank is subject to federal banking law requirements concerning the payment of dividends, including, under the FDICIA, the Bank may not pay any dividend if it is undercapitalized or if payment would cause it to become undercapitalized. 13 Limits on Compensation .
The FDIC has only very limited discretion in dealing with a “critically undercapitalized” institution and generally must appoint a receiver or conservator if the capital deficiency is not corrected promptly.
The FDIC has only very limited discretion in dealing with a 10 “critically undercapitalized” institution and generally must appoint a receiver or conservator if the capital deficiency is not corrected promptly.
The Basel III Capital Rules, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.
The Basel III Capital Rules, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.
Bask Bank is an online banking division that offers depositors American Airlines AAdvantage® miles in lieu of cash interest as well as traditional interest bearing deposit products such as savings accounts and certificates of deposit (“CDs”). The Company believes these business lines help to mitigate its geographic concentration risk in Texas.
Bask Bank is an online division of the Bank that offers depositors American Airlines AAdvantage® miles in lieu of cash interest as well as traditional interest bearing deposit products such as savings accounts and certificates of deposit. The Company believes these business lines help to mitigate its geographic concentration risk in Texas.
In 2016, as required by the Dodd-Frank Act, the Federal Reserve, the FDIC and the SEC proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2022, these rules have not been implemented. Deposit Insurance.
In 2016, as required by the Dodd-Frank Act, the Federal Reserve, the FDIC and the SEC proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2023, these rules have not been implemented. Deposit Insurance.
The Company’s regulatory capital status is addressed in more detail under the heading “ Liquidity and Capital Resources ” within Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 11 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report.
The Company’s regulatory capital status is addressed in more detail under the heading “ Liquidity and Capital Resources ” within Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 10 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report.
The Basel III Capital Rules set the Tier 1 risk-based capital requirement and the total risk-based capital requirement to a minimum of 6.0% and 8.0%, respectively, each plus a 2.5% capital conservation buffer composed entirely of CET1, producing targeted ratios of 8.5% and 10.5%, respectively.
The Basel III Capital Rules set the CET1 risk-based capital requirement, the Tier 1 risk-based capital requirement and the total risk-based capital requirement to a minimum of 4.5%, 6.0% and 8.0%, respectively, each plus a 2.5% capital conservation buffer composed entirely of CET1, producing targeted ratios of 7.0%, 8.5% and 10.5%, respectively.
TCBI also competes with other providers of financial services, such as non-bank lenders, commercial finance and leasing companies, consumer finance companies, financial technology companies, securities firms, insurance companies, full-service brokerage firms and discount brokerage firms, credit unions and savings and loan associations.
TCBI also competes with other providers of financial services, such as non-bank financial institutions, commercial finance and leasing companies, consumer finance companies, financial technology companies, securities firms, insurance companies, full-service brokerage firms and discount brokerage firms, credit unions and savings and loan associations.
Complying with the regulations discussed below did not have and is not expected to have a material effect on capital expenditures, earnings and competitive position. The Company does not have any environmental control facilities and did not spend any capital expenditures on such facilities during 2022.
Complying with the regulations discussed below did not have and is not expected to have a material effect on capital expenditures, earnings and competitive position. The Company does not have any environmental control facilities and did not spend any capital expenditures on such facilities during 2023.
The Company has met the capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis since it commenced filing of the applicable reports with its federal banking regulators, and as of December 31, 2022 the Bank's CET1 ratio and total risk-based capital ratio were in excess of the amounts required for the Bank to be classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations, which is discussed in more detail below.
The Company has met the capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis since it commenced filing of the applicable reports with its federal banking regulators, and as of December 31, 2023 the Bank's CET1 risk-based capital ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio were in excess of the amounts required for the Bank to be classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations, which is discussed in more detail below.
These risk weights are multiplied by corresponding asset balances to determine a “risk weighted” asset base, which is then measured against various forms of capital to produce capital ratios. 7 Table of Contents In 2010, the Basel Committee released a set of international recommendations for strengthening the regulation, supervision and risk management of banking organizations, known as Basel III.
These risk weights are multiplied by corresponding asset balances to determine a “risk weighted” asset base, which is then measured against various forms of capital to produce capital ratios. In 2010, the Basel Committee released a set of international recommendations for strengthening the regulation, supervision and risk management of banking organizations, known as Basel III.
It is the policy of the Federal Reserve that bank holding companies may maintain their existing rate of cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is 6 Table of Contents consistent with the organization’s expected future capital needs, asset quality and financial condition.
It is the policy of the Federal Reserve that bank holding companies may maintain their existing rate of cash dividends on common stock only out of net income available over the past year and only if the prospective rate of earnings retention is consistent with the organization’s expected future capital needs, asset quality and financial condition.
Regulators can, from time to time, change their policies or interpretations of banking practices to require changes in risk weights assigned to the Bank's assets or changes in the factors 9 Table of Contents considered in order to evaluate capital adequacy, which may require the Bank to obtain additional capital to support existing asset levels or future growth or reduce asset balances in order to meet minimum acceptable capital ratios.
Regulators can, from time to time, change their policies or interpretations of banking practices to require changes in risk weights assigned to the Bank's assets or changes in the factors considered in order to evaluate capital adequacy, which may require the Bank to obtain additional capital to support existing asset levels or future growth or reduce asset balances in order to meet minimum acceptable capital ratios.
The Company believes it is positioned to offer clients more 3 Table of Contents responsive and personalized service and advice than its competitors. By providing effective service to these customers, the Company believes it will be able to establish “first call” relationships, and provide all the banking needs of its customers, thereby enhancing its relevance and financial returns.
The Company believes it is positioned to offer clients more responsive and personalized service and advice than its competitors. By providing effective service to these customers, the Company believes it will be able to establish “first call” relationships, and provide all the banking needs of its customers, thereby enhancing its relevance and financial returns.
The personal banking deposit products include checking accounts, savings accounts, money market accounts and certificates of deposit. Personal banking deposit customers have online and mobile access to fully manage their accounts leveraging features that include funds transfers, peer-to-peer payments, bill pay, wire transfer requests, remote check deposit and more.
Personal banking deposit products offered by the Bank include checking accounts, savings accounts, money market accounts and certificates of deposit. Personal banking deposit customers have online and mobile access to fully manage their accounts leveraging features that include funds transfers, peer-to-peer payments, bill pay, wire transfer requests, remote check deposit and more.
The Company believes that it is differentiated from its competitors by its focus on and targeted marketing to its core customers and by its ability to tailor its products to the individual needs of its customers.
The Company believes that it is differentiated from its competitors by its client selection, focus on and targeted marketing to its core customers and by its ability to tailor its products to the individual needs of its customers.
The FDIA requires federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions that relate to, among other things: (i) internal controls, information systems and 11 Table of Contents audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth and quality; and (vi) compensation and benefits.
The FDIA requires federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions that relate to, among other things: (i) internal controls, information systems and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth and quality; and (vi) compensation and benefits.
Any amendments to, or waivers from, the code of business conduct applicable to the Company’s executive officers will be posted on the website within four days of such amendment or waiver. The Company will provide a printed copy of any of the aforementioned documents to any requesting stockholder of the Company. 13 Table of Contents
Any amendments to, or waivers from, the code of business conduct applicable to the Company’s executive officers will be posted on the website within four days of such amendment or waiver. The Company will provide a printed copy of any of the aforementioned documents to any requesting stockholder of the Company.
There is also an aggregate limitation on all loans to insiders and their related interests, which cannot exceed the institution’s total unimpaired capital and surplus, unless the FDIC determines that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.
There is also an aggregate limitation on all loans to insiders and their related interests, which cannot exceed the institution’s total unimpaired capital and surplus, unless the FDIC determines that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions. Restrictions on Payment of Dividends by the Bank.
Additionally, TCS offers services to manage interest rate, foreign exchange, and commodity risks, and enable market access by offering sales, trading and other institutional services Human Capital The Company’s goal is to attract, develop, retain and plan for succession of key talent and executives to achieve strategic objectives.
Additionally, TCS offers services to manage interest rate, foreign exchange, and commodity risks, and enable market access by offering sales, trading and other institutional services. Human Capital The Company’s focus is to attract, develop, engage and retain the best talent, and to plan for succession of key talent and executives to achieve strategic objectives.
Because the Company had less than $15 billion in total consolidated assets as of December 31, 2009, it is allowed to continue to classify its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
Because the Company had less than $15 billion in total consolidated assets as of December 31, 2009, it is allowed to continue to classify its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital up to 25% of that measure.
The Company is continually investing in its workforce to further emphasize diversity and inclusion and to foster its employees' growth and career development. Further, the Company is continually evaluating the resources available to employees to address work, life, financial and health-related matters, as the health, safety and well-being of employees and customers is of paramount importance.
The Company is continually investing in its workforce to further emphasize diversity and inclusion and to foster its employees' growth and career development. Further, the Company is regularly evaluating the resources available to employees to address professional, financial and health-related matters, as the health, safety and well-being of employees and customers is of paramount importance.
Regulators are required to take mandatory supervisory actions and are authorized to take other discretionary actions of increasing severity with respect 8 Table of Contents to insured depository institutions in the three undercapitalized categories.
Regulators are required to take mandatory supervisory actions and are authorized to take other discretionary actions of increasing severity with respect to insured depository institutions in the three undercapitalized categories.
The Company also continued enhancements to its training and development program during 2022, which included the creation of job profiles for roles across the Company with skills, knowledge, and abilities to empower employees to focus on targeted skill development and career ownership.
The Company also continued enhancements to its training and development program during 2023, which included the completion of job profiles for roles across the Company with skills, knowledge, and abilities to empower employees to focus on targeted skill development and career ownership.
The Company generally extends variable rate loans in which the interest rate fluctuates with a specified reference rate and frequently provide for a minimum floor rate. The use of variable rate loans is designed to protect the Company from risks associated with interest rate fluctuations since the rates of interest earned will automatically reflect such fluctuations. In 2017, the U.K.
The Company generally extends variable rate loans in which the interest rate fluctuates with a specified reference rate and may provide for a minimum floor rate. The use of variable rate loans is designed to protect the Company from risks associated with interest rate fluctuations since the rates of interest earned will automatically reflect such fluctuations.
The Bank’s deposits are insured through the DIF, which is administered by the FDIC, up to limits established by applicable law, currently $250,000 per depositor.
The Bank’s deposits are insured through the DIF, which is administered by the FDIC, up to limits established by applicable law, currently $250,000 per depositor, per account ownership category, per bank.
The Company and the Bank must maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a leverage ratio equal to or greater than 5.0%.
Under the Basel III Capital Rules, the Company and the Bank must maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a leverage ratio equal to or greater than 4.0%.
Specifically, the Regulatory Relief Act terminated TCBI’s stress testing requirements, however, the Company created its own stress testing framework and continues to perform certain stress tests as a matter of good governance and risk management and has incorporated the economic models and information developed through the stress testing program into the Company’s risk management and business, capital and liquidity planning activities, which are subject to continuing regulatory oversight.
However, the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 (the “Regulatory Relief Act”) terminated TCBI’s stress testing requirements, however, the Company created its own stress testing framework and continues to perform certain stress tests as a matter of good governance and risk management and has incorporated the economic models and information developed through the stress testing program into the Company’s risk management and business, capital and liquidity planning activities, which are subject to continuing regulatory oversight.
Securities and Exchange Commission (“SEC”) and is subject to its regulatory authority, including the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, with respect to the Company’s securities, financial reporting and certain governance matters.
As a public company, the Company also files reports with the U.S. Securities and Exchange Commission (“SEC”) and is subject to its regulatory authority, including the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, with respect to the Company’s securities, financial reporting and certain governance matters.
Specifically, the proposed amendments require current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk.
Specifically, the final rule requires current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk. See Item 1C.
TCBI’s activities are governed by the Bank Holding Company Act of 1956, as amended (the “BHCA”). It is subject to primary regulation, supervision and examination by the Federal Reserve pursuant to the BHCA. The Company files quarterly reports and other information with the Federal Reserve. As a public company, the Company also files reports with the U.S.
TCBI’s activities are governed by the Bank Holding Company Act of 1956, as amended (the “BHCA”). It is subject to primary regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) pursuant to the BHCA. The Company files quarterly reports and other information with the Federal Reserve.
The Dodd-Frank Act amended the BHCA to require the federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading in designated types of financial instruments and from investing in and sponsoring certain hedge funds and private equity funds.
The Dodd-Frank Act amended the BHCA to require the federal financial regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading in designated types of financial instruments and from investing in and sponsoring certain hedge funds and private equity funds. The Volcker Rule has not had a material effect on the Company’s operations.
In November 2021, the federal banking agencies approved a final rule that, among other things, would require banking organizations to notify their primary federal regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification incident.” In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
Banking organizations are required to notify their primary federal regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification incident.” In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.
The USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act and the Bank Secrecy Act. A major focus of U.S. government policy regarding financial institutions in recent years has been combating money laundering, terrorist financing and other illegal payments.
A major focus of U.S. government policy regarding financial institutions in recent years has been combating money laundering, terrorist financing and other illegal payments.
Business Strategy and Markets The Company was founded with an entrepreneurial culture and a mission to build a commercial banking presence across Texas.
The Company was incorporated as a Delaware corporation in 1996 and commenced banking operations in 1998. Business Strategy and Markets The Company was founded with an entrepreneurial culture and a mission to build a commercial banking presence across Texas.
In March 2022, the SEC proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934.
In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934.
For Commercial customers, the Company offers a full suite of deposit solutions including checking, money market savings, and sweep accounts with competitive industry rates.
Treasury Solutions and Deposit Products Texas Capital Bank offers treasury solutions and deposit products to meet its customers evolving needs. For commercial business customers, the Company offers a full suite of deposit solutions including checking, money market savings, and sweep accounts with competitive industry rates.
A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. The leverage ratio requirement under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to total assets, is 4.0%.
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.
In addition, other 10 Table of Contents jurisdictions in which customers do business, such as the European Union, have adopted similar requirements. This trend of activity is expected to continue to expand, requiring continual monitoring of developments in the states and nations in which the Company’s customers are located and ongoing investments in its information systems and compliance capabilities.
This trend of activity is expected to continue to expand, requiring continual monitoring of developments in the states and nations in which the Company’s customers are located and ongoing investments in its information systems and compliance capabilities. Community Reinvestment Act.
In response to this requirement, the Company developed dedicated staffing, economic models, policies and procedures to implement stress testing on an annual basis, the results of which were furnished to regulators. However, the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018 (the “Regulatory Relief Act”) amended portions of the Dodd-Frank Act, requiring stress testing, among other things.
In response to this requirement, the Company developed dedicated staffing, economic models, policies and procedures to implement stress testing on an annual basis, the results of which were furnished to regulators.
On September 1, 2021, management announced key updates to the Company’s long-term strategy, focused on building a Texas-based full-service financial services firm that can seamlessly serve the best clients in its markets through the entirety of their life cycles.
Drawing on the banking experience and business and community ties of management, the Company’s strategy has evolved to become a Texas-based full-service financial services firm that can seamlessly serve the best clients in its markets through the entirety of their life cycles.
The Company is subject to extensive federal and state laws and regulations that impose specific requirements and provide regulatory oversight of virtually all aspects of its operations.
None of the Company’s employees are represented by a collective bargaining agreement, and management considers relations with employees to be good. Regulation and Supervision General . The Company is subject to extensive federal and state laws and regulations that impose specific requirements and provide regulatory oversight of virtually all aspects of its operations.
TCBI is a registered bank holding company and has elected to be a financial holding company. The Company is headquartered in Dallas, with primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, the five largest metropolitan areas of Texas. Substantially all business activities are conducted through the Bank.
TCBI is headquartered in Dallas, with primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, and has built a network of clients across the country. Substantially all of the Company’s business activities are conducted through its wholly-owned subsidiary bank Texas Capital Bank (the “Bank”).
The FDIC may also prohibit any FDIC-insured institution from engaging in any activity it determines to pose a serious risk to the DIF. For 2022, minimum and maximum assessment rates (inclusive of possible adjustments) for institutions the size of the Bank ranged from 1.5 to 40 basis points.
The FDIC may also prohibit any FDIC-insured institution from engaging in any activity it determines to pose a serious risk to the DIF.
The sole source of funding of TCBI’s financial obligations has consisted of proceeds of capital markets transactions and cash payments from the Bank for debt service and dividend payments with respect to the preferred stock issued to the Company by the Bank. TCBI may seek reliance upon receipt of dividends paid by the Bank to meet its financial obligations.
The sole source of funding of TCBI’s financial obligations has consisted of proceeds of capital markets transactions and cash payments from the Bank.
An increasing number of state laws and regulations have been enacted in recent years to implement privacy and cybersecurity standards and regulations, including data breach notification and data privacy requirements. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs that meet specified requirements.
Cybersecurity for a discussion of the Company’s cybersecurity risk management, strategy and governance. Privacy and data security areas are expected to receive increased attention at the federal level. An increasing number of state laws and regulations have been enacted in recent years to implement privacy and cybersecurity standards and regulations, including data breach notification and data privacy requirements.
The DEI Council is working to develop DEI goals and metrics that align to the Company’s business strategy. The Company offers a comprehensive benefits program to its employees and designs compensation programs to attract, retain and motivate employees that align with Company performance.
The Company offers a comprehensive benefits program to its employees and designs compensation programs to attract, retain and motivate employees that align with Company performance. The Company’s performance management process is designed for succession planning deeper into the organization. The Company utilizes feedback from exit interviews to drive improvements where possible and reduced attrition by 6% in 2023.
Further, the Company launched a leadership model with business-critical competencies for focused coaching and development. 5 Table of Contents At December 31, 2022, the Company had 2,198 employees, nearly all of whom are full time and of which approximately 44% were female and 44% self-identify as ethnically diverse.
At December 31, 2023, the Company had 1,987 employees, nearly all of whom are full time and of which approximately 42% were female and 43% self-identify as ethnically diverse. Due to the Company’s significant Texas-based operations and branch-lite network, the majority of its employees are based in Texas.
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ITEM 1. BUSINESS Background Texas Capital Bancshares, Inc. (“TCBI” or the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998. The consolidated financial statements include the accounts of TCBI and its wholly owned subsidiary, Texas Capital Bank (the “Bank”).
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ITEM 1. BUSINESS Background Texas Capital Bancshares, Inc. (“TCBI” or the “Company”) is a registered bank holding company and a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs and individual customers.
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The Company serves the needs of commercial businesses, entrepreneurs and professionals located in Texas through a custom array of financial products and services with high-quality personal service. On September 6, 2022, the Company announced the sale of BankDirect Capital Finance, LLC (“BDCF”), its insurance premium finance subsidiary, to AFCO Credit Corporation, an indirect wholly-owned subsidiary of Truist Financial Corporation.
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A core tenant of this strategy is the maintenance of financial resiliency through market and rate cycles enabling the Company to serve its clients, access markets, and support its communities through changing market conditions. The Company is well positioned with a wide range of relevant products and services along with best-in-class levels of liquidity, credit reserves and capital.
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The sale of BDCF included its business operations and loan portfolio of approximately $3.1 billion. The sale was an all-cash transaction for a purchase price of $3.4 billion, representing a pre-tax gain of $248.5 million. The transaction did not meet the criteria for discontinued operations reporting, and the sale was completed on November 1, 2022.
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The Compensation and Human Capital Committee of the Board of Directors provides input and oversight of human capital management, including talent management, executive succession planning, diversity and inclusion and company culture. 6 At the Company, diversity, equity and inclusion (“DEI”) is an integral part of the strategy to build a strong culture where employees can reach their full potential professionally and personally.
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Drawing on the business and community ties of management and its banking experience, the Company’s strategy has been to establish an independent bank that has focused primarily on commercial businesses, entrepreneurs and professionals in each of the five major metropolitan markets of Texas.
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In 2023, the Company continued its inclusion efforts through cultural celebrations and employee engagement activities across markets, and the Company broadened communications internally and externally as it highlighted the stories and experiences of diverse leaders. Listening tours were conducted with employees to get their perspective of what DEI means to them and where the Company has opportunity to improve.
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As a core tenant of TCBI’s vision to be the premier financial services firm in Texas, the Company will maintain financial resiliency for its shareholders which will also allow it to serve its clients, access markets, and support its communities through the cycle.
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In 2022, we launched Employee Resource Groups (“ERGs”). In 2023, the Company focused on ensuring charters were clear and leadership was in place. The Company also prioritized proactive planning, strong execution, and defined processes. With new leadership teams in place, there was an exponential growth in employee engagement and programming.
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Last year, 2022, was a year focused on strategic alignment, including, reorganizing the Company’s operating model around client delivery emphasizing client experience; realigning the expense base and investing in technology; expanding coverage, products and services; and enhancing accountability while maintaining financial resilience. The Company is well positioned with best-in-class levels of liquidity, credit reserves and capital.
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Employee participation increased by 40% and programming tripled year over year. In addition to advancing educational awareness, the ERGs led the way in creating opportunities for our employees to give back to the communities the Company serves through volunteerism.
Removed
Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021. The administrator of LIBOR extended publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023 and ceased publishing other LIBOR settings on December 31, 2021.
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Further, the Company expanded its use of leadership models, which identify the critical skills and behaviors necessary to be successful at every level, and success profiles, that describe the critical knowledge, skills and abilities needed for every role.
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The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.
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To help employees be successful in their roles, the Company implemented a new Human Capital Management System, which among other things, resulted in more streamlined HR processes, and creating a more favorable employee experience and engagement in HR-related activities.
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On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Board of Governors of the Federal Reserve System (“Federal Reserve”) based on the Secured Overnight Financing Rate Data (“SOFR”) for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.
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The leverage ratio requirement under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deduction), is 4.0%.
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On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023.
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However, the treatment of existing trust preferred securities as capital may be subject to further regulatory change prior to their maturity, which could require the Company to seek additional capital.
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The Company has significant but declining exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which mature after 4 Table of Contents June 30, 2023.
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In August 2020, the U.S. federal banking agencies adopted a final rule altering the definition of eligible retained income in their respective capital rules.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOperational Risks • The Company, its vendors and customers must effectively manage information systems and cyber risk and threats which may result in disruptions, failures or breaches in security. • The Company’s operations rely extensively on a broad range of external vendors. • The Company must continue to attract, retain and develop key personnel. • The Company’s accounting estimates and risk management processes rely on management judgment, which may prove inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models. • The risk management strategies and processes may not be effective; the Company’s controls and procedures may fail or be circumvented. • The business is susceptible to fraud. 14 Table of Contents Legal, Regulatory and Compliance Risks • The Company is subject to extensive government regulation and supervision and interpretations thereof. • The Company must maintain adequate regulatory capital to support its business objectives and strategy. • The Company is subject to claims and litigation in the ordinary course of business, including claims that may not be covered by insurance.
Biggest changeStrategic Risks • The Company must be effective in developing and executing new lines of business and new products and services while managing associated risks. • The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial service providers. • The Company must effectively execute its business strategy in order to continue asset and earnings growth. 15 Operational Risks • The Company, its vendors and customers must effectively manage information systems and cyber risk and threats which may result in disruptions, failures or breaches in security. • A successful cyber attack affecting the Company could cause significant harm to the Company and its clients and customers. • The Company’s operations rely extensively on a broad range of external vendors. • The Company must continue to attract, retain and develop key personnel. • The Company’s accounting estimates and risk management processes rely on management judgment, which may prove inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models. • The risk management strategies and processes may not be effective and the Company’s controls and procedures, including disclosure controls and procedures and internal control over financial reporting, may fail or be circumvented. • The business is susceptible to fraud and conduct risk.
In order to execute the Company’s business strategy successfully, the Company must, among other things: • continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally; • develop new products and services and execute the full range of products and services more efficiently and effectively; • attract and retain qualified front-line personnel in each of the targeted market segments to build customer base; • respond to market opportunities promptly and nimbly while balancing the demands of risk management and compliance with regulatory requirements; • expand loan portfolio in an intensely competitive environment while maintaining credit quality; • attract sufficient deposits and capital to fund expected and anticipated loan growth and satisfy regulatory requirements; • compete effectively for investment banking and broker-dealer customers; • control expenses; and • acquire and maintain sufficient qualified staffing and information technology and operational resources to support growth and compliance with regulatory requirements.
In order to execute the Company’s business strategy successfully, the Company must, among other things: • continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally; • develop new products and services and execute the full range of products and services more efficiently and effectively; 21 • attract and retain qualified front-line personnel in each of the targeted market segments to build customer base; • respond to market opportunities promptly and nimbly while balancing the demands of risk management and compliance with regulatory requirements; • expand loan portfolio in an intensely competitive environment while maintaining credit quality; • attract sufficient deposits and capital to fund expected and anticipated loan growth and satisfy regulatory requirements; • compete effectively for investment banking and broker-dealer customers; • control expenses; and • acquire and maintain sufficient qualified staffing and information technology and operational resources to support growth and compliance with regulatory requirements.
The Company’s customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan horse” programs to the Company’s information systems, the information systems of merchants or third-party service providers and/or customers' computers.
The Company’s customers and employees have been, and 22 will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan horse” programs to the Company’s information systems, the information systems of merchants or third-party service providers and/or customers' computers.
These non-traditional deposits are subject to greater operational and reputational risk of unexpected withdrawal than traditional demand and time deposits, particularly those provided by consumers. A significant decrease in balances of relationship brokered deposits could have a material adverse effect on the Bank’s and the Company’s financial condition, results of operations or profitability.
These non-traditional deposits are subject to greater operational and reputational risk of unexpected withdrawal than traditional demand and time deposits, particularly those provided by consumers. A significant decrease in balances of brokered deposits could have a material adverse effect on the Bank’s and the Company’s financial condition, results of operations or profitability.
Such events may also cause reductions in regional and local economic activity that may have an adverse effect on customers, which could limit the Company’s ability to raise and invest capital in these areas and communities, each of which could have a material adverse effect on the financial condition, results of operations or profitability.
Such events may also cause reductions in regional and local economic activity that may have an adverse effect on customers, which could limit the Company’s ability to raise and invest capital in 28 these areas and communities, each of which could have a material adverse effect on the financial condition, results of operations or profitability.
The Company competes with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders, government sponsored or subsidized lenders and other financial services providers.
The Company competes with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders, government sponsored or subsidized lenders, financial technology companies and other financial services providers.
The Company’s mortgage finance business has experienced, and will likely continue to experience, highly variable usage of the Company’s funding capacity resulting from seasonal demands for credit, surges in consumer demand driven by changes in interest rates and month-end “spikes” of residential mortgage closings.
The Company’s mortgage finance business has experienced, and will likely continue to experience, highly variable usage of the Company’s funding capacity resulting from seasonal demands for credit, surges in consumer demand driven by changes in 19 interest rates and month-end “spikes” of residential mortgage closings.
Failure to comply with relevant laws, regulations, recommendations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the business, financial condition and results of operations.
Failure to comply with relevant laws, regulations, recommendations 25 or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the business, financial condition and results of operations.
Uncertainty regarding how regulators will evaluate or require capital and liquidity planning going forward remains a risk. The Company continues to increase its capital and liquidity and expand regulatory compliance staffing and systems in order to address continuing regulatory requirements. There is no assurance that financial performance in future years will not be similarly burdened.
Uncertainty regarding how regulators will evaluate or require capital and liquidity planning going forward remains a risk. The Company continues to increase its capital and liquidity and expand regulatory compliance staffing and systems in order to address evolving regulatory requirements. There is no assurance that financial performance in future years will not be similarly burdened.
At December 31, 2022, the Company had issued and outstanding 300,000 shares of 5.75% fixed rate non-cumulative perpetual preferred stock, Series B, with a liquidation preference of $1,000 per share (the “Series B Preferred Stock”) and 12 million depositary shares, each representing 1/40th interest in a share of the Series B preferred stock.
At December 31, 2023, the Company had issued and outstanding 300,000 shares of 5.75% fixed rate non-cumulative perpetual preferred stock, Series B, with a liquidation preference of $1,000 per share (the “Series B Preferred Stock”) and 12 million depositary shares, each representing 1/40th interest in a share of the Series B preferred stock.
Models that the Company uses to forecast and plan for the impact of rising and falling interest rates may be incorrect or fail to consider the impact of competition and other conditions affecting loans and deposits. Periods of unusually low or volatile interest rates have a material effect on the Company’s earnings.
Models that the Company uses to forecast and plan for the impact of rising and falling interest rates may be incorrect or fail to consider the impact of competition and other conditions affecting loans and deposits. Periods of volatile interest rates may have a material effect on the Company’s earnings.
Customers and other parties the Company engages with may, on a regular basis, assert claims and take legal action against the Company and the Company regularly takes legal action to collect unpaid borrowers’ obligations, realize on collateral and assert rights in commercial and other contexts. These actions frequently result in counter claims against the Company.
Customers and other parties the Company engage with may, on a regular basis, assert claims and take legal action against the Company and the Company regularly takes legal action to collect unpaid borrowers’ obligations, realize on collateral and assert rights in commercial and other contexts. These actions frequently result in counter claims against the Company.
The Company is subject to a continuous program and routine of examinations by regulators concerning, among other things, lending practices, reserve methodology, compliance with changing regulations and interpretations, BSA/AMLA compliance, 23 Table of Contents interest rate management, liquidity, capital and operational risk, enterprise risk management, regulatory and financial accounting practices and policies and related matters, which can divert management’s time and attention from focusing on the business.
The Company is subject to a continuous program and routine of examinations by regulators concerning, among other things, lending practices, reserve methodology, compliance with changing regulations and interpretations, BSA/AMLA compliance, interest rate management, liquidity, capital and operational risk, enterprise risk management, regulatory and financial accounting practices and policies and related matters, which can divert management’s time and attention from focusing on the business.
As of December 31, 2022, the Company had $375.0 million in outstanding subordinated notes issued by the holding company, $175.0 million in outstanding subordinated notes issued by the Bank, and $113.4 million in outstanding junior subordinated notes that are held by statutory trusts which issued trust preferred securities to investors.
As of December 31, 2023, the Company had $375.0 million in outstanding subordinated notes issued by the holding company, $175.0 million in outstanding subordinated notes issued by the Bank, and $113.4 million in outstanding junior subordinated notes that are held by statutory trusts which issued trust preferred securities to investors.
If the Company’s credit portfolio management routines, policies and procedures are not able to adequately adapt to 15 Table of Contents changes in economic, competitive or other conditions that affect customers and the quality of the loan portfolio, the Company may incur increased losses that could adversely affect its financial results and lead to increased regulatory scrutiny, restrictions on its lending activity or financial penalties.
If the Company’s credit portfolio management routines, policies and procedures are not able to adequately adapt to changes in economic, competitive or other conditions that affect customers and the quality of the loan portfolio, the Company may incur increased losses that could adversely affect its financial results and lead to increased regulatory scrutiny, restrictions on its lending activity or financial penalties.
Additionally, the Company’s inability to grow its commercial business customer base in a highly competitive market could affect its future growth and profitability. The Company’s business is concentrated in Texas and energy industry exposure could adversely affect its performance .
Additionally, the Company’s inability to grow its commercial business customer base in a highly competitive market could affect its future growth and profitability. The Company’s business is concentrated in Texas and exposure to the Texas economy, including the energy industry, could adversely affect its performance .
Any failure or circumvention of controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the business, financial condition, results of operations or profitability. The business is susceptible to fraud.
Any failure or circumvention of controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the business, financial condition, results of operations or profitability. The business is susceptible to fraud and conduct risk.
The Company, as a bank holding company and financial holding company, and the Bank, as a Texas state-chartered bank, are subject to extensive federal and state regulation and supervision and the potential for regulatory enforcement actions, that impact the business on a daily basis.
The Company, as a bank holding company and financial holding company, and the Bank, as a Texas state-chartered bank, are subject to extensive federal and state regulation and supervision and the potential for regulatory enforcement actions, which impact the business on a daily basis.
Many of these competitors have substantially greater financial resources, lending limits and technological resources and larger branch networks than the Company does and are able to offer a broader range of products 20 Table of Contents and services than the Company can, including systems and services that could more effectively protect customers from cyber threats.
Many of these competitors have substantially greater financial resources, lending limits and technological resources and larger branch networks than the Company does and are able to offer a broader range of products and services than the Company can, including systems and services that could more effectively protect customers from cyber threats.
Credit Risks • The Company must effectively manage its credit risks. • A significant portion of the Company’s assets consists of commercial loans, which involve a high degree of credit risk. • The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans are secured by commercial and residential real estate. • Future profitability depends, to a significant extent, upon commercial business customers. • The Company’s business is concentrated in Texas and energy industry exposure could adversely affect its performance. • The Company must effectively manage its counterparty risk. • The Company must maintain an appropriate allowance for credit losses. • Changes in accounting standards could materially affect how the Company reports its financial results.
Credit Risks • The Company must effectively manage its credit risks. • A significant portion of the Company’s assets consists of commercial loans, which may involve a higher degree of credit risk. • The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans are secured by commercial and residential real estate. • Future profitability depends, to a significant extent, upon commercial business customers. • The Company’s business is concentrated in Texas and exposure to the Texas economy, including the energy industry, could adversely affect its performance. • The Company must effectively manage its counterparty risk. • The Company must maintain an appropriate allowance for credit losses. • Changes in accounting standards could materially affect how the Company reports its financial results.
The deposits are subject to regulatory classification as “brokered deposits” even though the Company considers these to be relationship deposits and they are not subject to the typical risks or market pricing associated with conventional brokered deposits.
The deposits are subject to regulatory classification as brokered deposits even though the Company considers these to be relationship deposits and they are not subject to the typical risks or market pricing associated with conventional brokered deposits.
A significant portion of the Company’s assets consists of commercial loans, which involve a high degree of credit risk. The Company generally invests a greater proportion of its assets in commercial loans to business customers than other banking institutions of its size, and its business plan calls for continued efforts to increase its assets invested in these loans.
A significant portion of the Company’s assets consists of commercial loans, which may involve a higher degree of credit risk. The Company generally invests a greater proportion of its assets in commercial loans to business customers than other banking institutions of its size, and its business plan calls for continued efforts to increase its assets invested in these loans.
One potential source of liquidity for the Company are “brokered deposits” arranged by brokers acting as intermediaries, typically larger money-center financial institutions. The Company receives these deposits from certain of its customers in connection with its delivery of other financial services to them or their customers.
One potential source of liquidity for the Company are brokered deposits arranged by brokers acting as intermediaries, typically larger money-center financial institutions. The Company receives these deposits from certain of its customers in connection with its delivery of other financial services to them or their customers.
The Company’s ability to obtain funding could be impaired by factors beyond its control, such as disruptions in financial markets, negative expectations regarding the financial services industry generally or in the markets or negative perceptions of the Company, including credit ratings.
The Company’s ability to obtain funding, including on attractive terms, could be impaired by factors beyond its control, such as disruptions in financial markets, negative expectations regarding the financial services industry generally or in the markets or negative perceptions of the Company, including credit ratings.
While the Company has developed extensive recovery plans, the Company cannot assure that those plans will be effective to prevent adverse effects resulting from system failures. 21 Table of Contents The use of the Company’s cloud technologies are also critical to the operation of systems, and its reliance on cloud technologies is growing.
While the Company has developed extensive recovery plans, the Company cannot assure that those plans will be effective to prevent adverse effects resulting from system failures. The use of the Company’s cloud technologies is also critical to the operation of systems, and its reliance on cloud technologies is growing.
Information security breaches and cyber-security-related incidents include, but are not limited to, attempts to access information, theft of information or credentials, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events.
Information security breaches and cyber-security-related incidents include, but are not limited to, attempts to access information, theft of information, credentials or other intellectual property, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, data breaches resulting in misuse, loss or destruction of data (including confidential customer and employee information), ransomware attacks, account takeovers, unavailability of service or other events.
Its mortgage finance customers have in recent periods provided significant low-cost deposit balances associated with the borrower escrow accounts created at the time certain mortgage loans are funded, which have benefited liquidity and net interest margin.
Its mortgage finance customers have also provided significant low-cost deposit balances associated with the borrower escrow accounts created at the time certain mortgage loans are funded, which have benefited liquidity and net interest margin.
Adverse changes in its operating performance or financial condition could make raising additional capital difficult or more expensive or limit access to customary sources of funding, including inter-bank borrowings, repurchase agreements and borrowings from a Federal Reserve Bank (“FRB”) or the FHLB.
Adverse changes in its operating performance or financial condition could make raising additional capital difficult or more expensive or limit access to customary sources of funding, including inter-bank borrowings, repurchase agreements and borrowings from the Federal Reserve Bank of Dallas (“Reserve Bank”) or the FHLB.
The stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in quarterly and annual results of operations; • changes in recommendations by securities analysts; • changes in composition and perceptions of the investors who own the Company’s stock and other securities; • changes in ratings from national rating agencies on publicly or privately-owned debt securities and deposits in the Bank; • operating and stock price performance of other companies that investors deem comparable to the Company; • news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions; 27 Table of Contents • actual or expected economic conditions that are perceived to affect the Company such as changes in commodity prices, real estate values or interest rates; • perceptions in the marketplace regarding the Company or its competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or competitors; • changes in government regulations and interpretation of those regulations, changes in practices requested or required by regulators and changes in regulatory enforcement focus; • impacts and disruptions resulting from the COVID-19 pandemic, variants or other pandemics; • environmental or ESG-related concerns or ratings; and • geopolitical conditions such as acts or threats of terrorism or military conflicts.
The stock price can fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in quarterly and annual results of operations; • changes in recommendations by securities analysts; • changes in composition and perceptions of the investors who own the Company’s stock and other securities; • changes in ratings from national rating agencies on publicly or privately-owned debt securities and deposits in the Bank; • operating and stock price performance of other companies that investors deem comparable to the Company; • news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions; • actual or expected economic conditions that are perceived to affect the Company such as changes in commodity prices, real estate values or interest rates; • perceptions in the marketplace regarding the Company or its competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or competitors; • changes in government regulations and interpretation of those regulations, changes in practices requested or required by regulators and changes in regulatory enforcement focus; • impacts and disruptions resulting from the COVID-19 pandemic, variants or other pandemics; • environmental or ESG-related concerns or ratings; and • geopolitical conditions such as acts or threats of terrorism or military conflicts. 29 General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause the Company’s stock price to decrease regardless of operating results.
As a result, the Company relies on the proceeds of capital transactions, borrowings under its revolving line of credit, payments of interest and principal on loans made to the Bank and dividends on preferred stock issued by the Bank to pay its operating expenses, to satisfy its obligations to debtholders and to pay dividends on its preferred stock.
As a result, the Company relies on the proceeds of capital transactions, borrowings under its revolving line of credit and payments of interest and principal on loans made to the Bank to pay its operating expenses, to satisfy its obligations to debt holders and to pay dividends on its preferred stock.
As a result, the Company’s financial condition and results of operations may be strongly affected by any prolonged period of economic recession or other adverse business, economic or regulatory conditions affecting Texas businesses and financial institutions. While the Texas economy is more diversified than it was in the 1980s, the energy sector continues to play an important role.
As a result, the Company’s financial condition and results of operations may be strongly affected by any prolonged period of economic recession or other adverse business, economic or regulatory conditions affecting Texas businesses and financial institutions. Furthermore, while the Texas economy is increasingly more diversified, the energy sector continues to play an important role in the overall Texas economy.
There is no assurance that the Company will not be materially adversely impacted by the direct and indirect effects of current and future conditions in the energy industry in Texas, nationally or abroad. The Company must effectively manage its counterparty risk . Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships.
There is no assurance that the Company will not be materially adversely impacted by the direct and indirect effects of current and future economic conditions in Texas. 17 The Company must effectively manage its counterparty risk . Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships.
Dollar in relation to the currencies of other advanced and emerging market countries; • the performance of both domestic and international equity and debt markets and valuation of securities traded on recognized domestic and international exchanges; • general economic consequences of international conditions, such as weakness in European and South American sovereign debt and currencies and the U.K.'s referendum to exit from the European Union, and the impact of those conditions on the U.S. and global economies; • legislative and regulatory changes impacting the banking industry; • the financial health of customers and economic conditions affecting them and the value of collateral, including effects from the COVID-19 pandemic and other pandemics and the continued price volatility of oil and gas and other commodities; • the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting the Company, its customers and third parties; • structural changes in the markets for origination, sale and servicing of residential mortgages; • changes in governmental economic and regulatory policies, including the extent and timing of intervention in credit markets by the Federal Reserve or withdrawal from that intervention, generally including changes attributable to presidential and congressional elections; • acts or threats of war; • changes in the availability of liquidity at a systemic level; and • material inflation or deflation.
Dollar in relation to the currencies of other advanced and emerging market countries; • the performance of both domestic and international equity and debt markets and valuation of securities traded on recognized domestic and international exchanges; • general economic consequences of international conditions and the impact of those conditions on the U.S. and global economies; • legislative and regulatory changes impacting the banking industry; • impact of the 2024 presidential and congressional elections and other political conditions; • the financial health of customers and economic conditions affecting them and the value of collateral, including effects from the COVID-19 pandemic and other pandemics and the continued price volatility of oil and gas and other commodities; • the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting the Company, its customers and third parties; • structural changes in the markets for origination, sale and servicing of residential mortgages; • changes in governmental economic and regulatory policies, including the extent and timing of intervention in credit markets by the Federal Reserve or withdrawal from that intervention, generally including changes attributable to presidential and congressional elections; • acts or threats of war, including the ongoing war in Ukraine and the Israeli Palestinian conflict; • changes in the availability of liquidity at a systemic level; and • material inflation or deflation.
There is no assurance that insurance will be adequate to protect the Company against material losses in excess of coverage limits or that insurers will perform their obligations under policies without attempting to limit or exclude coverage.
The Company purchases insurance coverage to mitigate a wide range of risks. There is no assurance that insurance will be adequate to protect the Company against material losses in excess of coverage limits or that insurers will perform their obligations under policies without attempting to limit or exclude coverage.
If claims and legal actions are not resolved in a favorable manner, the Company may suffer significant financial liability or adverse effects on its reputation, which could have a material adverse effect on the business, financial condition, results of operations or profitability.
If claims and legal actions are not resolved in a favorable manner, the Company may suffer significant financial liability or adverse effects on its reputation, which could have a material adverse effect on the business, financial condition, results of operations or profitability. See Legal Proceedings below for additional disclosures regarding legal proceedings.
If the Company is unable to access funds from capital transactions, borrowing under its revolving line of credit or dividends or interest on loan payments from the Bank, the Company may be unable to satisfy its obligations to creditors or debtholders or pay dividends on its preferred stock.
If the Company is unable to access funds from capital transactions, borrowing under its revolving line of credit or dividends or interest on loan payments from the Bank, the Company may be unable to satisfy its obligations to creditors or debtholders or pay dividends on its preferred stock. Market Risks The Company must effectively manage its interest rate risk .
Recent hurricanes caused extensive flooding and destruction along the 26 Table of Contents coastal areas of Texas and in other areas in the U.S., including communities where the Company conducts business.
In recent years, hurricanes have caused extensive flooding and destruction along the coastal areas of Texas and in other areas in the U.S., including communities where the Company conducts business.
If management’s assessment of inherent risk and losses in the loan portfolio is inaccurate, or geopolitical, economic and market conditions or borrowers' financial performance experience material unanticipated changes, including as a result of the COVID-19 pandemic and other pandemics, the allowance may become inadequate, requiring larger provisions for loan losses that can materially decrease the Company’s earnings or profitability.
If management’s assessment of inherent risk and losses in the loan portfolio is inaccurate, or geopolitical, economic and market conditions or borrowers' financial performance experience material unanticipated changes, the allowance may become inadequate, requiring larger provisions for loan losses that can materially decrease the Company’s earnings or profitability.
The Company relies on a large number of vendors to provide products and services necessary to maintain the day-to-day operations, particularly in the areas of operations, treasury management systems, information technology and security.
The Company’s operations rely extensively on a broad range of external vendors. The Company relies on a large number of vendors to provide products and services necessary to maintain the day-to-day operations, particularly in the areas of operations, treasury management systems, information technology and security.
Climate change could also have a negative effect on the financial status and creditworthiness of clients, which may decrease revenues and business activities from those clients, increase the credit risk associated with loans and other credit exposures to such clients, and decrease the value of warrants and direct equity investments in such clients, if any.
Climate change could also have a negative effect on the financial status and creditworthiness of clients, which may decrease revenues and business activities from those clients, increase the credit risk associated with loans and other credit exposures to such clients.
Although the common stock is traded on Nasdaq, the trading volume in the Company’s common stock is less than that of other larger financial services companies. Given the lower trading volume of the common stock, significant sales of the common stock, or the expectation of these sales, could cause the stock price to fall.
Additionally, the trading volume in the Company’s common stock is less than that of other larger financial services companies. Given the lower trading volume of the common stock, significant sales of the common stock, or the expectation of these sales, could increase the volatility of the Company’s stock price and cause the stock price to fall.
The risk of non-payment of loans is inherent in commercial banking, which may result from many factors, including: • Adverse changes in local, U.S. and global economic and industry conditions; • Business and market disruptions as a result of the COVID-19 pandemic, future pandemics and governmental restrictions imposed in response to the pandemic; • Declines in the value of collateral, including asset values that are directly or indirectly related to external factors such as commodity prices, real estate values, interest rates or geopolitical risks; • Concentrations of credit associated with specific loan categories, industries or collateral types; and • Exposures to individual borrowers and to groups of entities that may be affiliated on some basis that individually and/or collectively represent a larger percentage of the Company’s total loans or capital than might be considered common at other banks of similar size.
The risk of non-payment of loans is inherent in commercial banking, which may result from many factors, including: • Adverse changes in local, U.S. and global economic and industry conditions, and other geopolitical events; • Declines in the value of collateral, including asset values that are directly or indirectly related to external factors such as commodity prices, real estate values, interest rates or geopolitical risks; • Concentrations of credit associated with specific loan categories, industries or collateral types; and • Exposures to individual borrowers and to groups of entities that may be affiliated on some basis that individually and/or collectively represent a larger percentage of the Company’s total loans or capital than might be considered common at other banks of similar size. 16 The Company relies heavily on information provided by third parties when originating and monitoring loans.
The company’s adoption of the CECL model has increased the complexity, and associated risk, of the analysis and processes relying on management judgment, which could negatively impact the financial condition, results of operations or profitability of the Company. The risk management strategies and processes may not be effective; the Company’s controls and procedures may fail or be circumvented .
The Company’s adoption of the CECL model has increased the complexity, and associated risk, of the analysis and processes relying on management judgment, which could negatively impact the financial condition, results of operations or profitability of the Company.
Management’s experience in the banking industry indicates that some portion of the Company’s loans will become delinquent, and some may only be partially repaid or may never be repaid at all.
The Company must maintain an appropriate allowance for credit losses . Management’s experience in the banking industry indicates that some portion of the Company’s loans will become delinquent, and some may only be partially repaid or may never be repaid at all.
The risk, frequency and intensity of such attacks is escalating, including as a result of remote working arrangements implemented in response to the COVID-19 pandemic or other public health or societal crises, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication of these threats.
The risk, frequency and intensity of such attacks is escalating, including as a result of remote working arrangements, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication of these threats.
At the same time, managing this risk by declining to respond fully to the needs of customers could severely impact the business. The Company has historically responded to these variable funding demands by, among other things, increasing the extent of participations sold in its mortgage loan interests, as needed, and by maintaining a substantial borrowing relationship with the FHLB.
The Company has historically responded to these variable funding demands by, among other things, increasing the extent of participations sold in its mortgage loan interests, as needed, and by maintaining a substantial borrowing relationship with the FHLB.
The Company’s and its customers’ exposure to fraud may increase the Company’s financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in the allowance for credit losses. Legal, Regulatory and Compliance Risks The Company is subject to extensive government regulation and supervision and interpretations thereof .
The Company’s and its customers’ exposure to fraud may increase the Company’s financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in the allowance for credit losses.
The Company relies heavily on information provided by third parties when originating and monitoring loans. If this information is intentionally or negligently misrepresented and the Company does not detect such misrepresentations, the credit risk associated with the transaction may be increased.
If this information is intentionally or negligently misrepresented and the Company does not detect such misrepresentations, the credit risk associated with the transaction may be increased.
The cost of employee compensation is a significant portion of operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation.
The cost of employee compensation is a significant portion of operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation. The unanticipated loss of the services of key personnel could have an adverse effect on the business.
In addition, the Company’s credit risk may be increased when the collateral securing its loans cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of its credit or derivative exposure.
In addition, the Company’s credit risk may be increased when the collateral securing its loans cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of its credit or derivative exposure. Any such losses could have a material adverse effect on the business, financial condition, results of operations or profitability.
Increases in cost of capital, including dilution and increased interest or dividend requirements, could have a direct adverse impact on the Company’s operating performance and its ability to achieve its growth objectives. Trust preferred securities are no longer viable as a source of new long-term debt capital as a result of regulatory changes.
Increases in cost of capital, including dilution and increased interest or dividend requirements, could have a direct adverse impact on the Company’s operating performance and its ability to achieve its growth objectives.
New activities necessarily entail additional risks and may present additional risks to the effectiveness of the Company’s system of internal controls and risk management strategies. All service offerings, including current offerings and new activities, may become more risky due to changes in economic, competitive and market conditions beyond the Company’s control.
All service offerings, including current offerings and new activities, may become more risky due to changes in economic, competitive and market conditions beyond the Company’s control.
Risks Relating to Securities • The Company’s stock price can be volatile. • The trading volume in the Company’s common stock is less than that of other larger financial services companies. • The Company’s preferred stock is thinly traded. • An investment in the Company’s securities is not an insured deposit. • The holders of the Company’s indebtedness and preferred stock have rights that are senior to those of its common stockholders. • The Company does not currently pay dividends on its common stock. • Federal legislation and regulations impose restrictions on the ownership of the Company’s common stock. • Anti-takeover provisions of the Company’s certificate of incorporation, bylaws and Delaware law may make it more difficult for holders to receive a change in control premium. • The Bank is subject to regulatory and contractual limitations on the payment of its subordinated notes.
Risks Relating to Company Securities • The Company’s stock price can be volatile. • The holders of the Company’s indebtedness and preferred stock have rights that are senior to those of its common stockholders. • Federal legislation and regulations impose restrictions on the ownership of the Company’s common stock. • Anti-takeover provisions of the Company’s certificate of incorporation, bylaws and Delaware law may make it more difficult for holders to receive a change in control premium.
When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which can be expected to reduce the Company’s investment banking revenues and prospects for new business.
When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which can be expected to reduce the Company’s investment banking revenues and prospects for new business. The soundness of other financial institutions could adversely affect the business. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.
An inability to raise funds through deposits, borrowings, the sale of securities and loans and other sources, or an inability to access the capital markets, could have a substantial negative effect on the Company’s liquidity.
An inability to raise funds through deposits, borrowings, the sale of securities and loans and other sources, or an inability to access the capital markets, could have a substantial negative effect on the Company’s liquidity. Furthermore, such funding sources even if available could become more expensive, which could negatively impact the Company’s profitability and net interest margin.
The unanticipated loss of the services of key personnel could have an adverse effect on the business. 22 Table of Contents The Company’s accounting estimates and risk management processes rely on management judgment, which may prove inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models.
The Company’s accounting estimates and risk management processes rely on management judgment, which may prove inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models.
These spikes could also result in the Company and the 18 Table of Contents Bank having capital ratios that are below internally targeted levels or even levels that could cause the Bank to not be well capitalized and could affect liquidity levels.
These spikes could also result in the Company and the Bank having capital ratios that are below internally targeted levels or even levels that could cause the Bank to not be well capitalized and could affect liquidity levels. At the same time, managing this risk by declining to respond fully to the needs of customers could severely impact the business.
Other Risks Affecting the Business • The business faces unpredictable economic and business conditions. • The COVID-19 pandemic continues to affect the Company and its customers, employees and third-party service providers. • The soundness of other financial institutions could adversely affect the business. • The impact of the Tax Cuts and Jobs Act (the “Tax Act”) on the Company and its customers contributes to uncertainty and risk related to customers’ future demand for credit and its future results. • The Company is subject to environmental liability risk associated with lending activities. • Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external and geopolitical events could significantly impact the business. • Climate change and related legislative and regulatory initiatives including interpretations thereof have the potential to disrupt the business and result in operational changes and expenditures that could significantly impact the business and the operations and creditworthiness of the Company’s clients. • Negative public opinion could damage the Company’s reputation and adversely affect earnings.
Other Risks Affecting the Business • The business faces unpredictable economic and business conditions. • The soundness of other financial institutions could adversely affect the business. • Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system. • The Company is subject to environmental liability risk associated with lending activities. • Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external and geopolitical events could significantly impact the business. • Climate change and related legislative and regulatory initiatives including interpretations thereof have the potential to disrupt the business and result in operational changes and expenditures that could significantly impact the business and the operations and creditworthiness of the Company’s clients. • Negative public opinion could damage the Company’s reputation and adversely affect its earnings. • Environmental, social and governance (“ESG”) risks could adversely affect the Company’s reputation and shareholder, employee, client and third-party relationships and may negatively affect the Company’s stock price.
The soundness of other financial institutions could adversely affect the business. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties, and the Company routinely executes transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks and other institutional clients.
The Company has exposure to many different industries and counterparties, and the Company routinely executes transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks and other institutional clients. Many of these transactions expose the Company to credit risk in the event of default of a counterparty or client.
In response to competitive pressures, the Company sometimes finds it necessary to pay interest on some of these accounts, as regulations allow or require and this trend may continue, which can affect its ability to reduce its costs of funds.
In response to competitive pressures, the Company sometimes finds it necessary to pay interest on some of these accounts, as regulations allow or require and this trend may continue, which can affect its costs of funds. Individual escrow account balances also experience significant variability monthly as principal and interest payments, including ad valorem taxes and insurance premiums, are paid periodically.
The Company’s financial condition can be affected by other factors that are beyond its control, including: • geopolitical, national, regional and local economic conditions; • the value of the U.S.
The credit quality of the loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which the Company and its customers conduct their respective businesses. The Company’s financial condition can be affected by other factors that are beyond its control, including: • geopolitical, national, regional and local economic conditions; • the value of the U.S.
In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support 19 Table of Contents customer transactions. The Company has typically minimized the market and liquidity risks of customer-related positions with similar offsetting positions with broker-dealers.
In addition to interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support customer transactions.
In the event of the 28 Table of Contents Company’s bankruptcy, dissolution or liquidation, the holders of preferred stock must be satisfied before any distributions can be made to common stockholders. The Company does not currently pay dividends on its common stock .
In the event of the Company’s bankruptcy, dissolution or liquidation, the holders of preferred stock must be satisfied before any distributions can be made to common stockholders. Federal legislation and regulations impose restriction on the ownership of the Company’s common stock .
The company continues to invest in the development of risk management techniques, strategies, assessment methods and related controls and monitoring approaches on an ongoing basis. However, these risk management strategies and processes may not be fully effective in mitigating the risk exposure in all economic market environments or against all types of risk.
The risk management strategies and processes may not be effective and the Company’s controls and procedures, including disclosure controls and procedures and internal control over financial reporting, may fail or be circumvented . The Company continues to invest in the development of risk management techniques, strategies, assessment methods and related controls and monitoring approaches on an ongoing basis.
Many of these transactions expose us to credit risk in the event of default of a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by it or the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due.
In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due. There can be no assurance that any such losses would not materially and adversely affect results of operations or profitability.
A substantial majority of the Company’s liabilities consist of demand, savings, checking and money market deposits, 17 Table of Contents which are payable on demand or upon relatively short notice.
The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and the government sponsored entities (“GSEs”) to support the liquidity of its residential mortgage assets. A substantial majority of the Company’s liabilities consist of demand, savings, checking and money market deposits, which are payable on demand or upon relatively short notice.
The Company’s business model makes it more vulnerable to changes in underlying business credit quality than other entities with which the Company competes.
As a result, the Company’s business model may make it more vulnerable to changes in the underlying business credit quality than other entities with which the Company competes. The failure to maintain above-peer credit quality metrics could have a material adverse impact on growth and profitability.
In recent periods, over half of total deposits have been attributable to customers whose balances exceed the $250,000 FDIC insurance limit. Many of these customers actively monitor the Company’s financial condition and results of operations and could withdraw their deposits quickly upon the occurrence of a material adverse development affecting the Company or its businesses.
These customers are more likely to actively monitor the Company’s financial condition and results of operations and could withdraw their deposits quickly upon the occurrence of a material adverse development affecting the Company or its businesses or based on market rumors regarding the Company or other regional banks.
The Company uses VaR as a primary risk measure to aggregate, monitor and limit risks at the portfolio level across all trading activities. VaR is calculated based on one year historical moves in key market risk factors relevant to the portfolio and it estimates potential loss on current portfolio at 95th percentile confidence interval.
VaR is calculated based on one year historical moves in key market risk factors relevant to the portfolio and it estimates potential loss on current portfolio at 95th percentile confidence interval. Rising interest rates have decreased the value of the Company’s securities portfolio, and the Company may realize losses if it were to sell such securities.
The Company could be required to pursue legal actions against insurers to obtain payment of amounts owed, and there is no assurance that such actions, if pursued, would be successful. Other Risks Affecting The Business The business faces unpredictable economic and business conditions .
The Company could be required to pursue legal actions against insurers to obtain payment of amounts owed, and there is no assurance that such actions, if pursued, would be successful. Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.
Timetables for the development and launch of new activities may not be achieved and price and profitability targets may not prove feasible, or their realization may be delayed. External factors, such as compliance with regulations, receipt of necessary licenses or permits, competitive alternatives and shifting market preferences, may also adversely impact the successful execution of new activities.
External factors, such as compliance with regulations, receipt of necessary licenses or permits, competitive alternatives and shifting market preferences, may also adversely impact the successful execution of new activities. New activities necessarily entail additional risks and may present additional risks to the effectiveness of the Company’s system of internal controls and risk management strategies.
The Company sources a significant volume of its non-interest bearing deposits from financial services companies, mortgage finance customers and other commercial sources, resulting in a larger percentage of large deposits and a smaller number of sources of deposits than would be typical of other banks in competing markets, creating concentrations of deposits that carry a greater risk of unexpected material withdrawals.
The Company sources a significant volume of its non-interest bearing deposits from its commercial clients, creating concentrations of deposits that may carry a greater risk of unexpected material withdrawals.
The occurrence of any of the foregoing could have a material adverse effect on the business, financial condition, results of operations or profitability. The Company’s operations rely extensively on a broad range of external vendors.
The occurrence of any of the foregoing could have a material adverse effect on the business, financial condition, results of operations or profitability. A successful cyber attack affecting the Company could cause significant harm to the Company and its clients and customers.
Any system of controls, however well designed and operated, is based in part on certain assumptions and management judgment and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
If the Company is unable to maintain effective internal controls over financial reporting and disclosure controls, the Company could become subject to investigations by the NASDAQ, the SEC or other regulatory authorities or shareholder litigation, which could require additional management attention and which could adversely affect the Company’s business, financial condition and results of operations. 24 Any system of controls, however well designed and operated, is based in part on certain assumptions and management judgment and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
These regulations affect lending practices, permissible products and services and their terms and conditions, customer relationships, capital structure, investment practices, accounting, financial reporting, operations and ability to grow, among other things. These regulations also impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of customers.
TCBI Securities, Inc., the Bank’s wholly owned non-bank subsidiary, is also subject to the jurisdiction of several regulatory bodies, including the SEC, FINRA and state securities regulators. These regulations affect lending practices, permissible products and services and their terms and conditions, customer relationships, capital structure, investment practices, accounting, financial reporting, operations and ability to grow, among other things.
Any failures in risk management strategies and processes to accurately identify, quantify and monitor risk exposure could limit the ability to effectively manage risks. Management regularly reviews and updates internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures.
Management regularly reviews and updates internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures.
The Company’s principal source of funding consists of customer deposits, supplemented by its short-term and long-term borrowings, including federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings. The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and the government sponsored entities (“GSEs”) to support the liquidity of its residential mortgage assets.
The Company’s principal source of funding consists of customer deposits, supplemented by its short-term and long-term borrowings, including federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings. Recently proposed changes to the FHLB system could adversely impact the 18 Company’s access to FHLB borrowings or increase the cost of such borrowings.
Substantial costs, risks and uncertainties are associated with these efforts, particularly in instances where the markets are not fully developed. Developing and marketing new activities requires that the Company invests significant time and resources before new sources of revenues, funding and profits can be realized.
Developing and marketing new activities requires that the Company invests significant time and resources before new sources of revenues, funding and profits can be realized. Timetables for the development and launch of new activities may not be achieved and price and profitability targets may not prove feasible, or their realization may be delayed.
The Company’s business strategy requires that it develop and grow new lines of business and offer new products and services within existing lines of business in order to ensure future client acquisition and retention of existing clients and realize strategic priorities for both loans and deposits.
The Company’s business strategy involves developing and growing new lines of business and offering new products and services within existing lines of business to grow its client base, retain existing clients and realize strategic priorities for both loans and deposits. Substantial costs, risks and uncertainties are associated with these efforts, particularly in instances where the markets are not fully developed.
The business is directly impacted by general economic and business conditions in Texas, the United States and internationally. The credit quality of the loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which the Company and its customers conduct their respective businesses.
Other Risks Affecting the Business The business faces unpredictable economic and business conditions . The business is directly impacted by general economic, business and political conditions in Texas, the United States and internationally.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company also leases other facilities in its primary market regions of Dallas, Fort Worth, Houston, Austin and San Antonio, as well as in Louisiana and New York, some of which operate as full-service banking centers. The Company also leases an operations center in Richardson, Texas that houses its loan and deposit operations and customer call center.
Biggest changeThe Company also leases other facilities in its primary Texas market regions of Dallas, Fort Worth, Houston, Austin and San Antonio, as well as in New York, some of which operate as full-service banking centers. The Company also leases an operations center in Richardson, Texas that houses its loan and deposit operations and customer call center.
ITEM 2. PROPERTIES The Company’s corporate headquarters is located in uptown Dallas, Texas. These facilities, which the Company leases, house its executive and primary administrative offices, as well as the principal banking headquarters of Texas Capital Bank.
ITEM 2. PROPERTIES The Company’s corporate headquarters is located in Dallas, Texas. These facilities, which the Company leases, house its executive and primary administrative offices, as well as the principal banking headquarters of Texas Capital Bank.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The Company is subject to various claims and legal actions that may arise in the 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.
Biggest changeITEM 3. LEGAL PROCEEDINGS The Company is subject to various claims and legal actions that may arise in the course of conducting its business. Management does not expect the final disposition or adjudication of any of these matters to have a material adverse impact on the Company’s financial statements or results of operations. ITEM 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNo time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
Biggest changeThe share repurchase program is set to expire on January 31, 2025, and the program may be suspended or discontinued at any time. Remaining repurchase authorization under the January 18, 2023 share repurchase program was terminated upon authorization of this new program. ITEM 6. [RESERVED] 34
Stock Performance Graph The following table and graph sets forth the cumulative total stockholder return for the Company’s common stock for the five-year period ending on December 31, 2022, compared to an overall stock market index (Russell 2000 Index) and two of the Company’s peer group indexes (Nasdaq Bank Index and KBW Bank Index).
Stock Performance Graph The following table and graph sets forth the cumulative total stockholder return for the Company’s common stock for the five-year period ending on December 31, 2023, compared to an overall stock market index (Russell 2000 Index) and two of the Company’s peer group indexes (Nasdaq Bank Index and KBW Bank Index).
The Russell 2000 Index (Bloomberg: RTY), Nasdaq Bank Index (Bloomberg: CBNK) and KBW Bank Index (Bloomberg: BKX) are based on total returns assuming reinvestment of dividends. The graph assumes an investment of $100 on December 31, 2017.
The Russell 2000 Index (Bloomberg: RTY), Nasdaq Bank Index (Bloomberg: CBNK) and KBW Bank Index (Bloomberg: BKX) are based on total returns assuming reinvestment of dividends. The graph assumes an investment of $100 on December 31, 2018.
The extent to which we repurchase 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 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.
On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $150.0 million in shares of outstanding common stock. 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.
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. 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.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on The Nasdaq Global Select Market under the symbol “TCBI”. On February 8, 2023, there were approximately 150 holders of record of the Company’s common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on The Nasdaq Global Select Market under the symbol “TCBI”. On February 9, 2024, there were approximately 137 holders of record of the Company’s common stock.
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The performance graph represents past performance and should not be considered to be an indication of future performance. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Texas Capital Bancshares, Inc. $ 100.00 $ 57.47 $ 63.86 $ 66.93 $ 67.77 $ 67.84 Russell 2000 Index 100.00 88.09 108.77 128.34 145.86 114.91 Nasdaq Bank Index 100.00 82.73 100.13 89.85 124.91 102.22 KBW Bank Index 100.00 80.67 107.28 93.40 124.43 95.49 31 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On April 19, 2022, the Company’s board of directors authorized the Company to repurchase up to $150.0 million of its outstanding shares of common stock.
Added
The performance graph represents past performance and should not be considered to be an indication of future performance. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Texas Capital Bancshares, Inc. $ 100.00 $ 111.12 $ 116.46 $ 117.93 $ 118.05 $ 126.50 Russell 2000 Index 100.00 123.48 145.69 165.58 130.45 150.37 Nasdaq Bank Index 100.00 121.03 108.61 150.99 123.56 116.35 KBW Bank Index 100.00 132.99 115.79 154.25 118.38 113.82 33 Purchases of Equity Securities by the Issuer and Affiliated Purchasers The Company repurchased shares of its common stock in the open market during 2023 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 Plans or Programs January 2023 564,206 $ 61.50 564,206 $ 150,000,000 February 2023 — — — 150,000,000 March 2023 447,703 55.80 447,703 125,019,420 April 2023 — — — 125,019,420 May 2023 — — — 125,019,420 June 2023 — — — 125,019,420 July 2023 — — — 125,019,420 August 2023 — — — 125,019,420 September 2023 — — — 125,019,420 October 2023 301,135 54.58 301,135 108,582,560 November 2023 484,746 55.04 484,746 81,903,573 December 2023 23,742 56.22 23,742 80,568,851 Total 1,821,532 $ 57.17 1,821,532 $ 80,568,851 On April 19, 2022, the Company’s board of directors authorized a share repurchase program under which the Company could repurchase up to $150.0 million in shares of its outstanding common stock.
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The table below provides information of share repurchases for the year ended December 31, 2022.
Added
In January 2023, the Company repurchased 564,206 shares of common stock at a weighted average price of $61.50, completing the full $150.0 million of repurchases authorized under this plan. A new share repurchase program was approved on January 18, 2023 under which the Company could repurchase up to $150.0 million in shares of outstanding common stock.
Removed
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 Plans or Programs(1) May 2022 902,418 $ 53.22 902,418 $ 101,975,648 June 2022 39,461 50.66 39,461 99,976,436 July 2022 — — — 99,976,436 August 2022 — — — 99,976,436 September 2022 — — — 99,976,436 October 2022 — — — 99,976,436 November 2022 — — — 99,976,436 December 2022 1,141,239 57.20 1,141,239 34,697,754 Total 2,083,118 $ 55.35 2,083,118 $ 34,697,754 In January 2023, the Company repurchased 564,206 shares of common stock at a weighted average price of $61.50, completing the full $150.0 million of repurchases authorized by the Company’s board of directors on April 19, 2022.
Added
From March 2023 through December 2023, the Company repurchased 1,257,326 shares of its common stock for an aggregate purchase price of $69.4 million, at a weighted average price of $55.22 per share under this plan. The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred on net stock repurchases.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDetails of the changes in the various components of net income are discussed in detail below. 35 Table of Contents Taxable Equivalent Net Interest Income Analysis(1) Year ended December 31, 2022 2021 2020 (dollars in thousands) Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Assets Investment securities(2) $ 3,525,986 $ 64,021 1.69 % $ 3,588,565 $ 44,636 1.24 % $ 885,331 $ 19,432 2.19 % Interest bearing cash and cash equivalents 5,967,329 97,271 1.63 % 10,549,153 13,233 0.13 % 9,767,270 28,262 0.29 % Loans held for sale 528,973 23,555 4.45 % 90,066 2,481 2.75 % 1,114,311 36,369 3.26 % Loans held for investment, mortgage finance 5,285,612 189,843 3.59 % 7,881,791 239,205 3.03 % 8,589,762 285,212 3.32 % Loans held for investment(3) 16,063,437 770,795 4.80 % 15,328,390 579,213 3.78 % 16,377,733 674,226 4.12 % Less: Allowance for credit losses on loans 221,639 — — 234,973 — — 248,563 — — Loans held for investment, net 21,127,410 960,638 4.55 % 22,975,208 818,418 3.56 % 24,718,932 959,438 3.88 % Total earning assets 31,149,698 1,145,485 3.65 % 37,202,992 878,768 2.36 % 36,485,844 1,043,501 2.86 % Cash and other assets 900,121 937,264 1,030,357 Total assets $ 32,049,819 $ 38,140,256 $ 37,516,201 Liabilities and Stockholders’ Equity Transaction deposits $ 1,659,476 $ 18,099 1.09 % $ 3,447,849 $ 20,657 0.60 % $ 4,090,591 $ 32,836 0.80 % Savings deposits 9,983,571 151,400 1.52 % 11,180,645 36,459 0.33 % 12,346,904 74,950 0.61 % Time deposits 1,313,483 21,164 1.61 % 1,716,642 8,391 0.49 % 2,867,579 38,331 1.34 % Total interest bearing deposits 12,956,530 190,663 1.47 % 16,345,136 65,507 0.40 % 19,305,074 146,117 0.76 % Short-term borrowings 1,829,751 29,077 1.59 % 2,399,280 4,613 0.19 % 3,115,416 22,006 0.71 % Long-term debt 927,847 48,739 5.25 % 802,112 37,628 4.69 % 395,705 19,963 5.05 % Total interest bearing liabilities 15,714,128 268,479 1.71 % 19,546,528 107,748 0.55 % 22,816,195 188,086 0.82 % Non-interest bearing deposits 12,951,134 15,186,455 11,567,549 Other liabilities 301,251 274,357 295,710 Stockholders’ equity 3,083,306 3,132,916 2,836,747 Total liabilities and stockholders’ equity $ 32,049,819 $ 38,140,256 $ 37,516,201 Net interest income $ 877,006 $ 771,020 $ 855,415 Net interest margin 2.79 % 2.07 % 2.34 % Net interest spread 1.94 % 1.81 % 2.04 % (1) Taxable equivalent rates used where applicable.
Biggest changeDetails of the changes in the various components of net income are discussed below. 35 Taxable Equivalent Net Interest Income Analysis - Year to Date(1) Year ended December 31, 2023 2022 2021 (dollars in thousands) Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Average Balance Revenue / Expense Yield / Rate Assets Investment securities(2) $ 4,162,931 $ 108,294 2.37 % $ 3,525,986 $ 64,021 1.69 % $ 3,588,565 $ 44,636 1.24 % Interest bearing cash and cash equivalents 4,353,911 220,976 5.08 % 5,967,329 97,271 1.63 % 10,549,153 13,233 0.13 % Loans held for sale 33,166 2,856 8.61 % 528,973 23,555 4.45 % 90,066 2,481 2.75 % Loans held for investment, mortgage finance 4,080,263 107,111 2.63 % 5,285,612 189,843 3.59 % 7,881,791 239,205 3.03 % Loans held for investment(3) 16,076,646 1,191,098 7.41 % 16,063,437 770,802 4.80 % 15,328,390 579,157 3.78 % Less: Allowance for credit losses on loans 249,180 — — 221,639 — — 234,973 — — Loans held for investment, net 19,907,729 1,298,209 6.52 % 21,127,410 960,645 4.55 % 22,975,208 818,362 3.56 % Total earning assets 28,457,737 1,630,335 5.65 % 31,149,698 1,145,492 3.65 % 37,202,992 878,712 2.36 % Cash and other assets 1,079,607 900,121 937,264 Total assets $ 29,537,344 $ 32,049,819 $ 38,140,256 Liabilities and Stockholders’ Equity Transaction deposits $ 1,466,583 $ 42,561 2.90 % $ 1,659,476 $ 18,099 1.09 % $ 3,447,849 $ 20,657 0.60 % Savings deposits 10,921,264 480,106 4.40 % 9,983,571 151,400 1.52 % 11,180,645 36,459 0.33 % Time deposits 1,573,294 65,108 4.14 % 1,313,483 21,164 1.61 % 1,716,642 8,391 0.49 % Total interest bearing deposits 13,961,141 587,775 4.21 % 12,956,530 190,663 1.47 % 16,345,136 65,507 0.40 % Short-term borrowings 1,323,039 70,642 5.34 % 1,829,751 29,077 1.59 % 2,399,280 4,613 0.19 % Long-term debt 882,904 57,383 6.50 % 927,847 48,739 5.25 % 802,112 37,628 4.69 % Total interest bearing liabilities 16,167,084 715,800 4.43 % 15,714,128 268,479 1.71 % 19,546,528 107,748 0.55 % Non-interest bearing deposits 9,814,517 12,951,134 15,186,455 Other liabilities 460,779 301,251 274,357 Stockholders’ equity 3,094,964 3,083,306 3,132,916 Total liabilities and stockholders’ equity $ 29,537,344 $ 32,049,819 $ 38,140,256 Net interest income $ 914,535 $ 877,013 $ 770,964 Net interest margin 3.17 % 2.79 % 2.07 % (1) Taxable equivalent rates used where applicable.
Advances of interest reserves are discontinued if collateral values do not support the advances or if the borrower does not comply with other terms and conditions in the loan agreements. If at any time management believes that the collateral position is jeopardized, the Company retains the right to stop the use of interest reserves.
Advances of interest reserves are discontinued if collateral values do not support the advances or if the borrower does not comply with other terms and conditions in the loan agreements. If at any time management believes that the collateral position is jeopardized, the Company 41 retains the right to stop the use of interest reserves.
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, capital position and amount of retained earnings, regulatory requirements and other considerations.
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 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 47 Table of Contents 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.
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. 47
Further review may be conducted by credit officers, including the Bank’s managed asset committee as conditions warrant. These additional steps of review are undertaken to confirm that the underlying appraisal and the third-party analysis can be relied upon. If differences arise, management addresses those with the reviewer and determine an appropriate resolution.
Further review may be conducted by credit officers, including the Bank’s managed asset committee as conditions warrant. These additional steps of review are undertaken to confirm that the underlying appraisal and the third-party analysis can be relied upon. If differences arise, management addresses those with the reviewer and determines an appropriate resolution.
As of December 31, 2022, 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.
As of December 31, 2023, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state.
The interest reserve allows the borrower to draw loan funds to pay interest charges on the outstanding balance of the loan when financial conditions precedent are met. When drawn, the interest is capitalized and added to the loan balance, subject to conditions specified during the initial underwriting and at the time the credit is approved.
The interest reserve allows the borrower to draw loan funds to pay interest charges on the outstanding balance of the loan when financial condition precedents are met. When drawn, the interest is capitalized and added to the loan balance, subject to conditions specified during the initial underwriting and at the time the credit is approved.
Loan interest income includes loan fees totaling $37.2 million, $47.8 million and $43.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. 36 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.
Loan interest income includes loan fees totaling $47.2 million, $37.2 million and $47.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. 36 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.
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 FHLB borrowings, which are generally used to fund mortgage finance assets and long-term debt.
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.
Interest reserve provisions are common in construction loans. The use of interest reserves is carefully controlled by underwriting standards, which consider the feasibility of the project, the creditworthiness of the borrower and guarantors and the loan-to-value coverage of the collateral.
The use of interest reserves is common in construction loans and is carefully controlled by underwriting standards, which consider the feasibility of the project, the creditworthiness of the borrower and guarantors and the loan-to-value coverage of the collateral.
Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of December 31, 2022, the quantitative estimate of the allowance for credit loss would increase by approximately $118.0 million under sole consideration of the most severe downside scenario.
Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of December 31, 2023, the quantitative estimate of the allowance for credit loss would increase by approximately $220.4 million under sole consideration of the most severe downside scenario.
See Note 11 - 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 this report.
See Note 10 - 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 2022 Form 10-K.
Adjustments to historical loss information are made to incorporate the reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”).
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”).
(2) Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2024. 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 2022 or 2021.
(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 twelve months ended December 31, 2023 or 2022.
The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and the GSEs to support the liquidity of mortgage finance assets.
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.
Mortgage finance loans relate to the mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests that are typically sold within 10 to 20 days and represent 21% of total loans held for investment at December 31, 2022 compared to 33% at December 31, 2021.
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 19% and 21% of gross loans held for investment at December 31, 2023 and December 31, 2022, 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.
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.
Loans extended to borrowers in the financials excluding banks category are comprised largely of loans to companies who loan money to businesses and consumers for various purposes including, but not limited to, insurance, consumer goods and real estate. This category also includes loans to companies involved in investment management and securities and commodities trading.
Loans extended to borrowers in the financials excluding banks category are comprised largely of loans to companies who loan money to businesses and consumers for various purposes including, but not limited to, insurance, consumer goods and real estate.
Collateral properties generally include office buildings, warehouse/distribution buildings, shopping centers, hotels/motels, senior living, apartment buildings and residential and commercial tract development. The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral.
Collateral properties include office buildings, warehouse/distribution buildings, shopping centers, hotels/motels, senior living, apartment buildings, residential and commercial tract developments, and raw land or lots to be developed into single-family homes. The primary source of repayment on these loans is generally expected to come from the sale, permanent financing or lease of the real property collateral.
See Note 10 - Financial Instruments with Off-Balance Sheet Risk in the accompanying notes to the consolidated financial statements included elsewhere in this report for presentation of the activity in the allowance for credit losses for off-balance asset credit losses.
The changes made result in a higher allocation of losses to off-balance sheet financial statements. See Note 9 - Financial Instruments with Off-Balance Sheet Risk in the accompanying notes to the consolidated financial statements included elsewhere in this report for presentation of the activity in the allowance for credit losses for off-balance asset credit losses.
On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $150.0 million in shares of outstanding common stock.
A new share repurchase program was approved on January 18, 2023 under which the Company could repurchase up to $150.0 million in shares of outstanding common stock.
For additional information on the Company’s capital and stockholders’ equity, Note 11 - Regulatory Ratios and Capital and Note 19 - Material Transactions Affecting Stockholders' Equity, respectively, in the accompanying notes to the consolidated financial statements included elsewhere in this report.
For additional information on the Company’s capital and stockholders’ equity, see Note 10 - Regulatory Ratios and Capital, in the accompanying notes to the consolidated financial statements included elsewhere in this report.
The following table summarizes short-term borrowings, all of which mature within one year: December 31, (in thousands) 2022 2021 Repurchase agreements 1,142 2,832 FHLB borrowings 1,200,000 2,200,000 Total short-term and other borrowings $ 1,201,142 $ 2,202,832 The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding: December 31, (in thousands) 2022 2021 FHLB borrowing capacity relating to loans $ 2,621,218 $ 5,190,703 FHLB borrowing capacity relating to securities 3,539,297 3,352,111 Total FHLB borrowing capacity(1) $ 6,160,515 $ 8,542,814 Unused federal funds lines available from commercial banks $ 1,479,000 $ 892,000 Unused Federal Reserve borrowings capacity $ 3,574,762 $ 2,414,702 Unused revolving line of credit(2) $ 75,000 $ 75,000 (1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and certain pledged securities.
The following table summarizes short-term borrowings, all of which mature within one year: (in thousands) December 31, 2023 December 31, 2022 Repurchase agreements $ — $ 1,142 FHLB borrowings 1,500,000 1,200,000 Total short-term and other borrowings $ 1,500,000 $ 1,201,142 The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding: (in thousands) December 31, 2023 December 31, 2022 FHLB borrowing capacity relating to loans and pledged securities $ 2,602,092 $ 2,621,218 FHLB borrowing capacity relating to unencumbered securities 3,737,615 3,539,297 Total FHLB borrowing capacity(1) $ 6,339,707 $ 6,160,515 Unused federal funds lines available from commercial banks $ 1,188,000 $ 1,479,000 Unused Federal Reserve borrowings capacity $ 4,094,801 $ 3,574,762 Unused revolving line of credit(2) $ 100,000 $ 75,000 (1) FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance assets and certain pledged securities.
The following table shows scheduled maturities of time deposits greater than $250,000: December 31, (in thousands) 2022 2021 Months to maturity: Three or less $ 70,008 $ 70,736 Over three through six 50,282 18,013 Over six through twelve 117,435 86,223 Over twelve 20,715 11,059 Total $ 258,440 $ 186,031 Liquidity and Capital Resources Liquidity In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs.
The following table shows scheduled maturities of time deposits greater than $250,000: (in thousands) December 31, 2023 December 31, 2022 Months to maturity: Three or less $ 79,162 $ 70,008 Over three through six 127,289 50,282 Over six through twelve 150,382 117,435 Over twelve 19,535 20,715 Total $ 376,368 $ 258,440 Liquidity and Capital Resources Liquidity In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs.
Any repurchases under the repurchase program have been made in accordance with applicable securities laws in open market or private transactions.
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.
Bask Bank, the Company’s online banking division, serves customers on a 24 hours-a-day, 7 days-a-week basis solely through online banking. Average total deposits for the year ended December 31, 2022 decreased $5.6 billion compared to 2021.
The Company offers banking centers, courier services and online and mobile banking. Bask Bank, the Company’s online banking division, serves customers on a 24 hours-a-day, 7 days-a-week basis solely through online banking. Average total deposits for the year ended December 31, 2023 decreased $2.1 billion compared to 2022.
The line of credit was increased to $100.0 million on February 8, 2023. The Company has long-term debt outstanding of $931.4 million as of December 31, 2022, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036.
The line of credit was reduced to $75.0 million in the first quarter of 2024. The Company has long-term debt outstanding of $859.1 million as of December 31, 2023, comprised of trust preferred securities, subordinated notes and senior unsecured credit linked notes with maturity dates ranging from September 2024 to December 2036.
Results of Operations Year ended December 31, 2022 compared to year ended December 31, 2021 Selected income statement data and key performance indicators are presented in the table below: For the Year Ended December 31, (dollars in thousands except per share data) 2022 2021 2020 Net interest income $ 875,758 $ 768,837 $ 851,321 Provision for credit losses 66,000 (30,000) 258,000 Non-interest income 349,529 138,230 202,981 Non-interest expense 727,532 599,012 704,356 Income before income taxes 431,755 338,055 91,946 Income tax expense 99,277 84,116 25,657 Net income 332,478 253,939 66,289 Preferred stock dividends 17,250 18,721 9,750 Net income available to common stockholders $ 315,228 $ 235,218 $ 56,539 Basic earnings per common share $ 6.25 $ 4.65 $ 1.12 Diluted earnings per common share $ 6.18 $ 4.60 $ 1.12 Net interest margin 2.79 % 2.07 % 2.34 % Return on average assets (“ROA”) 1.04 % 0.67 % 0.18 % Return on average common equity (“ROE”) 11.33 % 8.35 % 2.10 % Non-interest income to average earning assets 1.12 % 0.37 % 0.56 % Efficiency ratio(1) 59.4 % 66.0 % 66.8 % Non-interest expense to average earning assets 2.34 % 1.61 % 1.93 % (1) Non-interest expense divided by the sum of net interest income and non-interest income.
Results of Operations Selected income statement data and key performance indicators are presented in the table below: For the Year Ended December 31, (dollars in thousands except per share data) 2023 2022 2021 Net interest income $ 914,123 $ 875,765 $ 768,781 Provision for credit losses 72,000 66,000 (30,000) Non-interest income 161,419 349,522 138,286 Non-interest expense 756,947 727,532 599,012 Income before income taxes 246,595 431,755 338,055 Income tax expense 57,454 99,277 84,116 Net income 189,141 332,478 253,939 Preferred stock dividends 17,250 17,250 18,721 Net income available to common stockholders $ 171,891 $ 315,228 $ 235,218 Basic earnings per common share $ 3.58 $ 6.25 $ 4.65 Diluted earnings per common share $ 3.54 $ 6.18 $ 4.60 Net interest margin 3.17 % 2.79 % 2.07 % Return on average assets (“ROA”) 0.64 % 1.04 % 0.67 % Return on average common equity (“ROE”) 6.15 % 11.33 % 8.35 % Efficiency ratio(1) 70.4 % 59.4 % 66.0 % Non-interest income to average earning assets 0.57 % 1.12 % 0.37 % Non-interest expense to average earning assets 2.66 % 2.34 % 1.61 % (1) Non-interest expense divided by the sum of net interest income and non-interest income.
While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to customers, tailored to the strategy of maintaining a branch-lite network. The Company offers banking centers, courier services and online and mobile banking.
Deposits The Company competes for deposits by offering a full suite of deposit products and services to its customers. While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to customers, tailored to the strategy of maintaining a branch-lite network.
Average non-interest bearing deposits for the year ended December 31, 2022 decreased to $13.0 billion from $15.2 billion for 2021. Net interest margin for the year ended December 31, 2022 was 2.79% compared to 2.07% for 2021.
Average non-interest bearing deposits for the year ended December 31, 2023 decreased to $9.8 billion from $13.0 billion for the same period in 2022. Net interest margin for the year ended December 31, 2023 was 3.17% compared to 2.79% for 2022.
The yield on total loans held for investment, net, increased to 4.55% for the year ended December 31, 2022 compared to 3.56% for 2021 and the yield on earning assets increased to 3.65% for the year ended December 31, 2022 compared to 2.36% for 2021.
The yield on total loans held for investment, net, increased to 6.52% for the year ended December 31, 2023 compared to 4.55% for the same period in 2022 and the yield on earning assets increased to 5.65% for the year ended December 31, 2023 compared to 3.65% for the same period in 2022.
Average earning assets for the year ended December 31, 2022 decreased $6.1 billion compared to the same period in 2021, which included a $4.6 billion decrease in average interest bearing cash and cash equivalents and a $1.4 billion decrease in average total loans.
Average earning assets for the year ended December 31, 2023 decreased $2.7 billion compared to the same period in 2022, which included a $1.6 billion decrease in average interest bearing cash and cash equivalents and a $1.7 billion decrease in average total loans, partially offset by a $636.9 million increase in investment securities.
Average interest bearing liabilities decreased $3.8 billion for the year ended December 31, 2022 compared to the same period in 2021, primarily due to a $3.4 billion decrease in average interest bearing deposits and a $569.5 million decrease in average short-term borrowings, partially offset by a $125.7 million increase in average long-term debt.
Average interest bearing liabilities increased $453.0 million for the year ended December 31, 2023 compared to the same period in 2022, primarily due to a $1.0 billion increase in average interest bearing deposits, partially offset by a $506.7 million decrease in average short-term borrowings and a $44.9 million decrease in average long-term debt.
Approximately 58% of the market risk real estate collateral is located in Texas.
Approximately 59% of the commercial real estate collateral is located in Texas.
See Note 9 - 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.
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.
Such house limits, which generally range from $20 million to $60 million, may be exceeded with appropriate authorization for exceptionally strong borrowers and otherwise where business opportunity and assessed credit risk warrant a somewhat larger investment. The Company considers large credit relationships to be those with commitments equal to or in excess of $20.0 million.
The Company, however, generally employs lower house limits which vary by assigned risk grade, product and collateral type. Such house limits, which generally range from $20 million to $60 million, may be exceeded with appropriate authorization for exceptionally strong borrowers and otherwise where business opportunity and assessed credit risk warrant a somewhat larger investment.
Full-year 2022 included $13.7 million in salaries and benefits expense and $15.9 million in legal and professional expense related to the sale of BDCF.
Full-year 2022 legal and professional expense included $15.9 million in expenses related to the sale of our premium finance subsidiary.
The increase was primarily due to an increase in yields on average earning assets and a shift in earning asset composition, partially offset by an increase in funding costs. The increases in yields on earning assets and funding costs are attributed to the impact of rising interest rates during 2022.
The increase was primarily due to the effect of rising interest rates on earning asset yields and a shift in earning asset composition, partially offset by higher funding costs, also as a result of rising interest rates, compared to the same period in 2022.
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. 46 Table of Contents As of December 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on liquidity, capital resources or operations.
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.
(2) Taxable equivalent rates used where applicable assuming a 21% tax rate. Net Interest Income Net interest income was $875.8 million for the year ended December 31, 2022 compared to $768.8 million for 2021. The increase was primarily due to an increase in yields on average earning assets, partially offset by an increase in funding costs.
(2) Taxable equivalent rates used where applicable assuming a 21% tax rate. Net Interest Income Net interest income was $914.1 million for the year ended December 31, 2023 compared to $875.8 million for 2022.
The Company recorded $19.9 million in net charge-offs during the year ended December 31, 2022 compared to $12.9 million during 2021. Criticized loans totaled $513.2 million at December 31, 2022, compared to $582.9 million at December 31, 2021.
The Company recorded $50.9 million in net charge-offs during the year ended December 31, 2023 compared to $19.9 million in net charge-offs during the same period in 2022.
As of December 31, 2022, the Company had $3.8 billion in syndicated loans, $903.0 million of which the Company administered as agent. All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates. As of December 31, 2022, none of syndicated loans were on non-accrual.
All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates. As of December 31, 2023, approximately $6.5 million of the Company’s shared national credits were on non-accrual.
The following table summarizes period-end total deposits: December 31, (dollars in thousands) 2022 2021 Balance % of Total Balance % of Total Customer deposits $ 21,749,868 95.2 % $ 25,409,180 90.4 % Brokered deposits 1,107,012 4.8 % 2,700,185 9.6 % Total deposits $ 22,856,880 100.0 % $ 28,109,365 100.0 % The Company has short-term borrowing sources available to supplement deposits and meet its funding needs.
The following table summarizes period-end total deposits: December 31, 2023 December 31, 2022 (dollars in thousands) Balance % of Total Balance % of Total Customer deposits $ 21,454,568 95.9 % $ 21,247,999 93.0 % Brokered deposits 917,271 4.1 % 1,608,881 7.0 % Total deposits $ 22,371,839 100.0 % $ 22,856,880 100.0 % 45 The Company has short-term borrowing sources available to supplement deposits and meet its funding needs.
The Company reported net income of $332.5 million and net income available to common stockholders of $315.2 million, or $6.18 per diluted common share, for the year ended December 31, 2022, compared to net income of $253.9 million and net income available to common stockholders of $235.2 million, or $4.60 per diluted common share, for 2021.
Year ended December 31, 2023 compared to year ended December 31, 2022 The Company reported net income of $189.1 million and net income available to common stockholders of $171.9 million for the year ended December 31, 2023, compared to net income of $332.5 million and net income available to common stockholders of $315.2 million for the same period in 2022.
The table below sets forth information regarding the distribution of loans held for investment on a gross basis among various types of collateral at December 31, 2022: (dollars in thousands) Amount Percent of Total Commercial: Business assets $ 6,888,901 35.6 % Other assets 561,575 2.9 % Highly liquid assets 505,505 2.6 % U. S.
The table below sets forth information regarding the distribution of loans held for investment on a gross basis among various types of collateral at December 31, 2023: (dollars in thousands) Amount Percent of Total Commercial: Business assets $ 8,848,736 43.4 % Other assets 337,444 1.7 % Highly liquid assets 330,767 1.6 % Municipal tax- and revenue-secured 89,079 0.4 % Rolling stock 30,415 0.1 % U.
Average non-interest bearing deposits for the year ended December 31, 2022 decreased $2.2 billion compared to 2021 and average interest bearing deposits decreased $3.4 billion.
Average non-interest bearing deposits for the year ended December 31, 2023 decreased $3.1 billion compared to 2022 and average interest bearing deposits increased $1.0 billion. The average cost of total deposits increased to 2.47% in 2023 from 0.74% in 2022 primarily due to rising interest rates.
The average cost of total deposits increased to 0.74% in 2022 from 0.21% in 2021 primarily due to rising interest rates. 44 Table of Contents The following table discloses average deposits and weighted-average cost of deposits by type: Year Ended December 31, 2022 2021 (dollars in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest bearing $ 12,951,134 — % $ 15,186,455 — % Interest bearing transaction 1,659,476 1.09 % 3,447,849 0.60 % Savings 9,983,571 1.52 % 11,180,645 0.33 % Time deposits 1,313,483 1.61 % 1,716,642 0.49 % Total $ 25,907,664 0.74 % $ 31,531,591 0.21 % Estimated uninsured deposits at December 31, 2022 were $13.6 billion (59% of total deposits), compared to $16.1 billion (56% of total deposits) at December 31, 2021.
The following table discloses average deposits and weighted-average cost of deposits by type: Year Ended December 31, 2023 2022 (dollars in thousands) Average Balance Average Rate Paid Average Balance Average Rate Paid Non-interest bearing $ 9,814,517 — % $ 12,951,134 — % Interest bearing transaction 1,466,583 2.90 % 1,659,476 1.09 % Savings 10,921,264 4.40 % 9,983,571 1.52 % Time deposits 1,573,294 4.14 % 1,313,483 1.61 % Total $ 23,775,658 2.47 % $ 25,907,664 0.74 % 44 Estimated uninsured deposits at December 31, 2023 were $9.7 billion (43% of total deposits), compared to $12.4 billion (54% of total deposits) at December 31, 2022.
For additional information on short-term borrowings and long-term debt, see Note 9 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report.
In the second quarter of 2023, the Company partially paid down $75.0 million of the senior unsecured credit-linked notes in accordance with the terms of the notes. See Note 8 - 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 table below summarizes the total real estate loan portfolio, which includes real estate loans and construction loans, as segregated by the type of property securing the credit.
The table below summarizes non-accrual loans by portfolio segment and by type of property securing the credit.
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 45 Table of Contents focus on treasury management products. In addition, the Company also has access to deposits through brokered channels.
The following table summarizes the Company’s interest bearing cash and cash equivalents: (dollars in thousands) December 31, 2023 December 31, 2022 Interest bearing cash and cash equivalents $ 3,042,357 $ 4,778,623 Interest bearing cash and cash equivalents as a percent of: Total loans held for investment 15.0 % 24.8 % Total earning assets 11.1 % 17.4 % Total deposits 13.6 % 20.9 % The Company’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships, with a significant focus on treasury management products.
The table below presents key metrics related to the Company’s credit loss experience: December 31, 2022 December 31, 2021 Allowance for credit losses on loans to total loans held for investment 1.31 % 0.93 % Allowance for credit losses on loans to average total loans held for investment 1.19 % 0.91 % Total allowance for credit losses to total loans held for investment 1.43 % 1.00 % Total provision for credit losses to average total loans held for investment 0.31 % (0.13) % 43 Table of Contents The table below details net charge-offs/(recoveries) as a percentage of average total loans by loan category: 2022 2021 Net Charge-offs Net Charge-offs to Average Loans Net Charge-offs Net Charge-offs to Average Loans Commercial $ 16,932 0.17 % $ 7,592 0.08 % Energy 2,587 0.27 % 4,451 0.65 % Mortgage finance — — % — — % Real Estate 350 0.01 % 875 0.02 % Total $ 19,869 0.09 % $ 12,918 0.06 % The allowance for credit losses on loans totaled $253.5 million at December 31, 2022 and $211.9 million at December 31, 2021.
Criticized loans totaled $738.2 million at December 31, 2023, compared to $513.2 million at December 31, 2022. 43 The table below presents key metrics related to the Company’s credit loss experience: December 31, 2023 December 31, 2022 Allowance for credit losses on loans to total loans held for investment 1.23 % 1.31 % Allowance for credit losses on loans to average total loans held for investment 1.24 % 1.19 % Total allowance for credit losses to total loans held for investment 1.46 % 1.43 % Total provision for credit losses to average total loans held for investment 0.36 % 0.31 % The table below details net charge-offs/(recoveries) as a percentage of average total loans by portfolio segment: 2023 2022 (dollars in thousands) Net Charge-offs Net Charge-offs to Average Loans(1) Net Charge-offs Net Charge-offs to Average Loans(1) Commercial $ 45,395 0.44 % $ 19,542 0.18 % Mortgage finance — — % — — % Commercial real estate 5,496 0.10 % 350 0.01 % Consumer 36 0.01 % (23) — % Total $ 50,927 0.25 % $ 19,869 0.09 % The allowance for credit losses on loans totaled $250.0 million at December 31, 2023 and $253.5 million at December 31, 2022.
The table below summarizes the industry concentrations of loans held for investment on a gross basis at December 31, 2022: (dollars in thousands) Amount Percent of Total Commercial: Financials (excluding banks) $ 3,961,002 20.5 % Real estate related services (not secured by real estate) 1,032,180 5.3 % Technology, telecom and media 718,203 3.7 % Retail 498,632 2.6 % Machinery, equipment and parts manufacturing 363,696 1.9 % Commercial services 326,659 1.7 % Oil & gas support services 265,119 1.4 % Materials and commodities 253,259 1.3 % Transportation services 259,213 1.3 % Entertainment and recreation 178,284 0.9 % Food and beverage manufacturing and wholesale 177,549 0.9 % Healthcare and pharmaceuticals 133,622 0.7 % Government and education 100,176 0.5 % Consumer services 95,002 0.5 % Diversified or miscellaneous 540,352 2.8 % Total commercial 8,902,948 46.0 % Energy 1,159,296 6.0 % Mortgage finance 4,090,033 21.1 % Real estate 5,198,643 26.9 % Total $ 19,350,920 100.0 % The Company’s largest concentration of commercial loans held for investment in any single industry is in financials excluding banks.
The table below summarizes the industry concentrations of loans held for investment on a gross basis at December 31, 2023: (dollars in thousands) Amount Percent of Total Commercial: Financials (excluding banks) $ 3,950,879 19.4 % Oil and gas and pipelines 1,205,100 5.9 % Technology, telecom and media 1,004,186 4.9 % Real estate related services (not secured by real estate) 947,494 4.6 % Commercial services 419,065 2.1 % Retail 410,162 2.0 % Machinery, equipment and parts manufacturing 300,606 1.5 % Entertainment and recreation 291,146 1.4 % Transportation services 236,100 1.2 % Healthcare and pharmaceuticals 217,558 1.1 % Government and education 208,828 1.0 % Food and beverage manufacturing and wholesale 179,673 0.9 % Materials and commodities 173,574 0.8 % Utilities 146,923 0.7 % Consumer services 137,823 0.7 % Diversified or miscellaneous 581,649 2.8 % Total commercial 10,410,766 51.0 % Mortgage finance 3,978,328 19.5 % Commercial real estate 5,500,774 26.9 % Consumer 530,948 2.6 % Total $ 20,420,816 100.0 % The Company’s largest concentration of commercial loans held for investment in any single industry is in financials excluding banks.
(dollars in thousands) Amount Percent of Total Texas geographic region: Dallas/Fort Worth $ 823,670 20.2 % Houston 598,010 14.7 % San Antonio 371,028 9.1 % Austin 459,681 11.3 % Other Texas cities 94,596 2.3 % Total Texas 2,346,985 57.6 % Other states 1,725,257 42.4 % Total market risk real estate loans $ 4,072,242 100.0 % The determination of collateral value is critically important when financing real estate.
(dollars in thousands) Amount Percent of Total Texas geographic region: Dallas/Fort Worth $ 1,140,779 20.7 % Houston 881,487 16.0 % San Antonio 515,875 9.4 % Austin 503,052 9.2 % Other Texas cities 181,278 3.3 % Total Texas 3,222,471 58.6 % Other states 2,278,303 41.4 % Total commercial real estate loans $ 5,500,774 100.0 % The determination of collateral value is critically important when financing real estate.
Government guaranty 1,826 — % Municipal tax- and revenue-secured 61,416 0.3 % Rolling stock 20,614 0.1 % Unsecured 863,111 4.5 % Total commercial 8,902,948 46.0 % Energy 1,159,296 6.0 % Mortgage finance 4,090,033 21.1 % Real estate 5,198,643 26.9 % Total $ 19,350,920 100.0 % As noted in the tables above, approximately 27% of loans held for investment as of December 31, 2022 are real estate loans that are generally secured by real property.
Government guaranty 1,261 — % Unsecured 773,064 3.8 % Total commercial 10,410,766 51.0 % Mortgage finance 3,978,328 19.5 % Commercial real estate 5,500,774 26.9 % Consumer 530,948 2.6 % Total $ 20,420,816 100.0 % As noted in the tables above, approximately 27% of loans held for investment as of December 31, 2023 are commercial real estate loans that are generally secured by real property.
Years Ended December 31, 2022/2021 2021/2020 Net Change Change Due To(1) Net Change Change Due To(1) (in thousands) Volume Yield/Rate(2) Volume Yield/Rate(2) Interest income: Investment securities $ 19,385 $ (752) $ 20,137 $ 25,204 $ 94,581 $ (69,377) Interest bearing cash and cash equivalents 84,038 (5,731) 89,769 (15,029) 16,523 (31,552) Loans held for sale 21,074 6,995 14,079 (33,888) (33,403) (485) Loans held for investment, mortgage finance (49,362) (78,274) 28,912 (46,007) (24,329) (21,678) Loans held for investment 191,582 27,721 163,861 (95,013) (43,539) (51,474) Total interest income 266,717 (50,041) 316,758 (164,733) 9,833 (174,566) Interest expense: Transaction deposits (2,558) (10,747) 8,189 (12,179) (3,451) (8,728) Savings deposits 114,941 (3,947) 118,888 (38,491) (558) (37,933) Time deposits 12,773 (2,273) 15,046 (29,940) (14,728) (15,212) Short-term borrowings 24,464 (1,315) 25,779 (17,393) (4,304) (13,089) Long-term debt 11,111 6,287 4,824 17,665 20,103 (2,438) Total interest expense 160,731 (11,995) 172,726 (80,338) (2,938) (77,400) Net interest income $ 105,986 $ (38,046) $ 144,032 $ (84,395) $ 12,771 $ (97,166) (1) Yield/rate and volume variances are allocated to yield/rate.
Years Ended December 31, 2023/2022 2022/2021 Net Change Change Due To(1) Net Change Change Due To(1) (in thousands) Volume Yield/Rate(2) Volume Yield/Rate(2) Interest income Investment securities $ 44,273 $ 10,764 $ 33,509 $ 19,385 $ (752) $ 20,137 Interest bearing cash and cash equivalents 123,705 (26,299) 150,004 84,038 (5,731) 89,769 Loans held for sale (20,699) (22,063) 1,364 21,074 6,995 14,079 Loans held for investment, mortgage finance (82,732) (43,272) (39,460) (49,362) (78,274) 28,912 Loans held for investment 420,296 634 419,662 191,645 27,721 163,924 Total interest income 484,843 (80,236) 565,079 266,780 (50,041) 316,821 Interest expense Transaction deposits 24,462 (2,103) 26,565 (2,558) (10,747) 8,189 Savings deposits 328,706 14,253 314,453 114,941 (3,947) 118,888 Time deposits 43,944 4,183 39,761 12,773 (2,273) 15,046 Short-term borrowings 41,565 (8,057) 49,622 24,464 (1,315) 25,779 Long-term debt 8,644 (2,360) 11,004 11,111 6,287 4,824 Total interest expense 447,321 5,916 441,405 160,731 (11,995) 172,726 Net interest income $ 37,522 $ (86,152) $ 123,674 $ 106,049 $ (38,046) $ 144,095 (1) Yield/rate and volume variances are allocated to yield/rate.
Non-interest Expense Year ended December 31, (in thousands) 2022 2021 2019 Salaries and benefits $ 436,809 $ 350,930 $ 340,529 Occupancy expense 44,222 33,232 34,955 Marketing 32,388 10,006 23,581 Legal and professional 75,858 41,152 52,132 Communications and technology 69,253 75,185 103,054 FDIC insurance assessment 14,344 21,027 25,955 Servicing-related expenses — 27,765 64,585 Merger-related expenses — — 17,756 Other 54,658 39,715 41,809 Total non-interest expense $ 727,532 $ 599,012 $ 704,356 Non-interest expense for the year ended December 31, 2022 increased $128.5 million compared to 2021.
Non-interest Expense Year ended December 31, (in thousands) 2023 2022 2021 Salaries and benefits $ 459,700 $ 434,906 $ 350,197 Occupancy expense 38,494 44,222 33,232 Marketing 25,854 32,388 10,006 Legal and professional 64,924 75,858 41,152 Communications and technology 81,262 69,253 75,185 Federal Deposit Insurance Corporation (“FDIC”) insurance assessment 36,775 14,344 21,027 Servicing-related expenses — — 27,765 Other 49,938 56,561 40,448 Total non-interest expense $ 756,947 $ 727,532 $ 599,012 Non-interest expense for the year ended December 31, 2023 increased $29.4 million compared to the same period in 2022 primarily due to an increase in salaries and benefits, communications and technology and FDIC insurance assessment, which included $19.9 million in special assessment expense in 2023, partially offset by a decrease in legal and professional expense.
See Note 1 - Operations and Summary of Significant Accounting Policies 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 details of the allowance for credit losses on loans.
The changes made to the Company’s current expected credit loss model, as discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report, resulted in a reallocation of the allowance for credit losses between loan portfolio segments and allowance balances allocated to off-balance sheet financial instruments.
The increase was primarily due to a $248.5 million gain recognized on the sale of BDCF and an increase in investment banking and trading income.
The decrease was primarily due to a non-recurring $248.5 million gain related to the sale of our premium finance subsidiary recorded in 2022, partially offset by increases in investment banking and trading income and other non-interest income.
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. On April 19, 2022, the Company’s board of directors authorized the Company to repurchase up to $150.0 million of its outstanding shares of common stock.
Capital Resources The Company’s equity capital averaged $3.1 billion for the year ended December 31, 2023 compared to $3.1 billion for the same period in 2022. The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future.
Property type concentrations are stated as a percentage of year-end total real estate loans as of December 31, 2022: (dollars in thousands) Amount Percent of Total Property type: Market risk Apartment/condominium buildings $ 1,701,936 32.7 % Commercial buildings 463,224 8.9 % Industrial buildings 447,593 8.6 % 1-4 Family dwellings (other than condominium) 385,422 7.4 % Self-storage building 220,204 4.2 % Shopping center/mall buildings 200,587 3.9 % Senior housing buildings 181,527 3.5 % Residential lots 152,233 2.9 % Hotel/motel buildings 140,825 2.7 % Commercial lots 61,499 1.2 % Other 117,192 2.3 % Other than market risk Industrial buildings 393,465 7.6 % 1-4 Family dwellings (other than condominium) 323,280 6.2 % Commercial buildings 215,856 4.2 % Other 193,800 3.7 % Total real estate loans $ 5,198,643 100.0 % 40 Table of Contents The table below summarizes the Company’s market risk real estate portfolio at December 31, 2022 as segregated by the geographic region in which the property is located.
The table below summarizes the commercial real estate loan portfolio, by property type as of December 31, 2023: (dollars in thousands) Amount Percent of Total Apartment/condominium buildings $ 2,196,299 39.9 % Industrial buildings 1,032,647 18.8 % Office buildings 451,660 8.2 % 1-4 Family dwellings (other than condominium) 340,632 6.2 % Shopping center/mall buildings 265,938 4.8 % Senior housing buildings 260,656 4.7 % Self-storage buildings 212,571 3.9 % Commercial buildings 166,405 3.0 % Hotel/motel buildings 162,585 3.0 % Residential lots 92,037 1.7 % Student housing 84,003 1.5 % Commercial lots 78,192 1.4 % Other 157,149 2.9 % Total commercial real estate loans $ 5,500,774 100.0 % 40 The table below summarizes the Company’s commercial real estate portfolio at December 31, 2023 as segregated by the geographic region in which the property is located.
The Company recorded a $66.0 million provision for credit losses on loans for the year ended December 31, 2022 compared to a negative provision of $30.0 million for the year ended December 31, 2021. The $66.0 million provision for credit losses resulted from updated views on the downside risks to the economic forecast and an increase in net charge-offs.
The Company recorded a provision for credit losses on loans of $47.4 million for the year ended December 31, 2023 compared to a provision of $61.5 million for the year ended December 31, 2022.
The Company extends commercial real estate loans, including both construction/development financing and limited term financing, to professional real estate developers and owners/managers of commercial real estate projects and properties who have a demonstrated record of past success with similar properties.
The commercial real estate portfolio is comprised primarily of non-owner occupied construction/development financing and limited term financing provided to professional real estate developers, owners/managers of commercial real estate projects and properties, and residential builders/developers.
The increases in yields on earning assets and cost of funds are attributed to the impact of rising interest rates. 37 Table of Contents Non-interest Income Year ended December 31, (in thousands) 2022 2021 2020 Service charges on deposit accounts $ 22,876 $ 18,674 $ 11,620 Wealth management and trust fee income 15,036 13,173 9,998 Brokered loan fees 14,159 27,954 46,423 Servicing income 857 15,513 27,029 Investment banking and trading income 35,054 24,441 22,687 Net gain/(loss) on sale of loans held for sale (990) 1,317 58,026 Gain on disposal of subsidiary 248,526 — — Other 14,011 37,158 27,198 Total non-interest income $ 349,529 $ 138,230 $ 202,981 Non-interest income increased by $211.3 million during the year ended December 31, 2022 to $349.5 million, compared to $138.2 million for 2021.
The average cost of total deposits increased to 2.47% for 2023 from 0.74% for the same period in 2022 and total funding costs, including all deposits, long-term debt and stockholders' equity, increased to 2.46% for 2023 compared to 0.85% for the same period 2022. 37 Non-interest Income Year Ended December 31, (in thousands) 2023 2022 2021 Service charges on deposit accounts $ 20,874 $ 23,266 $ 19,054 Wealth management and trust fee income 13,955 15,036 13,173 Brokered loan fees 8,918 14,159 27,954 Investment banking and trading income 86,182 35,054 24,441 Gain on disposal of subsidiary — 248,526 — Other 31,490 13,481 53,664 Total non-interest income $ 161,419 $ 349,522 $ 138,286 Non-interest income decreased by $188.1 million during the year ended December 31, 2023 to $161.4 million, compared to $349.5 million for the same period in 2022.
ROE was 11.33% and ROA was 1.04% for the year ended December 31, 2022, compared to 8.35% and 0.67%, respectively, for 2021.
On a fully diluted basis, earnings per common share were $3.54 for the year ended December 31, 2023, compared to $6.18 for the same period in 2022. ROE was 6.15% and ROA was 0.64% for the twelve months ended December 31, 2023, compared to 11.33% and 1.04%, respectively, for the same period in 2022.
Large Credit Relationships The Company originates and maintains large credit relationships with numerous customers in the ordinary course of business. The legal lending limit of the Bank is approximately $598.2 million. The Company, however and generally, employs lower house limits which vary by assigned risk grade, product and collateral type.
As of December 31, 2023 and December 31, 2022, none of the loans with interest reserves were on non-accrual. Large Credit Relationships The Company originates and maintains large credit relationships with numerous customers in the ordinary course of business. The legal lending limit of the Bank is approximately $593.9 million.
As of December 31, (dollars in thousands) 2022 2021 Non-accrual loans held for investment(1) Commercial: Assets of the borrowers $ 41,448 $ 18,366 Accounts receivable and inventory 1,405 5,501 Other 564 2,045 Total commercial 43,417 25,912 Energy: Oil and gas properties 3,658 28,380 Total energy 3,658 28,380 Real estate: Assets of the borrowers — 13,741 Commercial property 1,263 2,840 Single family residences — 1,629 Total real estate 1,263 18,210 Total non-accrual loans held for investment $ 48,338 $ 72,502 Non-accrual loans held for sale — — Other real estate owned (“OREO”) — — Total non-performing assets $ 48,338 $ 72,502 Non-accrual loans held for investment to total loans held for investment 0.25 % 0.32 % Total non-performing assets to total assets 0.17 % 0.21 % Allowance for credit losses on loans to non-accrual loans held for investment 5.2x 2.9x Loans held for investment past due 90 days and accruing $ 131 $ 3,467 Loans held for investment past due 90 days to total loans held for investment — % 0.02 % Loans held for sale past due 90 days and accruing(2) $ — $ 3,986 (1) As of December 31, 2022 and 2021, non-accrual loans held for investment included $531,000 and $19.4 million, respectively, in loans that met the criteria for restructured.
(dollars in thousands) December 31, 2023 December 31, 2022 Non-accrual loans held for investment Commercial: Business assets $ 63,094 $ 41,448 Oil and gas properties 2,543 3,658 Machinery and equipment 3,332 — Accounts receivable and inventory — 1,405 Other 79 531 Total commercial 69,048 47,042 Commercial real estate: Hotel/motel 12,350 — Commercial property — 1,263 Total commercial real estate 12,350 1,263 Consumer Other — 33 Total consumer — 33 Total non-accrual loans held for investment 81,398 48,338 Non-accrual loans held for sale — — Other real estate owned (“OREO”) — — Total non-performing assets $ 81,398 $ 48,338 Non-accrual loans held for investment to total loans held for investment 0.40 % 0.25 % Total non-performing assets to total assets 0.29 % 0.17 % Allowance for credit losses on loans to non-accrual loans held for investment 3.1x 5.2x Loans held for investment past due 90 days and accruing $ 19,523 $ 131 Loans held for investment past due 90 days to total loans held for investment 0.10 % — % Loans held for sale past due 90 days and accruing $ — $ — 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.
The following table presents a summary of the Company’s allowance for credit losses on loans by portfolio segment for the past two years: December 31, 2022 2021 (dollars in thousands) Allowance for Credit Losses on Loans % of Loans in each Category to Total Loans Allowance for Credit Losses on Loans % of Loans in each Category to Total Loans Commercial $ 136,841 46 % $ 102,202 43 % Energy 49,000 6 % 52,568 3 % Mortgage finance 10,745 21 % 6,083 33 % Real estate 56,883 27 % 51,013 21 % Total $ 253,469 100 % $ 211,866 100 % The overall increase in the allowance for credit losses on loans at December 31, 2022 compared to 2021 resulted primarily from management’s continued evaluation of changing market conditions and updated views on the downside risks to the economic forecast.
The following table presents a summary of the Company’s allowance for credit losses on loans by portfolio segment for the past two years: December 31, 2023 2022 (dollars in thousands) Allowance for Credit Losses on Loans % of Loans in each Category to Total Loans Allowance for Credit Losses on Loans % of Loans in each Category to Total Loans Commercial $ 171,437 51 % $ 185,303 51 % Mortgage finance 4,173 19 % 10,745 21 % Commercial real estate 71,829 27 % 54,268 25 % Consumer 2,534 3 % 3,153 3 % Total $ 249,973 100 % $ 253,469 100 % See Note 1 - Operations and Summary of Significant Accounting Policies 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 details of the allowance for credit losses on loans.
For purposes of determining the allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories, and then further segregated by credit grades. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation.
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.
December 31, (in thousands) 2022 2021 Commercial $ 8,902,948 $ 9,897,561 Energy 1,159,296 721,373 Mortgage finance 4,090,033 7,475,497 Real estate 5,198,643 4,777,530 Gross loans held for investment $ 19,350,920 $ 22,871,961 Gross loans held for investment were $19.4 billion at December 31, 2022, a decline of $3.5 billion from 2021.
(in thousands) December 31, 2023 December 31, 2022 Commercial $ 10,410,766 $ 9,832,676 Mortgage finance 3,978,328 4,090,033 Commercial real estate 5,500,774 4,875,363 Consumer 530,948 552,848 Gross loans held for investment 20,420,816 19,350,920 Unearned income (net of direct origination costs) (80,258) (63,580) Total loans held for investment $ 20,340,558 $ 19,287,340 38 Total loans held for investment were $20.3 billion at December 31, 2023, an increase of $1.1 billion from December 31, 2022.
No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. During 2022, the Company repurchased 2,083,118 shares of its common stock for an aggregate purchase price of $115.3 million, at a weighted average price of $55.35 per share.
From March 2023 through December 2023, the Company repurchased 1,257,326 shares of its common stock for an aggregate purchase price of $69.4 million, at a weighted average price of $55.22 per share under this plan.
Excluding the sale of BDCF and its impact on the loan portfolio, the Company experienced loan growth across all loan categories, except for mortgage finance loans, as the Company executed on its long-term strategy.
The Company experienced loan growth in the commercial and commercial real estate categories as it has continued to execute on its long-term strategy.
The following table provides additional information on large held for investment credit relationships outstanding at year-end: December 31, 2022 December 31, 2021 Period End Balances Period End Balances (dollars in thousands) Number of Relationships Committed Outstanding Number of Relationships Committed Outstanding $30.0 million and greater 315 $ 16,287,723 $ 10,515,253 263 $ 15,602,603 $ 11,469,402 $20.0 million to $29.9 million 216 5,262,032 3,485,755 189 4,546,986 2,755,013 41 Table of Contents Loan Maturities and Interest Rate Sensitivity December 31, 2022 (in thousands) Total Within 1 Year 1-5 Years 5-15 Years After 15 Years Loan maturity: Commercial $ 8,902,948 $ 2,011,152 $ 6,180,529 $ 697,516 $ 13,751 Energy 1,159,296 47,437 1,111,859 — — Mortgage finance 4,090,033 4,090,033 — — — Real estate 5,198,643 1,115,349 3,367,345 370,795 345,154 Total loans held for investment $ 19,350,920 $ 7,263,971 $ 10,659,733 $ 1,068,311 $ 358,905 Interest rate sensitivity for selected loans with: Fixed interest rates $ 1,116,060 $ 74,586 $ 407,802 $ 613,330 $ 20,342 Floating or adjustable interest rates 18,234,860 7,189,385 10,251,931 454,981 338,563 Total loans held for investment $ 19,350,920 $ 7,263,971 $ 10,659,733 $ 1,068,311 $ 358,905 Interest Reserve Loans As of December 31, 2022 and December 31, 2021, the Company had $854.5 million and $456.1 million, respectively, in loans held for investment that included interest reserve arrangements, representing approximately 46% and 25%, respectively, of outstanding construction loans, which are a component of real estate loans.
The following table provides additional information on large held for investment credit relationships outstanding at year-end: December 31, 2023 December 31, 2022 Period End Balances Period End Balances (dollars in thousands) Number of Relationships Committed Outstanding Number of Relationships Committed Outstanding $30.0 million and greater 344 $ 18,053,123 $ 11,794,216 315 $ 16,287,723 $ 10,515,253 $20.0 million to $29.9 million 215 5,245,658 3,493,601 216 5,262,032 3,485,755 Loan Maturities and Interest Rate Sensitivity December 31, 2023 (in thousands) Total Within 1 Year 1-5 Years 5-15 Years After 15 Years Loan maturity: Commercial $ 10,410,766 $ 1,897,320 $ 7,870,372 $ 635,042 $ 8,032 Mortgage finance 3,978,328 3,978,328 — — — Commercial real estate 5,500,774 1,516,284 3,643,612 303,895 36,983 Consumer 530,948 207,616 19,220 4,242 299,870 Total loans held for investment $ 20,420,816 $ 7,599,548 $ 11,533,204 $ 943,179 $ 344,885 Interest rate sensitivity for selected loans with: Fixed interest rates $ 1,133,129 $ 72,272 $ 506,292 $ 536,237 $ 18,328 Floating or adjustable interest rates 19,287,687 7,527,276 11,026,912 406,942 326,557 Total loans held for investment $ 20,420,816 $ 7,599,548 $ 11,533,204 $ 943,179 $ 344,885 42 Non-performing Assets Non-performing assets include non-accrual loans and leases and repossessed assets.
The increase in net income, ROE and ROA for the year ended December 31, 2022 resulted primarily from a $106.9 million increase in net interest income and a $211.3 million increase in non-interest income, partially offset by a $96.0 million increase in the provision for credit losses and a $128.5 million increase in non-interest expense and a $15.2 million increase in income tax expense.
The decrease in net income for the year ended December 31, 2023 compared to the same period in 2022 resulted primarily from a decrease in non-interest income.
Approximately 96% of the Company’s loans held for investment are secured by collateral.
This category also includes loans to companies involved in investment management and securities and commodities trading. 39 The Company believes the loans it originates are appropriately collateralized under its credit standards. Approximately 96% of the Company’s loans held for investment are secured by collateral.
Removed
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 years ended December 31, 2022 and 2021 should be read in conjunction with its audited consolidated financial statements and the related notes to the consolidated financial statements included in this Annual Report on Form 10-K.
Added
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Recent Industry Developments During 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, eroding consumer confidence and increased regulatory scrutiny.
Removed
Certain risks, uncertainties and other factors, including those set forth under “Risk Factors” in Part I, Item 1A, and elsewhere in this Annual Report on Form 10-K may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.
Added
Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. Furthermore, the Company’s capital remains at historically high levels with CET1 and total capital ratios of 12.6% and 17.1%, respectively, as of December 31, 2023. The Company’s total deposits decreased by 2% as compared to December 31, 2022, to $22.4 billion at December 31, 2023.
Removed
Refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2021 Annual Report on Form 10K filed with the SEC on February 9, 2022, for discussion of the Company’s results of operations for the years ended December 31, 2021 and 2020.
Added
In response to the industry-wide concerns, the Company took a number of preemptive actions, which included pro-active outreach to clients and an enhanced review of its borrowing and liquidity positions to ensure that the Company’s liquidity and capital positions remain strong and that the Company is positioned to best serve its clients.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+4 added−11 removed14 unchanged
Biggest changeThis modeling indicated interest rate sensitivity as follows: Anticipated Impact Over the Next Twelve Months as Compared to Most Likely Scenario December 31, 2022 December 31, 2021 (in thousands) 100 bps Increase 200 bps Increase 100 bps Decrease 100 bps Increase 200 bps Increase Change in net interest income $ 77,282 $ 140,354 $ (98,916) $ 48,802 $ 124,986 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.
Biggest changeThis modeling indicated interest rate sensitivity as follows: Annualized Hypothetical Change in Net Interest Income December 31, 2023 December 31, 2022 + 200 basis points 3.2 % 14.5 % + 100 basis points 1.6 % 8.0 % - 100 basis points (4.4) % (10.2) % - 200 basis points (9.1) % N/A 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.
VaR is a statistical risk measure estimating potential loss at the 95 th 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.
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.
(2) Total loans include gross loans held for investment and loans held for sale. 49 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.
(2) Total loans include gross loans held for investment and loans held for sale. 48 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.
In addition, the Company’s trading desk engages in fixed income and equity securities, derivatives and foreign exchange transactions to support customer’s investing and hedging activities. The Company uses Value-at-Risk (“VaR”) as a means to measure, monitor, and limit aggregate market risk on the trading portfolio.
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.
Interest Rate Risk Management The Company’s interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of December 31, 2022 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 table reflects rate-sensitive positions as of December 31, 2023 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.
For modeling purposes, the “shock test” scenarios as of December 31, 2022 assume immediate, sustained 100 and 200 basis point increases in interest rates as well as a 100 basis point decrease in interest rates. As of December 31, 2021, the scenarios assumed a sustained 100 and 200 basis point increase in interest rates.
For modeling purposes, the “shock test” scenarios as of December 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.
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, 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.
Changes in prepayment behavior of mortgage-backed securities, 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 for 2023.
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.
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 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 these guidelines is the ongoing responsibility of the ALCO, with exceptions reported to the Executive Risk Committee, and to the board of directors, if necessary, on a quarterly basis.
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 December 31, 2023 is illustrated in the following table.
The interest rate risk exposure model incorporates assumptions regarding the level of interest rate on indeterminable maturity deposits (non-interest bearing deposits, interest bearing transaction accounts and savings accounts) 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.
During 2023, the Company’s interest rate risk exposure model incorporated updated 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 prepayments behaviors for a given level of market rate change.
For additional information regarding derivatives, see Note 15 - Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this report. LIBOR Transition In 2017, the U.K. Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021.
For additional information regarding derivatives, see Note 14 - Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this report. 49
All statistical models involve a degree of uncertainty and VaR is calculated at a statistical confidence interval of the 95 th percentile based on one-year daily historic market moves. Larger economic losses are possible, particularly during stressed macroeconomic and market conditions.
As of December 31, 2023, 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.
As short-term rates remained low through 2021, the Company did not believe that analysis of an assumed decrease in interest rates would provide meaningful results. The Company will continue to evaluate these scenarios as interest rates change.
As of December 31, 2022, the scenarios assumed a sustained 100 and 200 basis point increase in interest rates, as well as a 100 basis point decrease in interest rates. The Company will continue to evaluate these scenarios as interest rates change.
Removed
To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows. 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.
Added
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.
Removed
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. 48 Table of Contents Interest Rate Sensitivity Gap Analysis December 31, 2022 (in thousands) 0-3 months Balance 4-12 months Balance 1-3 years Balance 3+ years Balance Total Balance Assets Interest bearing cash and cash equivalents $ 4,778,623 $ — $ — $ — $ 4,778,623 Investment securities(1) 46,204 1,121 495,571 3,042,218 3,585,114 Variable loans 17,747,882 196,154 31,252 295,929 18,271,217 Fixed loans 19,974 54,612 183,435 858,039 1,116,060 Total loans(2) 17,767,856 250,766 214,687 1,153,968 19,387,277 Total interest sensitive assets $ 22,592,683 $ 251,887 $ 710,258 $ 4,196,186 $ 27,751,014 Liabilities Interest bearing customer deposits $ 11,726,220 $ — $ — $ — $ 11,726,220 CDs 309,646 1,172,732 30,048 153 1,512,579 Total interest bearing deposits 12,035,866 1,172,732 30,048 153 13,238,799 Short-term borrowings 1,201,142 — — — 1,201,142 Long-term debt 385,898 — — 545,544 931,442 Total borrowings 1,587,040 — — 545,544 2,132,584 Total interest sensitive liabilities $ 13,622,906 $ 1,172,732 $ 30,048 $ 545,697 $ 15,371,383 GAP $ 8,969,777 $ (920,845) $ 680,210 $ 3,650,489 $ — Cumulative GAP $ 8,969,777 $ 8,048,932 $ 8,729,142 $ 12,379,631 $ 12,379,631 Non-interest bearing deposits 9,618,081 Stockholders’ equity 3,055,351 Total $ 12,673,432 (1) Available-for-sale debt securities and equity securities based on fair market value.
Added
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.
Removed
The administrator of LIBOR extended publication of the most commonly used U.S. dollar 50 Table of Contents LIBOR settings to June 30, 2023 and ceased publishing other LIBOR settings on December 31, 2021.
Added
(in thousands) 0-3 months 4-12 months 1-3 years 3+ years Total Assets Interest bearing cash and cash equivalents $ 3,042,357 $ — $ — $ — $ 3,042,357 Investment securities(1) 314,764 899 299,493 3,528,038 4,143,194 Variable loans 18,741,790 216,809 96,449 276,745 19,331,793 Fixed loans 25,780 46,491 240,407 820,450 1,133,128 Total loans(2) 18,767,570 263,300 336,856 1,097,195 20,464,921 Total interest sensitive assets $ 22,124,691 $ 264,199 $ 636,349 $ 4,625,233 $ 27,650,472 Liabilities Interest bearing customer deposits $ 13,264,838 $ — $ — $ — $ 13,264,838 CDs 500,262 1,252,576 25,177 710 1,778,725 Total interest bearing deposits 13,765,100 1,252,576 25,177 710 15,043,563 Short-term borrowings 1,500,000 — — — 1,500,000 Long-term debt 312,905 — 174,457 371,785 859,147 Total borrowings 1,812,905 — 174,457 371,785 2,359,147 Total interest sensitive liabilities $ 15,578,005 $ 1,252,576 $ 199,634 $ 372,495 $ 17,402,710 GAP $ 6,546,686 $ (988,377) $ 436,715 $ 4,252,738 $ — Cumulative GAP $ 6,546,686 $ 5,558,309 $ 5,995,024 $ 10,247,762 $ 10,247,762 Non-interest bearing deposits 7,328,276 Stockholders’ equity 3,199,142 Total $ 10,527,418 (1) Available-for-sale debt securities and equity securities based on fair market value.
Removed
The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.
Added
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.
Removed
On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Federal Reserve based on the SOFR for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.
Removed
On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023.
Removed
The Company has significant but declining exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which mature after June 30, 2023.
Removed
The Company established a working group, consisting of key stakeholders from throughout the company, to monitor developments relating to LIBOR changes and to guide the Bank’s response.
Removed
This team has worked to successfully ensure that technology systems are prepared for the transition, loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders have been apprised of the transition.
Removed
Based on the transition progress to date, the Company ceased originating LIBOR-based products and began originating alternative indexed products in December 2021. The Company will continue to transition all remaining LIBOR-based products to an alternative benchmark.
Removed
The Company will also continue to evaluate the transition process and align its trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates. 51 Table of Contents

Other TCBIO 10-K year-over-year comparisons