Q3-2023 Earnings October 19, 2023 © 2023 Texas Capital Bank Member FDIC Forward-Looking Statements 2 This communication contains "forward-looking statements" within the meaning of and pursuant to the Private Securities Litigation Reform Act of 1995 regarding, among other things, TCBI's financial condition, results of operations, business plans and future performance. These statements are not historical in nature and may often be identified by the use of words such as "believes," "projects," "expects," "may, ...

Texas Capital Bancshares, Inc. (NASDAQ:TCBI) Q3 2023 Earnings Call Transcript October 19, 2023 9:00 AM ET Company Participants Jocelyn Kukulka - Head of IR Rob Holmes - President and CEO Matt Scurlock - CFO Conference Call Participants Michael Rose - Raymond James Matt Olney - Stephens Zachary Westerlind - UBS Brady Gailey - KBW Operator Hello, all, and welcome to TCBI's Third Quarter 2023 Earnings Call. My name is Lydia, and I will be your operator today. [Operator Instructions] It's my pleasure to now han ...

PART I - FINANCIAL INFORMATION This section provides unaudited consolidated financial statements and management's analysis for the period ended September 30, 2023 [ITEM 1. FINANCIAL STATEMENTS - UNAUDITED](index=3&type=section&id=Item%201.%20Financial%20Statements%20-%20Unaudited) This section presents unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed accounting notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This chapter summarizes the Company's financial position, detailing assets, liabilities, and equity as of September 30, 2023 Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | **Assets** | | | | Total assets | $29,628,249 | $28,414,642 | | Loans held for investment, net | $20,368,469 | $19,033,871 | | Investment securities | $4,069,717 | $3,585,114 | | **Liabilities** | | | | Total deposits | $23,878,978 | $22,856,880 | | Non-interest bearing deposits | $9,352,883 | $9,618,081 | | Interest bearing deposits | $14,526,095 | $13,238,799 | | Total liabilities | $26,550,549 | $25,359,291 | | **Stockholders' Equity** | | | | Total stockholders' equity | $3,077,700 | $3,055,351 | - Total assets increased by **$1.21 billion (4.27%)** from December 31, 2022, to September 30, 2023, driven by growth in loans held for investment and investment securities[7](index=7&type=chunk) - Total deposits increased by **$1.02 billion (4.47%)** from December 31, 2022, to September 30, 2023, with interest-bearing deposits increasing and non-interest-bearing deposits decreasing[7](index=7&type=chunk) [Consolidated Statements of Income and Other Comprehensive Income/(Loss)](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Other%20Comprehensive%20Income%2F%28Loss%29) This chapter presents the Company's financial performance, detailing revenues, expenses, and net income for the periods ended September 30, 2023 Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest income | $425,769 | $322,072 | $1,212,851 | $772,952 | | Total interest expense | $193,698 | $82,991 | $513,445 | $144,792 | | Net interest income | $232,071 | $239,081 | $699,406 | $628,160 | | Provision for credit losses | $18,000 | $12,000 | $53,000 | $32,000 | | Total non-interest income | $46,872 | $25,332 | $130,286 | $71,855 | | Total non-interest expense | $179,891 | $197,047 | $555,562 | $514,442 | | Net income | $61,679 | $41,418 | $168,991 | $115,227 | | Net income available to common stockholders | $57,366 | $37,105 | $156,053 | $102,289 | | Basic earnings per common share | $1.19 | $0.74 | $3.24 | $2.03 | | Diluted earnings per common share | $1.18 | $0.74 | $3.20 | $2.00 | - Net income for the three months ended September 30, 2023, increased by **$20.26 million (48.9%)** YoY, primarily due to higher non-interest income and lower non-interest expense, despite a decrease in net interest income[9](index=9&type=chunk) - For the nine months ended September 30, 2023, net income increased by **$53.76 million (46.6%)** YoY, driven by increases in net interest income and non-interest income, partially offset by higher provision for credit losses and non-interest expense[9](index=9&type=chunk) [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This chapter outlines changes in the Company's equity, including retained earnings, treasury stock, and comprehensive income Stockholders' Equity Changes (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total stockholders' equity | $3,077,700 | $3,055,351 | | Retained earnings | $2,419,555 | $2,263,502 | | Treasury stock (shares) | (3,095,444) | (2,083,535) | | Treasury stock (amount) | $(175,528) | $(115,310) | | Accumulated other comprehensive loss, net of taxes | $(505,912) | $(418,943) | - Total stockholders' equity increased by **$22.35 million** from December 31, 2022, to September 30, 2023, primarily due to net income, partially offset by an increase in treasury stock and accumulated other comprehensive loss[7](index=7&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) - The Company repurchased **1,011,909 shares** of common stock for **$60.2 million** during the nine months ended September 30, 2023[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This chapter details the Company's cash flows from operating, investing, and financing activities for the periods presented Consolidated Cash Flow Highlights (in thousands) | Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $186,073 | $214,100 | | Net cash used in investing activities | $(2,073,892) | $(341,189) | | Net cash provided by/(used in) financing activities | $1,068,335 | $(4,179,323) | | Net decrease in cash and cash equivalents | $(819,484) | $(4,306,412) | | Cash and cash equivalents at end of period | $4,192,776 | $3,640,247 | - Net cash provided by operating activities decreased by **$28.03 million** YoY for the nine months ended September 30, 2023[13](index=13&type=chunk) - Net cash used in investing activities significantly increased to **$(2.07) billion** in 2023 from **$(341.19) million** in 2022, primarily due to higher originations of loans held for investment and purchases of available-for-sale securities[13](index=13&type=chunk) - Financing activities shifted from a net cash outflow of **$(4.18) billion** in 2022 to a net cash inflow of **$1.07 billion** in 2023, mainly driven by a net increase in deposits[13](index=13&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This chapter provides detailed explanations of the Company's accounting policies and specific financial statement line items [(1) Operations and Summary of Significant Accounting Policies](index=8&type=section&id=%281%29%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section details the Company's business operations and outlines its key accounting policies, including the CECL model - The Company updated its current expected credit loss (**CECL**) model in Q2 2023, incorporating more granular historical loss rates, probability of default, and loss severities, and adjusting portfolio segments and reversion speeds for forecasts[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) - The CECL methodology recognizes **lifetime expected credit losses** immediately upon asset origination or purchase, applying to financial assets at amortized cost and off-balance sheet credit exposures[22](index=22&type=chunk) - The loan portfolio is segregated into pools by segment and credit grade for collective allowance measurement, with individual evaluations for loans not sharing risk characteristics. A **two-year forecast period** is generally used, reverting to historical loss rates over 1-2 years for periods beyond reasonable forecasts[24](index=24&type=chunk)[25](index=25&type=chunk) [(2) Earnings Per Share](index=10&type=section&id=%282%29%20Earnings%20Per%20Share) This section provides a breakdown of basic and diluted earnings per common share for the reported periods Earnings Per Share (EPS) (in thousands except share and per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to common stockholders | $57,366 | $37,105 | $156,053 | $102,289 | | Basic earnings per common share | $1.19 | $0.74 | $3.24 | $2.03 | | Diluted earnings per common share | $1.18 | $0.74 | $3.20 | $2.00 | | Basic weighted average common shares | 48,007,466 | 49,891,727 | 48,168,486 | 50,506,364 | | Diluted weighted average common shares | 48,528,698 | 50,417,884 | 48,724,028 | 51,090,515 | - Diluted EPS increased significantly to **$1.18** for Q3 2023 from **$0.74** for Q3 2022, and to **$3.20** for the nine months ended September 30, 2023, from **$2.00** for the same period in 2022[36](index=36&type=chunk) [(3) Investment Securities](index=11&type=section&id=%283%29%20Investment%20Securities) This section details the Company's investment securities portfolio, including available-for-sale and held-to-maturity debt Investment Securities Summary (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total available-for-sale debt securities (Fair Value) | $3,147,865 | $2,615,644 | | Total held-to-maturity debt securities (Amortized Cost) | $881,352 | $935,514 | | Total investment securities | $4,069,717 | $3,585,114 | | Total unrealized loss on AFS debt securities | $(478,209) | $(385,205) | | Total unrealized loss on HTM debt securities (Fair Value) | $(150,094) | $(118,600) | - Available-for-sale debt securities increased by **$532.2 million** from December 31, 2022, to September 30, 2023, while held-to-maturity debt securities decreased by **$54.16 million**[37](index=37&type=chunk) - Unrealized losses on available-for-sale debt securities increased by **$93.0 million**, primarily due to changes in market interest rates, not credit quality. The Company does not intend to sell these securities before recovery of amortized cost[37](index=37&type=chunk)[43](index=43&type=chunk) [(4) Loans and Allowance for Credit Losses on Loans](index=13&type=section&id=%284%29%20Loans%20and%20Allowance%20for%20Credit%20Losses%20on%20Loans) This section details the Company's loan portfolio by segment and the allowance for credit losses, including provision and charge-offs Loans Held for Investment by Portfolio Segment (in thousands) | Portfolio Segment | Sep 30, 2023 | Dec 31, 2022 | | :------------------------ | :----------- | :----------- | | Commercial | $10,365,650 | $9,832,676 | | Mortgage finance | $4,429,489 | $4,090,033 | | Commercial real estate | $5,358,770 | $4,875,363 | | Consumer | $537,229 | $552,848 | | Gross loans held for investment | $20,691,138 | $19,350,920 | | Allowance for credit losses on loans | $(244,902) | $(253,469) | | Total loans held for investment, net | $20,368,469 | $19,033,871 | - Gross loans held for investment increased by **$1.34 billion (6.9%)** from December 31, 2022, to September 30, 2023, with growth across all categories except consumer loans[48](index=48&type=chunk)[130](index=130&type=chunk) Allowance for Credit Losses on Loans (in thousands) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $253,469 | $211,866 | | Provision for credit losses on loans | $28,523 | $27,617 | | Net charge-offs | $37,090 | $4,870 | | Ending balance | $244,902 | $234,613 | - The provision for credit losses on loans increased slightly to **$28.5 million** for the nine months ended September 30, 2023, from **$27.6 million** in the prior year, driven by increases in criticized loans and total loans held for investment[52](index=52&type=chunk)[137](index=137&type=chunk) - Net charge-offs significantly increased to **$37.1 million** for the nine months ended September 30, 2023, compared to **$4.9 million** for the same period in 2022[52](index=52&type=chunk)[137](index=137&type=chunk) [(5) Short-Term Borrowings and Long-Term Debt](index=16&type=section&id=%285%29%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) This section details the Company's short-term borrowings and long-term debt obligations as of the reporting dates Short-Term Borrowings (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :------------------------ | :----------- | :----------- | | Customer repurchase agreements | $0 | $1,142 | | Federal Home Loan Bank borrowings | $1,400,000 | $1,200,000 | | Total short-term borrowings | $1,400,000 | $1,201,142 | Long-Term Debt (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :------------------------ | :----------- | :----------- | | Bank-issued floating rate senior unsecured credit-linked notes due 2024 | $198,997 | $272,492 | | Bank-issued 5.25% fixed rate subordinated notes due 2026 | $174,392 | $174,196 | | Company-issued 4.00% fixed rate subordinated notes due 2031 | $371,676 | $371,348 | | Trust preferred floating rate subordinated debentures due 2032 to 2036 | $113,406 | $113,406 | | Total long-term debt | $858,471 | $931,442 | - Short-term borrowings increased by **$198.86 million** from December 31, 2022, to September 30, 2023, primarily due to an increase in FHLB borrowings[59](index=59&type=chunk) - Long-term debt decreased by **$72.97 million**, mainly due to a partial paydown of **$75.0 million** of senior unsecured credit-linked notes in Q2 2023[60](index=60&type=chunk) [(6) Financial Instruments with Off-Balance Sheet Risk](index=17&type=section&id=%286%29%20Financial%20Instruments%20with%20Off-Balance%20Sheet%20Risk) This section discusses the Company's off-balance sheet financial instruments and related credit loss allowances Off-Balance Sheet Credit Losses (in thousands) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $21,793 | $17,265 | | Provision for off-balance sheet credit losses | $24,477 | $4,383 | | Ending balance | $46,270 | $21,648 | - The allowance for off-balance sheet credit losses significantly increased to **$46.27 million** at September 30, 2023, from **$21.79 million** at the beginning of the period, primarily due to a higher allocation of losses to off-balance sheet financial instruments following changes in the **CECL model**[61](index=61&type=chunk)[62](index=62&type=chunk) Off-Balance Sheet Commitments (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Commitments to extend credit | $9,704,070 | $9,673,082 | | Standby letters of credit | $515,651 | $417,896 | [(7) Regulatory Ratios and Capital](index=17&type=section&id=%287%29%20Regulatory%20Ratios%20and%20Capital) This section presents the Company's regulatory capital ratios and compliance with 'well capitalized' requirements Regulatory Capital Ratios (Company) (as of Sep 30, 2023) | Capital Ratio | Actual Ratio | Minimum Required Ratio | Capital Required to be Well Capitalized | | :----------------------------------- | :----------- | :--------------------- | :------------------------------------ | | CET1 | 12.70 % | 7.00 % | N/A | | Total capital (to risk-weighted assets) | 17.09 % | 10.50 % | 10.00 % | | Tier 1 capital (to risk-weighted assets) | 14.28 % | 8.50 % | 6.00 % | | Tier 1 capital (to average assets) | 12.14 % | 4.00 % | N/A | - The Company and the Bank exceeded all **'well capitalized'** regulatory capital requirements as of September 30, 2023, with CET1 and total capital ratios of **12.70%** and **17.09%** respectively for the Company[68](index=68&type=chunk)[69](index=69&type=chunk)[73](index=73&type=chunk) - The Company utilizes the **five-year transition option** for the **CECL** accounting standard's effect on regulatory capital[67](index=67&type=chunk) - During the nine months ended September 30, 2023, the Company repurchased **1,011,909 shares** of common stock for **$59.7 million** under a new **$150.0 million** share repurchase program authorized in January 2023[65](index=65&type=chunk)[66](index=66&type=chunk) [(8) Stock-Based Compensation](index=19&type=section&id=%288%29%20Stock-Based%20Compensation) This section details the Company's stock-based compensation expense and unrecognized compensation related to awards Stock-Based Compensation Expense (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | RSUs | $4,441 | $5,376 | $17,948 | $15,805 | | Cash-settled units | $0 | $3 | $0 | $186 | | Total | $4,441 | $5,379 | $17,948 | $15,991 | - Total stock-based compensation expense for the nine months ended September 30, 2023, increased to **$17.95 million** from **$15.99 million** in the prior year, primarily from RSUs[77](index=77&type=chunk) - Unrecognized compensation expense related to unvested stock-settled awards was **$33.77 million** at September 30, 2023, with a weighted average recognition period of **2.1 years**[78](index=78&type=chunk) [(9) Fair Value Disclosures](index=20&type=section&id=%289%29%20Fair%20Value%20Disclosures) This section provides fair value measurements for assets and liabilities, categorized by valuation input levels Assets and Liabilities Measured at Fair Value (in thousands) - Sep 30, 2023 | Item | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :-------- | :-------- | :-------- | | Available-for-sale debt securities | $623,448 | $2,512,326 | $12,091 | | Equity securities | $29,689 | $10,811 | $0 | | Mortgage loans held for sale | $0 | $706 | $0 | | Loans held for investment | $0 | $0 | $32,847 | | Derivative assets | $0 | $12,347 | $0 | | Securities sold not yet purchased | $9,532 | $0 | $0 | | Derivative liabilities | $0 | $119,481 | $0 | | Non-qualified deferred compensation plan liabilities | $18,488 | $0 | $0 | - At September 30, 2023, **$32.8 million** of loans held for investment were measured at fair value on a nonrecurring basis, based on collateral valuations utilizing **Level 3 inputs**[88](index=88&type=chunk) - The fair value of CRT securities, a **Level 3 valuation**, was **$12.09 million** at September 30, 2023, determined using a discounted cash flow model with discount rates ranging from **6.89% to 10.61%** and weighted-average life from **5.14 to 7.92 years**[87](index=87&type=chunk) [(10) Derivative Financial Instruments](index=23&type=section&id=%2810%29%20Derivative%20Financial%20Instruments) This section details the Company's derivative positions, including notional amounts and fair values, and their impact Derivative Positions (in thousands) | Metric | Sep 30, 2023 Notional Amount | Sep 30, 2023 Estimated Fair Value (Asset) | Sep 30, 2023 Estimated Fair Value (Liability) | | :----------------------------------- | :-------------------------- | :--------------------------------------- | :---------------------------------------- | | Swaps hedging loans | $3,100,000 | $0 | $111,760 | | Customer-initiated and other derivatives (total) | $19,522,344 | $137,333 | $248,285 | | Net derivatives included on consolidated balance sheets | N/A | $12,347 | $119,481 | - The Company's credit exposure on derivative instruments, net of collateral, was approximately **$12.3 million** at September 30, 2023[92](index=92&type=chunk) - During the nine months ended September 30, 2023, the Company recorded **$66.1 million** in unrealized losses to adjust cash flow hedges to fair value (net of tax to AOCI) and reclassified **$43.4 million** from AOCI as a decrease to interest income on loans[95](index=95&type=chunk) [(11) Accumulated Other Comprehensive Income](index=24&type=section&id=%2811%29%20Accumulated%20Other%20Comprehensive%20Income) This section outlines changes in accumulated other comprehensive income (AOCI) by component, including cash flow hedges and securities Change in AOCI by Component (in thousands) - 9 Months Ended Sep 30, 2023 | Component | Beginning Balance | Change in Unrealized Gain/(Loss) | Amounts Reclassified into Net Income | Ending Balance | | :----------------------------------- | :---------------- | :------------------------------- | :--------------------------------- | :------------- | | Cash Flow Hedges | $(66,394) | $(66,101) | $43,426 | $(84,308) | | Available-for-Sale Securities | $(304,309) | $(93,007) | $0 | $(377,784) | | Held-to-Maturity Securities | $(48,240) | $0 | $5,594 | $(43,820) | | Total AOCI (net of tax) | $(418,943) | $(159,108) | $49,020 | $(505,912) | - Total accumulated other comprehensive loss (AOCI) increased to **$(505.9) million** at September 30, 2023, from **$(418.9) million** at the beginning of the nine-month period, primarily due to changes in unrealized losses on available-for-sale securities and cash flow hedges[96](index=96&type=chunk) [(12) New Accounting Standards](index=24&type=section&id=%2812%29%20New%20Accounting%20Standards) This section discusses recently issued accounting standards and their anticipated impact on the Company's financials - **ASU 2023-05**, effective **January 1, 2025**, requires certain joint ventures to apply a new basis of accounting upon formation, recognizing and initially measuring most assets and liabilities at fair value. This is not expected to impact the Company's financial statements[97](index=97&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results of operations for the nine months ended September 30, 2023 [Overview](index=25&type=section&id=Overview) This chapter provides a high-level summary of the Company's financial performance, liquidity, and capital position - Despite significant banking industry volatility and high-profile bank failures in the first nine months of 2023, the Company maintained a **robust liquidity position** and **strong capital levels**[102](index=102&type=chunk) - The Company's CET1 and total capital ratios were **12.7%** and **17.1%**, respectively, as of September 30, 2023, exceeding regulatory requirements[102](index=102&type=chunk) - Total deposits increased by **4%** to **$23.9 billion** at September 30, 2023, compared to December 31, 2022[102](index=102&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This chapter analyzes the Company's key financial performance indicators, including net income, ROA, and ROE Key Performance Indicators | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest margin | 3.13 % | 3.05 % | 3.25 % | 2.64 % | | Return on average assets ("ROA") | 0.81 % | 0.52 % | 0.77 % | 0.47 % | | Return on average common equity ("ROE") | 8.08 % | 5.36 % | 7.46 % | 4.90 % | | Efficiency ratio | 64.5 % | 74.5 % | 67.0 % | 73.5 % | - Net income available to common stockholders increased to **$57.4 million** for Q3 2023 (from **$37.1 million** in Q3 2022) and to **$156.1 million** for the nine months ended September 30, 2023 (from **$102.3 million** in the prior year)[104](index=104&type=chunk)[105](index=105&type=chunk) - ROE improved to **8.08%** for Q3 2023 (from **5.36%** in Q3 2022) and to **7.46%** for the nine months ended September 30, 2023 (from **4.90%** in the prior year)[104](index=104&type=chunk)[105](index=105&type=chunk) [Net Interest Income](index=29&type=section&id=Net%20Interest%20Income) This chapter analyzes the Company's net interest income and net interest margin, detailing the impact of interest rates Net Interest Income and Margin | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $232.1 million | $239.1 million | $699.4 million | $628.2 million | | Net interest margin | 3.13 % | 3.05 % | 3.25 % | 2.64 % | | Yield on total loans held for investment | 6.58 % | 4.91 % | 6.53 % | 4.15 % | | Total cost of deposits | 2.62 % | 0.93 % | 2.36 % | 0.48 % | - Net interest income decreased by **$7.0 million** YoY for Q3 2023, primarily due to increased funding costs and decreased average earning assets, partially offset by higher yields on earning assets[117](index=117&type=chunk) - Net interest income increased by **$71.2 million** YoY for the nine months ended September 30, 2023, driven by higher yields on average earning assets, despite rising funding costs and decreased average earning assets[121](index=121&type=chunk) - Net interest margin improved to **3.13%** for Q3 2023 (from **3.05%** in Q3 2022) and to **3.25%** for the nine months ended September 30, 2023 (from **2.64%** in the prior year), reflecting the impact of rising interest rates on asset yields[119](index=119&type=chunk)[123](index=123&type=chunk) [Non-interest Income](index=30&type=section&id=Non-interest%20Income) This chapter examines the Company's non-interest income sources, including investment banking and trading income Non-interest Income (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total non-interest income | $46,872 | $25,332 | $130,286 | $71,855 | | Investment banking and trading income | $29,191 | $7,812 | $75,457 | $23,117 | - Non-interest income increased by **$21.5 million** YoY for Q3 2023 and by **$58.4 million** YoY for the nine months ended September 30, 2023, primarily driven by a significant increase in investment banking and trading income[125](index=125&type=chunk) [Non-interest Expense](index=30&type=section&id=Non-interest%20Expense) This chapter analyzes the Company's non-interest expenses, including salaries, benefits, and technology costs Non-interest Expense (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total non-interest expense | $179,891 | $197,047 | $555,562 | $514,442 | | Salaries and benefits | $110,010 | $128,764 | $351,730 | $331,981 | | Marketing | $4,757 | $8,282 | $20,168 | $21,765 | | Communications and technology | $19,607 | $18,470 | $57,655 | $48,819 | | FDIC insurance assessment | $5,769 | $3,953 | $11,632 | $11,252 | - Non-interest expense decreased by **$17.2 million** YoY for Q3 2023, mainly due to lower salaries and benefits (partially from a **$13.7 million** expense in Q3 2022 related to a subsidiary sale) and marketing expenses[126](index=126&type=chunk) - Non-interest expense increased by **$41.1 million** YoY for the nine months ended September 30, 2023, primarily due to higher salaries and benefits, legal and professional, and communications and technology expenses[127](index=127&type=chunk) [Analysis of Financial Condition](index=31&type=section&id=Analysis%20of%20Financial%20Condition) This chapter provides an in-depth analysis of the Company's financial condition, focusing on loans, non-performing assets, and credit loss experience [Loans Held for Investment](index=31&type=section&id=Loans%20Held%20for%20Investment) This section details the Company's loan portfolio by segment, highlighting growth and composition Gross Loans Held for Investment (in thousands) | Portfolio Segment | Sep 30, 2023 | Dec 31, 2022 | | :------------------------ | :----------- | :----------- | | Commercial | $10,365,650 | $9,832,676 | | Mortgage finance | $4,429,489 | $4,090,033 | | Commercial real estate | $5,358,770 | $4,875,363 | | Consumer | $537,229 | $552,848 | | Total gross loans held for investment | $20,691,138 | $19,350,920 | - Total loans held for investment increased by **$1.3 billion (6.9%)** from December 31, 2022, to September 30, 2023, reflecting broad-based growth across commercial, mortgage finance, and commercial real estate categories[130](index=130&type=chunk) - Mortgage finance loans, typically sold within **10-20 days**, constituted **21%** of total loans held for investment at both periods[130](index=130&type=chunk) [Portfolio Concentrations](index=31&type=section&id=Portfolio%20Concentrations) This section discusses the geographic and business concentrations within the Company's loan portfolio - A majority of the Company's loans held for investment (excluding mortgage finance and other national lines of business) are to businesses headquartered or operating in Texas, indicating **significant geographic concentration risk**[132](index=132&type=chunk) - Over **50%** of the Company's total loan exposure and deposits are outside of Texas, diversifying some of the geographic risk[132](index=132&type=chunk) [Non-performing Assets](index=32&type=section&id=Non-performing%20Assets) This section reports on the Company's non-performing assets, including non-accrual loans and their ratios Non-performing Assets (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total non-accrual loans held for investment | $63,129 | $48,338 | | Non-accrual loans held for investment to total loans held for investment | 0.31 % | 0.25 % | | Total non-performing assets to total assets | 0.21 % | 0.17 % | - Total non-performing assets increased to **$63.1 million** at September 30, 2023, from **$48.3 million** at December 31, 2022, primarily due to an increase in non-accrual commercial loans[135](index=135&type=chunk) - The ratio of allowance for credit losses on loans to non-accrual loans held for investment decreased to **3.9x** at September 30, 2023, from **5.2x** at December 31, 2022[135](index=135&type=chunk) [Summary of Credit Loss Experience](index=32&type=section&id=Summary%20of%20Credit%20Loss%20Experience) This section summarizes the Company's credit loss experience, including allowance for credit losses and net charge-offs Credit Loss Experience Metrics | Metric | Sep 30, 2023 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | | Allowance for credit losses on loans to total loans held for investment | 1.19 % | 1.19 % | | Total allowance for credit losses to total loans held for investment | 1.41 % | 1.30 % | | Total provision for credit losses to average total loans held for investment | 0.35 % | 0.19 % | - The total provision for credit losses (loans and off-balance sheet) increased to **$53.0 million** for the nine months ended September 30, 2023, from **$32.0 million** in the prior year[9](index=9&type=chunk) Net Charge-offs to Average Loans by Segment (9 Months Ended Sep 30) | Portfolio Segment | 2023 Net Charge-offs | 2023 Net Charge-offs to Average Loans | 2022 Net Charge-offs | 2022 Net Charge-offs to Average Loans | | :------------------------ | :------------------- | :------------------------------------ | :------------------- | :------------------------------------ | | Commercial | $37,054 | 0.48 % | $4,541 | 0.05 % | | Total | $37,090 | 0.25 % | $4,870 | 0.03 % | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This chapter discusses the Company's liquidity position, funding sources, borrowing capacity, and capital levels - The Company's primary funding source is **customer deposits**, supplemented by short-term borrowings (federal funds, FHLB advances) and long-term debt[141](index=141&type=chunk) Liquidity Metrics (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Interest bearing cash and cash equivalents | $3,975,860 | $4,778,623 | | Interest bearing cash and cash equivalents as a percent of total deposits | 16.7 % | 20.9 % | | Customer deposits | $22,485,141 | $21,247,999 | | Brokered deposits | $1,393,837 | $1,608,881 | | Estimated uninsured deposits as a percent of total deposits | 40 % | N/A | Short-Term Borrowing Capacity (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total FHLB borrowing capacity | $6,937,371 | $6,160,515 | | Unused federal funds lines available from commercial banks | $1,388,000 | $1,479,000 | | Unused Federal Reserve borrowings capacity | $3,052,148 | $3,574,762 | | Unused revolving line of credit | $100,000 | $75,000 | - The Company's equity capital averaged **$3.1 billion** for the nine months ended September 30, 2023, consistent with the prior year[149](index=149&type=chunk) [Critical Accounting Estimates](index=35&type=section&id=Critical%20Accounting%20Estimates) This chapter highlights the Company's critical accounting estimates, particularly the allowance for credit losses (ACL) - Management considers the **allowance for credit losses (ACL)** as the most critical accounting estimate, involving significant judgment and uncertainty[154](index=154&type=chunk) - The ACL is determined using a **CECL model**, segregating the loan portfolio into pools by segment and credit grade, and incorporating historical loss rates, probability of default, loss severities, and reasonable and supportable forecasts[154](index=154&type=chunk) - Under the most severe downside macroeconomic scenario considered, the quantitative estimate of the allowance for credit loss would increase by approximately **$183.7 million**[155](index=155&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's market risk exposure, primarily interest rate risk, and its management through derivatives and LIBOR transition [Interest Rate Risk Management](index=36&type=section&id=Interest%20Rate%20Risk%20Management) This chapter describes how the Company identifies, measures, and manages its exposure to interest rate fluctuations - The Company is primarily exposed to market risk through changes in **interest rates** affecting its non-trading assets and interest rate derivative instruments[158](index=158&type=chunk) - Management uses a sensitivity analysis and a dynamic simulation model to quantify interest rate risk exposure on net interest income over the next **twelve months** under various 'shock test' scenarios (e.g., immediate **100 and 200 basis point** increases/decreases)[163](index=163&type=chunk)[165](index=165&type=chunk) Anticipated Impact on Net Interest Income (in thousands) - Next 12 Months | Scenario | Sep 30, 2023 Impact | Sep 30, 2022 Impact | | :----------------------------------- | :------------------ | :------------------ | | 100 bps Increase | $58,451 | $76,688 | | 200 bps Increase | $29,296 | $134,859 | | 100 bps Decrease | $(41,562) | $(103,564) | | 200 bps Decrease | $(83,055) | N/A | [Use of Derivatives to Manage Interest Rate and Other Risks](index=37&type=section&id=Use%20of%20Derivatives%20to%20Manage%20Interest%20Rate%20and%20Other%20Risks) This chapter explains the Company's use of derivative instruments for hedging and managing various financial risks - The Company uses derivative transactions to manage **interest rate, prepayment, credit, price, and foreign currency risks** (asset and liability management positions) and to support customer business requirements (customer-related positions)[167](index=167&type=chunk)[169](index=169&type=chunk) - Derivative contracts are designated as **fair value hedges, cash flow hedges, net investment hedges**, or non-hedging derivatives depending on their purpose[168](index=168&type=chunk) [LIBOR Transition](index=37&type=section&id=LIBOR%20Transition) This chapter describes the Company's progress in transitioning financial instruments from LIBOR to alternative benchmark rates - The Company has transitioned substantially all financial instruments from **LIBOR** to an alternative benchmark rate, primarily **SOFR**, by **September 30, 2023**, following regulatory guidance and the Adjustable Interest Rate (LIBOR) Act[171](index=171&type=chunk)[172](index=172&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - The Company's management, with CEO and CFO supervision, concluded that disclosure controls and procedures were **effective** as of September 30, 2023[174](index=174&type=chunk) - There were **no material changes** in the Company's internal control over financial reporting during the period covered by the report[175](index=175&type=chunk) PART II - OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, and equity security sales [ITEM 1. LEGAL PROCEEDINGS](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section details the Company's involvement in legal proceedings and management's assessment of their financial impact - Management does not expect current legal proceedings to have a **material adverse impact** on the Company's financial statements or results of operations[177](index=177&type=chunk) [ITEM 1A. RISK FACTORS](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to the risk factors previously disclosed in the Company's prior filings - No **material changes** to risk factors were reported since the previous filings[178](index=178&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchase activities, including program completion and new authorizations Common Stock Repurchases (9 Months Ended Sep 30, 2023) | Month | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :------------------------------- | :--------------------------- | | January 2023 | 564,206 | $61.50 | | March 2023 | 447,703 | $55.80 | | Total | 1,011,909 | $58.98 | - The Company completed its **$150.0 million** share repurchase program authorized in April 2022 during January 2023[179](index=179&type=chunk) - A new **$150.0 million** share repurchase program was authorized on January 18, 2023, under which **1,011,909 shares** were repurchased for **$59.7 million** during the nine months ended September 30, 2023[179](index=179&type=chunk)[150](index=150&type=chunk) [ITEM 6. EXHIBITS](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL taxonomy documents - The report includes **certifications** from the Chief Executive Officer and Chief Financial Officer as required by the Exchange Act[182](index=182&type=chunk) - **XBRL** (eXtensible Business Reporting Language) documents are filed, providing structured data for financial reporting[182](index=182&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2023 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to Commission file number 001-34657 TEXAS CAPITAL BANCSHARES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 75-2679109 (State or other jurisdiction ...

Financial Data and Key Metrics Changes - The company reported a net income to common of $64.3 million for the quarter, up $34.5 million year-over-year, with earnings per share increasing by $0.74, marking the highest level in two years adjusted for divestiture [58] - Quarterly PPNR grew 43% year-over-year to $96.4 million, the highest since the transformation began in Q1 2021 [58] - Total revenue increased by $46.2 million or 20% compared to Q2 2022, benefiting from a 76% increase in noninterest income [85] Business Line Data and Key Metrics Changes - Investment banking and trading income reached a record $27.5 million, up $8.7 million or 47% quarter-over-quarter, marking the third consecutive record quarter since launching the investment banking business [53][84] - Wealth management income increased 8% quarter-over-quarter, with assets under management growing 6% [42] - Gross payment revenues increased by 12% year-over-year, indicating a successful multiyear focus on proprietary applications [36] Market Data and Key Metrics Changes - Deposit balances increased by 5% or $1.1 billion in the quarter, with the loan-to-deposit ratio remaining flat at 91% [44] - Noninterest-bearing deposits decreased by 19%, reflecting a shift to interest-bearing deposits [64] - The company experienced a 10% increase in criticized loans, primarily due to special mention real estate loans [95] Company Strategy and Development Direction - The company is focused on a multi-quarter business model transformation aimed at reducing dependence on rate-driven earnings and enhancing revenue stability [13] - Continued investment in the investment banking platform is expected to contribute at least 10% of total revenue by 2025 [53] - The firm aims to maintain a strong liquidity position, targeting a CET1 ratio of at least 12% by year-end [99] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation and the ability to meet long-term targets despite changing market conditions [74] - The company anticipates manageable real estate migration and believes its client selection and underwriting guidelines provide adequate protection against realized loss [68] - Management noted that while loan growth was lower this quarter, new client acquisition increased by over 30% compared to the prior quarter [139] Other Important Information - The company has made significant investments over the last two years, resulting in expected operating and financial efficiencies [71] - The firm has successfully launched the Texas Capital Texas Equity ETF, marking a significant expansion of its asset management capabilities [131] - The company reported a tangible book value per share of $57.93, a near all-time high, reflecting a 7% year-over-year increase [55] Q&A Session Summary Question: What is the outlook for investment banking and trading? - Management indicated that the investment banking pipeline is broad and diverse, with expectations for continued solid performance in the third and fourth quarters [119] Question: Can you provide an update on staffing expectations? - Management noted a 6% decline in noninterest expenses quarter-over-quarter, with high-quality staffing now in place and stability achieved [103][104] Question: What are the expectations for loan growth? - Management clarified that loan growth is not the primary focus, emphasizing the importance of recycling capital and meeting client needs through various solutions [138]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2023 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to Commission file number 001-34657 TEXAS CAPITAL BANCSHARES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 75-2679109 (State or other jurisdiction ...

Texas Capital Bancshares, Inc. (NASDAQ:TCBI) Q1 2023 Earnings Conference Call March 20, 2023 9:00 AM ET Company Participants Jocelyn Kukulka - Head of Investor Relations Rob Holmes - President and Chief Executive Officer Matt Scurlock - Chief Financial Officer Conference Call Participants Michael Rose - Raymond James Brett Rabatin - Hovde Group Brody Preston - UBS Matthew Olney - Stephens Inc. Brad Milsaps - Piper Sandler Brady Gailey - Keefe Bruyette & Woods Inc. Brandon King - Truist Securities Operator H ...

PART I [Business Overview](index=3&type=section&id=Item%201.%20Business) Texas Capital Bancshares, Inc. (TCBI) operates as a bank and financial holding company, primarily serving commercial businesses and professionals in Texas, and recently completed the **$3.4 billion** sale of its insurance premium finance subsidiary, BDCF - TCBI is a Delaware corporation, incorporated in November 1996, operating as a registered bank holding company and financial holding company through its wholly-owned subsidiary, Texas Capital Bank[7](index=7&type=chunk) - The Company serves commercial businesses, entrepreneurs, and professionals in Texas's five largest metropolitan areas (Austin, Dallas, Fort Worth, Houston, San Antonio) with a custom array of financial products and services[8](index=8&type=chunk) - Sale of BankDirect Capital Finance, LLC (BDCF) | Metric | Value | | :-------------------------------- | :------------------- | | Sale Announcement Date | September 6, 2022 | | Sale Completion Date | November 1, 2022 | | Loan Portfolio Sold | ~$3.1 billion | | Purchase Price | $3.4 billion | | Pre-tax Gain | $248.5 million | - TCBI's long-term strategy, updated on September 1, 2021, focuses on building a Texas-based full-service financial services firm, emphasizing client delivery, technology investment, and financial resilience[10](index=10&type=chunk)[211](index=211&type=chunk) - The Company offers specialized products and services regionally and nationwide, including mortgage finance, homebuilder finance, investment banking, and Bask Bank (an online banking division offering American Airlines AAdvantage® miles or traditional interest on deposits)[14](index=14&type=chunk) [Background](index=3&type=section&id=Background) TCBI, incorporated in November 1996, operates as a bank and financial holding company, serving Texas commercial and professional clients, and recently sold its BDCF subsidiary for **$3.4 billion** - Texas Capital Bancshares, Inc. (TCBI) was incorporated in November 1996 and commenced banking operations in December 1998, operating as a registered bank holding company and financial holding company[7](index=7&type=chunk) - The Company's primary banking offices are located in Austin, Dallas, Fort Worth, Houston, and San Antonio, serving commercial businesses, entrepreneurs, and professionals in Texas[8](index=8&type=chunk) - On September 6, 2022, TCBI announced the sale of its insurance premium finance subsidiary, BankDirect Capital Finance, LLC (BDCF), for **$3.4 billion**, resulting in a pre-tax gain of **$248.5 million**, with the sale completed on November 1, 2022[9](index=9&type=chunk) [Business Strategy and Markets](index=3&type=section&id=Business%20Strategy%20and%20Markets) TCBI's updated strategy aims to build a full-service financial firm in Texas, differentiating itself through personalized service in a competitive market, and mitigating risk with specialized national business lines - TCBI's long-term strategy, updated in September 2021, aims to build a Texas-based full-service financial services firm, focusing on client delivery, technology investment, and financial resilience[10](index=10&type=chunk) - The Company operates in a highly competitive Texas market, competing with national, regional, and local banks, as well as non-bank financial service providers[11](index=11&type=chunk) - TCBI differentiates itself by offering responsive and personalized service and advice, aiming for 'first call' relationships with clients[13](index=13&type=chunk) - Beyond Texas, the Company has specialized business lines including mortgage finance, homebuilder finance, investment banking, and Bask Bank, which help mitigate geographic concentration risk[14](index=14&type=chunk) [Products and Services](index=4&type=section&id=Products%20and%20Services) TCBI offers a comprehensive suite of financial products for business customers, including commercial and real estate loans, treasury management, and investment banking, alongside wealth management and various deposit accounts for individuals - For business customers, TCBI offers commercial loans (working capital, growth, acquisitions), real estate loans, mortgage warehouse lending, treasury management, investment banking, and letters of credit[16](index=16&type=chunk) - For individual customers, services include wealth management, trust services, various deposit accounts (CDs, checking, money market, savings), secured/unsecured loans, online/mobile banking, and Bask Bank[17](index=17&type=chunk) [Lending Activities](index=4&type=section&id=Lending%20Activities) The Company targets commercial clients with a diversified loan portfolio, applying strict credit standards and primarily extending variable rate loans to manage interest rate risk, while actively transitioning from LIBOR - The Company targets commercial businesses, entrepreneurs, and professionals, maintaining a diversified loan portfolio with credit standards set by a Credit Policy Committee[18](index=18&type=chunk) - Credit standards for commercial borrowers consider financial information, management strength, collateral, and industry trends, with analysis of industry concentrations to mitigate risk[19](index=19&type=chunk) - TCBI primarily extends variable rate loans, often with minimum floor rates, to protect against interest rate fluctuations[20](index=20&type=chunk) - The Company has a working group managing the transition away from LIBOR, ceasing LIBOR-based product originations in December 2021 and actively transitioning remaining products to alternative benchmarks like SOFR[20](index=20&type=chunk)[21](index=21&type=chunk) [Treasury Solutions and Deposit Products](index=5&type=section&id=Treasury%20Solutions%20and%20Deposit%20Products) Texas Capital Bank provides commercial customers with checking, money market, sweep accounts, and advanced digital payment solutions, while offering personal banking deposit products with online and mobile access - For commercial customers, Texas Capital Bank offers checking, money market savings, sweep accounts, and advanced payment/receivables solutions (instant payments, wire, ACH, commercial card, merchant, lockbox) via a digital platform[22](index=22&type=chunk) - Personal banking deposit products include checking, savings, money market, and certificates of deposit, with online and mobile access for account management[23](index=23&type=chunk) [Wealth Management and Trust](index=5&type=section&id=Wealth%20Management%20and%20Trust) Texas Capital Bank Private Wealth Advisors offers comprehensive services including investment management, lending, depository products, financial planning, trust and estate services, and insurance - Texas Capital Bank Private Wealth Advisors (PWA) offers investment management, lending, depository products, financial planning, trust and estate services, and insurance services[24](index=24&type=chunk) [Investment Banking](index=5&type=section&id=Investment%20Banking) Texas Capital Securities provides investment banking products and services, including debt, convertible, and equity securities offerings, M&A advisory, and risk management for interest rate, foreign exchange, and commodity risks - Texas Capital Securities (TCS) provides investment banking products and services, including debt, convertible, and equity securities offerings, M&A advisory, and risk management for interest rate, foreign exchange, and commodity risks[25](index=25&type=chunk) [Human Capital](index=5&type=section&id=Human%20Capital) The Company prioritizes attracting, developing, and retaining talent through diversity and inclusion initiatives, enhanced performance management, and leadership development programs - The Company focuses on attracting, developing, retaining, and planning for succession of key talent, investing in diversity, inclusion, and employee growth[26](index=26&type=chunk) - A DEI Council, co-chaired by the CEO and CHRO, steers diversity, equity, and inclusion strategies and initiatives[27](index=27&type=chunk) - In 2022, the Company enhanced its performance management, implemented more defined succession planning, and improved training and development programs, including a new leadership model[28](index=28&type=chunk)[29](index=29&type=chunk) - Employee Demographics (as of December 31, 2022) | Metric | Value | | :----------------- | :------ | | Total Employees | 2,198 | | Female Employees | ~44% | | Ethnically Diverse | ~44% | [Regulation and Supervision](index=6&type=section&id=Regulation%20and%20Supervision) TCBI is subject to extensive federal and state regulations from multiple agencies, including capital requirements, privacy laws, and anti-money laundering acts, primarily aimed at protecting depositors and ensuring banking system stability - TCBI is subject to extensive federal and state laws and regulations, primarily intended for the protection of depositors, the Deposit Insurance Fund (DIF), and the stability of the U.S. banking system[31](index=31&type=chunk) - TCBI is regulated by the Federal Reserve (as a bank holding company), the SEC (as a public company), and Nasdaq (for listed companies)[33](index=33&type=chunk) - Texas Capital Bank is regulated by the Texas Department of Banking and the FDIC, and its activities are also subject to the Consumer Financial Protection Bureau (CFPB)[34](index=34&type=chunk) - The Company has elected to be a financial holding company, allowing it to engage in activities financial in nature or incidental/complementary to financial activities, subject to regulatory approval and capital standards[36](index=36&type=chunk)[37](index=37&type=chunk) - Federal Reserve policy expects bank holding companies to act as a source of financial and managerial strength to their banks and may restrict dividend payments if capital needs are not met[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - Federal banking regulators have adopted Basel III Capital Rules, requiring minimum capital ratios (CET1, Tier 1, Total Capital, Leverage Ratio) and a **2.5% capital conservation buffer**[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - As of December 31, 2022, the Bank's CET1 ratio and total risk-based capital ratio exceeded the amounts required to be classified as 'well capitalized' under FDIC regulations[50](index=50&type=chunk) - The Company adopted the CECL accounting standard on January 1, 2020, and elected the five-year transition option to phase in its effects on regulatory capital ratios[53](index=53&type=chunk) - The FDICIA established prompt corrective action regulations, categorizing institutions into five capital categories, with increasing supervisory actions for lower capital levels[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - The Company is subject to privacy and data security regulations, including GLB Act provisions, and new SEC proposed amendments for enhanced cybersecurity disclosures[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - The Community Reinvestment Act (CRA) requires depository institutions to meet credit needs in their market areas, with the Bank's strategic focus making CRA compliance more challenging[74](index=74&type=chunk)[75](index=75&type=chunk) - The USA Patriot Act, International Money Laundering Abatement and Financial Anti-Terrorism Act, and Bank Secrecy Act impose obligations on financial institutions to combat money laundering and terrorist financing[76](index=76&type=chunk)[77](index=77&type=chunk) - The Dodd-Frank Act has significantly impacted the financial services industry, enhancing restrictions on affiliate transactions, expanding insider transaction limitations, and increasing secondary actor liability for lenders[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) The Company files annual, quarterly, and current reports, proxy statements, and other information with the SEC, which are publicly available on the SEC's website and its corporate website - The Company files annual, quarterly, and current reports, proxy statements, and other information with the SEC, available on www.sec.gov and its corporate website www.texascapitalbank.com[95](index=95&type=chunk)[96](index=96&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) TCBI is exposed to a range of significant risks, including credit risks from its commercial loan portfolio and real estate market conditions, liquidity risks related to funding and capital availability, and market risks from interest rate fluctuations and the LIBOR transition. Operational risks encompass information systems, cyber threats, and reliance on external vendors. Strategic risks involve developing new business lines and intense competition. Legal, regulatory, and compliance risks are substantial due to extensive oversight and evolving standards. Additionally, external factors like economic conditions, natural disasters, and climate change pose risks, as do factors specific to the Company's securities, such as stock price volatility and dividend policies. - The Company faces significant credit risks due to its concentration in commercial loans and exposure to real estate market conditions, which can lead to increased losses if not effectively managed[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - Liquidity risk is a concern, as the Company's growth depends on capital and funding availability, and it relies on customer deposits and borrowings to meet obligations[116](index=116&type=chunk)[122](index=122&type=chunk)[125](index=125&type=chunk) - Market risks include interest rate fluctuations, which significantly impact net interest income, and the ongoing transition away from LIBOR, which could affect financial instruments and hedging strategies[127](index=127&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) - Operational risks are heightened by reliance on information systems and external vendors, making the Company vulnerable to cyber threats, disruptions, and security breaches[141](index=141&type=chunk)[142](index=142&type=chunk)[147](index=147&type=chunk) - Extensive government regulation and supervision, including evolving capital adequacy requirements and compliance with acts like Dodd-Frank, pose substantial legal, regulatory, and compliance risks[152](index=152&type=chunk)[153](index=153&type=chunk)[158](index=158&type=chunk) - Other external risks include unpredictable economic conditions, the lingering effects of the COVID-19 pandemic, the soundness of other financial institutions, and potential impacts from climate change and related regulations[163](index=163&type=chunk)[165](index=165&type=chunk)[168](index=168&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - Risks related to Company securities include stock price volatility, lower trading volume compared to larger firms, the non-insured nature of investments, and the senior rights of indebtedness and preferred stock holders[176](index=176&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Summary of Risk Factors](index=14&type=section&id=Summary%20of%20Risk%20Factors) Key risk categories for the Company include Credit, Liquidity, Market, Strategic, Operational, Legal, Regulatory and Compliance, Other Business Risks, and Risks Relating to Securities - Key risk categories include Credit Risks, Liquidity Risks, Market Risks, Strategic Risks, Operational Risks, Legal, Regulatory and Compliance Risks, Other Risks Affecting the Business, and Risks Relating to Securities[99](index=99&type=chunk)[100](index=100&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) [Risk Factors Associated with the Business](index=15&type=section&id=Risk%20Factors%20Associated%20with%20the%20Business) Business risks include high credit exposure to commercial loans and real estate, liquidity dependence on funding, interest rate sensitivity, challenges in new business development, operational vulnerabilities to cyber threats, extensive regulatory oversight, and external factors like economic conditions and climate change - Credit risks are high due to a significant portion of assets in commercial loans, exposure to real estate market conditions, and concentration in Texas and the energy industry[106](index=106&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk) - The Company's liquidity is dependent on the availability of capital and funding, with a significant volume of non-interest bearing deposits sourced from financial services and mortgage finance companies, posing withdrawal risks[119](index=119&type=chunk) - Interest rate risk is a major market risk, with profitability highly dependent on net interest income and sensitivity to changes in interest rates, especially with the ongoing LIBOR transition[127](index=127&type=chunk)[134](index=134&type=chunk) - Strategic risks include the challenges of developing and executing new lines of business and products in a highly competitive market, requiring significant investment and effective risk management[136](index=136&type=chunk)[137](index=137&type=chunk) - Operational risks are substantial due to heavy reliance on information systems and external vendors, making the Company vulnerable to cyber threats, data breaches, and system disruptions[141](index=141&type=chunk)[147](index=147&type=chunk) - Legal, regulatory, and compliance risks stem from extensive government oversight, evolving capital adequacy guidelines, and potential litigation, requiring continuous investment in compliance infrastructure[152](index=152&type=chunk)[158](index=158&type=chunk) - Other business risks include unpredictable economic conditions, the lingering impact of the COVID-19 pandemic, the soundness of other financial institutions, and environmental liability risks, including those related to climate change[163](index=163&type=chunk)[165](index=165&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk)[173](index=173&type=chunk) [Risks Relating to Company Securities](index=27&type=section&id=Risks%20Relating%20to%20Company%20Securities) Risks related to Company securities include stock price volatility influenced by operating results and economic conditions, lower trading volume, non-FDIC insured investments, senior rights of other security holders, and the absence of common stock dividends - The Company's stock price can be volatile due to variations in operating results, analyst recommendations, economic conditions, and geopolitical events[176](index=176&type=chunk)[178](index=178&type=chunk) - Trading volume in common and preferred stock is less than larger financial services companies, increasing volatility risk from significant sales[179](index=179&type=chunk)[180](index=180&type=chunk) - Investments in the Company's securities are not FDIC-insured deposits and are subject to market risks[181](index=181&type=chunk) - Holders of indebtedness and preferred stock have senior rights over common stockholders regarding payments and distributions[182](index=182&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) - The Company does not currently pay dividends on common stock and does not expect to in the foreseeable future, limited by regulatory restrictions and capital needs[186](index=186&type=chunk) - Federal banking laws and anti-takeover provisions in corporate documents limit third-party acquisition of the Company's common stock[187](index=187&type=chunk)[188](index=188&type=chunk) - The Bank's subordinated notes are subject to regulatory and contractual limitations on payment, especially if the Bank becomes undercapitalized[189](index=189&type=chunk)[190](index=190&type=chunk) [Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - The Company has no unresolved staff comments[191](index=191&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The Company's corporate headquarters is in Dallas, Texas, and it leases various facilities across its primary market regions in Texas, Louisiana, and New York, including full-service banking centers and an operations center in Richardson, Texas - The Company's corporate headquarters is leased in uptown Dallas, Texas, housing executive and primary administrative offices, and the principal banking headquarters of Texas Capital Bank[192](index=192&type=chunk) - Additional leased facilities are located in Dallas, Fort Worth, Houston, Austin, San Antonio, Louisiana, and New York, some operating as full-service banking centers[192](index=192&type=chunk) - An operations center in Richardson, Texas, houses loan and deposit operations and the customer call center[192](index=192&type=chunk) [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The Company is involved in various claims and legal actions in the ordinary course of business, but management does not anticipate any material adverse impact on its financial statements or results of operations from their disposition - The Company is subject to various claims and legal actions arising in the ordinary course of business[193](index=193&type=chunk) - Management does not expect the disposition of these matters to have a material adverse impact on the Company's financial statements or results of operations[193](index=193&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable[195](index=195&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's common stock is traded on The Nasdaq Global Select Market under the symbol "TCBI". As of February 8, 2023, there were approximately 150 holders of record. The Company has not paid cash dividends on its common stock and has no plans to do so in the foreseeable future. In 2022, the Company repurchased 2,083,118 shares for **$115.3 million** and authorized a new **$150.0 million** repurchase program in January 2023. - The Company's common stock is traded on The Nasdaq Global Select Market under the symbol **"TCBI"**[196](index=196&type=chunk) - As of February 8, 2023, there were approximately **150 holders of record** of the Company's common stock[196](index=196&type=chunk) - The Company has not paid cash dividends on its common stock since operations commenced and has no plans to do so in the foreseeable future[196](index=196&type=chunk) - Common Stock Repurchases (Year Ended December 31, 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :------------- | :--------------------- | :--------------------------- | :----------------------------------------------- | | May 2022 | 902,418 | $53.22 | $101,975,648 | | June 2022 | 39,461 | $50.66 | $99,976,436 | | December 2022 | 1,141,239 | $57.20 | $34,697,754 | | **Total** | **2,083,118** | **$55.35** | **$34,697,754** | - In January 2023, the Company repurchased an additional **564,206 shares** at **$61.50**, completing the **$150.0 million** authorization from April 2022[201](index=201&type=chunk) - On January 18, 2023, the board authorized a new share repurchase program for up to **$150.0 million** of common stock, with no set time limit[202](index=202&type=chunk) [Stock Performance Graph](index=31&type=section&id=Stock%20Performance%20Graph) This section presents a stock performance graph comparing TCBI's common stock cumulative total stockholder return against key market indices for the five-year period ending December 31, 2022 - The report includes a stock performance graph comparing TCBI's common stock cumulative total stockholder return against the Russell 2000 Index, Nasdaq Bank Index, and KBW Bank Index for the five-year period ending December 31, 2022[197](index=197&type=chunk) - Cumulative Total Stockholder Return (Indexed to $100 at 12/31/2017) | Index | 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 | [Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=32&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) The Company's board authorized a **$150.0 million** common stock repurchase program in April 2022, completing it in January 2023, and subsequently authorized a new **$150.0 million** program - On April 19, 2022, the Company's board authorized a **$150.0 million** common stock repurchase program[200](index=200&type=chunk) - Common Stock Repurchases (May-December 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :------------- | :--------------------- | :--------------------------- | :----------------------------------------------- | | May 2022 | 902,418 | $53.22 | $101,975,648 | | June 2022 | 39,461 | $50.66 | $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 | $34,697,754 | | **Total** | **2,083,118** | **$55.35** | **$34,697,754** | - The **$150.0 million** repurchase program authorized on April 19, 2022, was completed in January 2023 with the repurchase of **564,206 shares** at a weighted average price of **$61.50**[201](index=201&type=chunk) - A new **$150.0 million** share repurchase program was authorized on January 18, 2023, with no time limit[202](index=202&type=chunk) [Selected Consolidated Financial Data](index=32&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of TCBI's financial condition and results of operations for the years ended December 31, 2022 and 2021. It highlights the Company's strategic transformation, including the sale of BDCF, and analyzes key financial metrics such as net interest income, non-interest income, and expenses. The analysis also covers loan portfolio composition, credit loss experience, deposit trends, liquidity management, capital resources, and critical accounting estimates, particularly the allowance for credit losses. - The Company underwent an enterprise-wide transformation in early 2021, updating its long-term strategy to focus on building a Texas-based full-service financial services firm, emphasizing client delivery and technology investment[211](index=211&type=chunk) - The sale of BankDirect Capital Finance, LLC (BDCF) for **$3.4 billion**, completed on November 1, 2022, resulted in a pre-tax gain of **$248.5 million**[212](index=212&type=chunk) - Key Financial Performance Indicators (YoY Change 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :---------------------------------- | :------------------ | :------------------ | :------------------------ | :------------- | | Net interest income | $875,758 | $768,837 | $106,921 | 13.9% | | Provision for credit losses | $66,000 | $(30,000) | $96,000 | N/A | | Non-interest income | $349,529 | $138,230 | $211,299 | 152.9% | | Non-interest expense | $727,532 | $599,012 | $128,520 | 21.5% | | Net income | $332,478 | $253,939 | $78,539 | 30.9% | | Net income available to common stockholders | $315,228 | $235,218 | $80,010 | 34.0% | | Basic earnings per common share | $6.25 | $4.65 | $1.60 | 34.4% | | Diluted earnings per common share | $6.18 | $4.60 | $1.58 | 34.3% | | Net interest margin | 2.79% | 2.07% | 0.72 pp | 34.8% | | Return on average assets ("ROA") | 1.04% | 0.67% | 0.37 pp | 55.2% | | Return on average common equity ("ROE") | 11.33% | 8.35% | 2.98 pp | 35.7% | | Efficiency ratio | 59.4% | 66.0% | -6.6 pp | -10.0% | - Gross loans held for investment declined by **$3.5 billion** to **$19.4 billion** at December 31, 2022, primarily due to the BDCF sale and declines in mortgage finance loans, despite growth in other loan categories[229](index=229&type=chunk)[230](index=230&type=chunk) - The allowance for credit losses on loans increased to **$253.5 million** at December 31, 2022, from **$211.9 million** in 2021, driven by updated economic forecasts and increased net charge-offs[247](index=247&type=chunk)[249](index=249&type=chunk) - Average total deposits decreased by **$5.6 billion** in 2022 compared to 2021, with the average cost of total deposits increasing to **0.74%** from **0.21%** due to rising interest rates[253](index=253&type=chunk) - The Company's capital ratios (CET1, Tier 1, Total Capital, and Tier 1 leverage) exceeded the regulatory definition of 'well capitalized' as of December 31, 2022 and 2021[446](index=446&type=chunk)[450](index=450&type=chunk) [Forward-Looking Statements](index=33&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements subject to risks and uncertainties, including credit quality, economic conditions, and regulatory compliance, which may cause actual results to differ materially - This section contains forward-looking statements, identifiable by terms like "believes," "expects," "may," and "anticipates," which are subject to risks and uncertainties that may cause actual results to differ materially[205](index=205&type=chunk)[206](index=206&type=chunk) - Key factors that could cause actual results to differ include credit quality deterioration, unpredictable economic conditions, impact of the COVID-19 pandemic, liquidity management, IT system risks, interest rate changes, and regulatory compliance[207](index=207&type=chunk)[208](index=208&type=chunk) - Forward-looking statements are not predictions and should not be the primary basis for investment decisions, and the Company undertakes no obligation to revise them[209](index=209&type=chunk) [Overview of Business Operations](index=35&type=section&id=Overview%20of%20Business%20Operations) In 2021, the Company initiated an enterprise-wide transformation to become a Texas-based full-service financial services firm, focusing on client delivery and technology, culminating in the **$3.4 billion** sale of BDCF in 2022 - In early 2021, the Company initiated an enterprise-wide transformation, updating its long-term strategy to become a Texas-based full-service financial services firm, focusing on client delivery and technology investment[211](index=211&type=chunk) - The year 2022 focused on strategic alignment, including reorganizing the operating model, realigning expenses, investing in technology, expanding coverage, and enhancing accountability[211](index=211&type=chunk) - The sale of BankDirect Capital Finance, LLC (BDCF) for **$3.4 billion**, with a pre-tax gain of **$248.5 million**, was completed on November 1, 2022[212](index=212&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Net interest income increased by **$106.9 million** due to higher asset yields, while non-interest income rose by **$211.3 million** primarily from the BDCF sale, and non-interest expense grew by **$128.5 million** due to various operational and sale-related costs - Selected Income Statement Data (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | | Net interest income | $875,758 | $768,837 | $106,921 | | Provision for credit losses | $66,000 | $(30,000) | $96,000 | | Non-interest income | $349,529 | $138,230 | $211,299 | | Non-interest expense | $727,532 | $599,012 | $128,520 | | Income before income taxes | $431,755 | $338,055 | $93,700 | | Net income | $332,478 | $253,939 | $78,539 | | Net income available to common stockholders | $315,228 | $235,218 | $80,010 | | Diluted earnings per common share | $6.18 | $4.60 | $1.58 | - Key Performance Indicators (2022 vs. 2021) | Metric | 2022 | 2021 | Change (pp) | | :---------------------------------- | :----- | :----- | :---------- | | Net interest margin | 2.79% | 2.07% | 0.72 | | Return on average assets ("ROA") | 1.04% | 0.67% | 0.37 | | Return on average common equity ("ROE") | 11.33% | 8.35% | 2.98 | | Efficiency ratio | 59.4% | 66.0% | -6.6 | | Non-interest income to average earning assets | 1.12% | 0.37% | 0.75 | | Non-interest expense to average earning assets | 2.34% | 1.61% | 0.73 | - Net interest income increased by **$106.9 million**, primarily due to higher yields on average earning assets, partially offset by increased funding costs[214](index=214&type=chunk)[221](index=221&type=chunk) - Non-interest income increased by **$211.3 million**, mainly driven by a **$248.5 million** gain from the BDCF sale and higher investment banking and trading income, partially offset by decreases in brokered loan fees and servicing income[214](index=214&type=chunk)[226](index=226&type=chunk) - Non-interest expense increased by **$128.5 million**, including **$13.7 million** in salaries and benefits and **$15.9 million** in legal and professional expenses related to the BDCF sale, as well as increased headcount and a charitable contribution[214](index=214&type=chunk)[227](index=227&type=chunk) [Analysis of Financial Condition](index=38&type=section&id=Analysis%20of%20Financial%20Condition) Gross loans held for investment decreased by **$3.5 billion** due to the BDCF sale and mortgage finance declines, while non-performing assets decreased, and the allowance for credit losses increased, reflecting updated economic forecasts and higher net charge-offs - Gross Loans Held for Investment by Portfolio Segment (2022 vs. 2021) | Portfolio Segment | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------ | :------------------------------- | :------------------------------- | :-------------------- | | Commercial | $8,902,948 | $9,897,561 | $(994,613) | | Energy | $1,159,296 | $721,373 | $437,923 | | Mortgage finance | $4,090,033 | $7,475,497 | $(3,385,464) | | Real estate | $5,198,643 | $4,777,530 | $421,113 | | **Total** | **$19,350,920** | **$22,871,961** | **$(3,521,041)** | - The decline in gross loans held for investment was primarily due to the sale of BDCF's **$3.1 billion** commercial loan portfolio and decreases in mortgage finance loans, partially offset by growth in other loan categories[229](index=229&type=chunk)[230](index=230&type=chunk) - Industry Concentrations of Loans Held for Investment (December 31, 2022) | Industry | Amount (in thousands) | Percent of Total | | :------------------------------------------ | :-------------------- | :--------------- | | 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% | | Energy | $1,159,296 | 6.0% | | Mortgage finance | $4,090,033 | 21.1% | | Real estate | $5,198,643 | 26.9% | - Approximately **96%** of loans held for investment are secured by collateral, with real estate loans (**27%**) and business assets (**35.6%**) being significant collateral types[234](index=234&type=chunk) - Non-performing assets decreased to **$48.3 million** at December 31, 2022, from **$72.5 million** in 2021, with non-accrual loans held for investment representing **0.25%** of total loans held for investment[244](index=244&type=chunk) - Credit Loss Experience (2022 vs. 2021) | Metric | December 31, 2022 | December 31, 2021 | | :-------------------------------------------------- | :------------------ | :------------------ | | Allowance for credit losses on loans to total loans held for investment | 1.31% | 0.93% | | 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)% | | Net charge-offs (in thousands) | $19,869 | $12,918 | - Average total deposits decreased by **$5.6 billion** in 2022, with average non-interest bearing deposits decreasing by **$2.2 billion** and interest bearing deposits by **$3.4 billion**[253](index=253&type=chunk) - The average cost of total deposits increased from **0.21%** in 2021 to **0.74%** in 2022, primarily due to rising interest rates[253](index=253&type=chunk)[254](index=254&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) The Company manages liquidity to meet obligations by emphasizing marketable assets and stable funding, with interest-bearing cash decreasing to **$4.8 billion** in 2022, while maintaining strong capital ratios and **$931.4 million** in long-term debt - The Company manages liquidity to meet loan commitments, repurchase securities, and repay liabilities without adverse impact on earnings, emphasizing marketability of assets and stability of funding[257](index=257&type=chunk) - Interest bearing cash and cash equivalents decreased from **$7.8 billion** in 2021 to **$4.8 billion** in 2022, as the Company purchased investment securities and exited high-cost deposit products[258](index=258&type=chunk) - Total Deposits by Type (2022 vs. 2021) | Deposit Type | December 31, 2022 (in thousands) | % of Total (2022) | December 31, 2021 (in thousands) | % of Total (2021) | | :--------------- | :------------------------------- | :---------------- | :------------------------------- | :---------------- | | 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%** | - Short-Term Borrowing Capacity (2022 vs. 2021) | Borrowing Source | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Total FHLB borrowing capacity | $6,160,515 | $8,542,814 | | Unused federal funds lines available | $1,479,000 | $892,000 | | Unused Federal Reserve borrowings capacity | $3,574,762 | $2,414,702 | | Unused revolving line of credit | $75,000 | $75,000 | - The Company's long-term debt outstanding was **$931.4 million** at December 31, 2022, with maturities ranging from September 2024 to December 2036[261](index=261&type=chunk) - Equity capital averaged **$3.1 billion** for both 2022 and 2021. The Company does not pay common stock dividends and repurchased **$115.3 million** of common stock in 2022[266](index=266&type=chunk)[267](index=267&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) The allowance for credit losses (ACL) is the most critical accounting estimate, determined by the CECL model using lifetime expected credit losses based on historical data, current conditions, and forecasts, with a potential **$118.0 million** increase under severe downside scenarios - Management considers the policies related to the allowance for credit losses (ACL) as the most critical accounting estimate, involving significant judgment and estimation uncertainty[270](index=270&type=chunk)[271](index=271&type=chunk) - The ACL is determined using the CECL model, which recognizes lifetime expected credit losses based on past events, current conditions, and reasonable and supportable forecasts, including qualitative adjustments[271](index=271&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - The quantitative estimate of the ACL would increase by approximately **$118.0 million** under the most severe downside macroeconomic scenario considered as of December 31, 2022[272](index=272&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section details TCBI's exposure to market risk, primarily from interest rate changes affecting its non-trading portfolios and derivative instruments. The Company uses Value-at-Risk (VaR) to monitor trading portfolio risk and conducts interest rate sensitivity simulations to assess the impact on net interest income under various scenarios. It also outlines the use of derivatives for risk management and the ongoing transition from LIBOR to alternative reference rates. - The Company's primary market risk exposure is the effect of changes in interest rates on its non-trading assets and interest rate derivative instruments[276](index=276&type=chunk) - Value-at-Risk (VaR) is used as a primary risk measure for the trading portfolio, estimating potential loss at the **95th percentile** based on one-year historical market risk factors[277](index=277&type=chunk) - Management performs interest rate sensitivity simulations to forecast the impact of interest rate changes on net interest income over the next twelve months, using static and 'shock test' scenarios (e.g., **100 and 200 basis point increases/decreases**)[284](index=284&type=chunk)[286](index=286&type=chunk) - Anticipated Impact on Net Interest Income (Next 12 Months) | Scenario | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | 100 bps Increase | $77,282 | $48,802 | | 200 bps Increase | $140,354 | $124,986 | | 100 bps Decrease | $(98,916) | N/A | - The Company uses derivative transactions (e.g., interest rate swaps, caps, floors, forward contracts) to manage various risks and support customer hedging activities, with many non-hedging derivatives offsetting each other[288](index=288&type=chunk)[290](index=290&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) - The Company is actively managing the transition away from LIBOR, having ceased originating LIBOR-based products in December 2021 and continuing to transition remaining products to alternative benchmarks like SOFR[292](index=292&type=chunk)[293](index=293&type=chunk) [Interest Rate Risk Management](index=48&type=section&id=Interest%20Rate%20Risk%20Management) Market risk is managed by the ALCO under board-established policy guidelines, utilizing interest rate sensitivity gap analysis and simulations to quantify the impact of rate changes on net interest income - Market risk is managed by the ALCO under board-established policy guidelines, with oversight reported to the Executive Risk Committee and board of directors[277](index=277&type=chunk) - The interest rate sensitivity gap analysis shows rate-sensitive assets and liabilities, indicating a positive gap (asset sensitive) generally leads to increased net interest margin in a rising rate environment[278](index=278&type=chunk) - Interest Rate Sensitivity Gap Analysis (December 31, 2022) | Period | Assets (in thousands) | Liabilities (in thousands) | GAP (in thousands) | | :----------- | :-------------------- | :----------------------- | :----------------- | | 0-3 months | $22,592,683 | $13,622,906 | $8,969,777 | | 4-12 months | $251,887 | $1,172,732 | $(920,845) | | 1-3 years | $710,258 | $30,048 | $680,210 | | 3+ years | $4,196,186 | $545,697 | $3,650,489 | | **Total** | **$27,751,014** | **$15,371,383** | **$12,379,631** | - Interest rate risk exposure is quantified using a model that simulates the effect of interest rate changes on net interest income over 12 months, based on static and 'shock test' scenarios[284](index=284&type=chunk)[286](index=286&type=chunk) - Anticipated Impact on Net Interest Income (Next 12 Months) | Scenario | December 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | 100 bps Increase | $77,282 | $48,802 | | 200 bps Increase | $140,354 | $124,986 | | 100 bps Decrease | $(98,916) | N/A | [Use of Derivatives to Manage Interest Rate and Other Risks](index=50&type=section&id=Use%20of%20Derivatives%20to%20Manage%20Interest%20Rate%20and%20Other%20Risks) The Company uses derivative transactions, including fair value, cash flow, and non-hedging derivatives, to manage interest rate, prepayment, credit, price, and foreign currency risks, and to support customer business requirements - The Company uses derivative transactions to manage various risks (interest rate, prepayment, credit, price, foreign currency) and to accommodate customer business requirements[288](index=288&type=chunk)[290](index=290&type=chunk) - Derivatives are designated as fair value hedges, cash flow hedges, net investment hedges, or non-hedging derivatives (customer-related or economic hedges)[289](index=289&type=chunk) - Non-hedging derivatives, such as interest rate swaps and foreign currency forward contracts, are often entered into with offsetting positions to minimize the Company's market and liquidity risks[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk) - Derivatives designated as cash flow hedges are recorded at fair value, with changes in fair value recognized in AOCI, net of tax, and reclassified into earnings as the hedged item affects earnings[404](index=404&type=chunk) [LIBOR Transition](index=50&type=section&id=LIBOR%20Transition) The Company is actively managing its declining exposure to LIBOR-dependent financial instruments, having ceased new LIBOR-based product originations in December 2021 and transitioning existing contracts to SOFR-based replacement rates - The Company has significant but declining exposure to financial instruments dependent on LIBOR, with the most commonly used U.S. dollar LIBOR settings ceasing publication after June 30, 2023[292](index=292&type=chunk)[293](index=293&type=chunk) - The Adjustable Interest Rate (LIBOR) Act provides for a statutory transition to SOFR-based replacement rates for contracts lacking effective fallback provisions[293](index=293&type=chunk) - A working group monitors LIBOR developments, ensuring technology systems are prepared, loan documents are amended, and stakeholders are informed. The Company ceased originating LIBOR-based products in December 2021[293](index=293&type=chunk) [Financial Statements and Supplementary Data](index=52&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements of Texas Capital Bancshares, Inc. for the years ended December 31, 2022, 2021, and 2020, including the balance sheets, statements of income and other comprehensive income, stockholders' equity, and cash flows. It also includes the Independent Registered Public Accounting Firm's Report and detailed notes to the financial statements covering significant accounting policies, earnings per share, investment securities, loans, leases, goodwill, deposits, debt, off-balance sheet risks, regulatory capital, stock-based compensation, income taxes, fair value disclosures, derivatives, AOCI, related party transactions, parent company-only financial information, quarterly data, and new accounting standards. - The consolidated financial statements include the balance sheets, statements of income and other comprehensive income, stockholders' equity, and cash flows for the years ended December 31, 2022, 2021, and 2020[296](index=296&type=chunk) - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[300](index=300&type=chunk)[301](index=301&type=chunk) - A critical audit matter identified was the Allowance for Credit Losses (ACL) on loans, due to the complexity of models and subjectivity in management's judgment regarding qualitative factors and forecast scenarios[306](index=306&type=chunk)[307](index=307&type=chunk) - Consolidated Balance Sheet Highlights (December 31, 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | | Total assets | $28,414,642 | $34,731,738 | $(6,317,096) | | Loans held for investment, net | $19,033,871 | $22,595,088 | $(3,561,217) | | Total deposits | $22,856,880 | $28,109,365 | $(5,252,485) | | Total liabilities | $25,359,291 | $31,522,122 | $(6,162,831) | | Total stockholders' equity | $3,055,351 | $3,209,616 | $(154,265) | - Consolidated Statements of Income Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | | Total interest income | $1,144,237 | $876,585 | $267,652 | | Total interest expense | $268,479 | $107,748 | $160,731 | | Net interest income | $875,758 | $768,837 | $106,921 | | Provision for credit losses | $66,000 | $(30,000) | $96,000 | | Total non-interest income | $349,529 | $138,230 | $211,299 | | Total non-interest expense | $727,532 | $599,012 | $128,520 | | Net income | $332,478 | $253,939 | $78,539 | | Diluted earnings per common share | $6.18 | $4.60 | $1.58 | - Consolidated Statements of Cash Flows Highlights (2022 vs. 2021) | Activity | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $147,970 | $657,315 | $(509,345) | | Net cash provided by investing activities | $3,308,567 | $1,232,786 | $2,075,781 | | Net cash used in financing activities | $(6,390,936) | $(3,149,822) | $(3,241,114) | | Net increase/(decrease) in cash and cash equivalents | $(2,934,399) | $(1,259,721) | $(1,674,678) | [(1) Operations and Summary of Significant Accounting Policies](index=59&type=section&id=(1)%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) TCBI, a Delaware corporation, operates through Texas Capital Bank, serving commercial clients, and completed the **$3.4 billion** sale of BDCF in 2022, with financial statements prepared under GAAP requiring management estimates for credit losses and fair value - TCBI, a Delaware corporation, operates through its wholly-owned subsidiary, Texas Capital Bank, serving commercial businesses, entrepreneurs, and professionals in Texas[321](index=321&type=chunk)[322](index=322&type=chunk) - The Company completed the sale of BankDirect Capital Finance, LLC (BDCF) on November 1, 2022, for **$3.4 billion**, recognizing a pre-tax gain of **$248.5 million**[323](index=323&type=chunk) - Financial statements are prepared in conformity with GAAP, requiring management estimates for items like allowance for credit losses and fair value of financial instruments[324](index=324&type=chunk)[325](index=325&type=chunk) - Debt securities are classified as trading, available-for-sale (AFS), or held-to-maturity (HTM). AFS securities are recorded at fair value with unrealized gains/losses in AOCI, while HTM are at amortized cost[329](index=329&type=chunk)[333](index=333&type=chunk)[335](index=335&type=chunk) - Loans held for sale (primarily mortgage loans) are carried at fair value, while loans held for investment are at unpaid principal, net of unearned income and origination costs[338](index=338&type=chunk)[341](index=341&type=chunk) - The CECL model, adopted January 1, 2020, is used to measure lifetime expected credit losses for financial assets at amortized cost and off-balance sheet credit exposures[346](index=346&type=chunk)[348](index=348&type=chunk) - The loan portfolio is segregated by product type (Commercial, Energy, Mortgage finance, Real estate) and credit grade for ACL estimation, using historical loss rates adjusted for forecasts and qualitative factors[351](index=351&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk) - The Company uses derivative financial instruments to manage interest rate, prepayment, credit, price, and foreign currency fluctuations, and to support customer hedging activities[290](index=290&type=chunk)[397](index=397&type=chunk) - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs) based on the inputs used[389](index=389&type=chunk)[391](index=391&type=chunk) [(2) Earnings Per Share](index=68&type=section&id=(2)%20Earnings%20Per%20Share) This section details the computation of basic and diluted earnings per common share for 2022 and 2021, reflecting net income available to common stockholders and weighted average shares outstanding - Earnings Per Share Computation (2022 vs. 2021) | Metric | 2022 (in thousands except per share data) | 2021 (in thousands except per share data) | | :-------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income available to common stockholders | $315,228 | $235,218 | | Weighted average common shares (basic) | 50,457,746 | 50,580,660 | | Weighted average diluted common shares | 51,046,742 | 51,140,974 | | Basic earnings per common share | $6.25 | $4.65 | | Diluted earnings per common share | $6.18 | $4.60 | | Anti-dilutive outstanding stock-settled awards | 311,226 | 93,945 | [(3) Investment Securities](index=69&type=section&id=(3)%20Investment%20Securities) The Company's investment securities include available-for-sale and held-to-maturity debt securities, with **$1.0 billion** transferred to HTM in Q1 2022, and equity securities for CRA compliance and deferred compensation plans - Investment Securities Summary (December 31, 2022) | Security Type | Amortized Cost (in thousands) | Gross Unrealized Gains (in thousands) | Gross Unrealized Losses (in thousands) | Estimated Fair Value (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------------ | :------------------------------------- | :---------------------------------- | | Available-for-sale debt securities | $3,000,846 | $3 | $(385,205) | $2,615,644 | | Held-to-maturity debt securities | $935,514 | — | $(118,600) | $816,914 | | Equity securities | N/A | N/A | N/A | $33,956 | | **Total investment securities** | **N/A** | **N/A** | **N/A** | **$3,585,114** | - In Q1 2022, the Company transferred **$1.0 billion** of available-for-sale debt securities to held-to-maturity at fair value due to asset-liability management strategies in response to rising interest rates[409](index=409&type=chunk) - At December 31, 2022, the Company had **103 available-for-sale debt securities** in an unrealized loss position, primarily due to changes in market interest rates, not credit quality[414](index=414&type=chunk) - Equity securities consist of investments for Community Reinvestment Act compliance and non-qualified deferred compensation plans, with net losses of **$7.9 million** recognized in 2022[416](index=416&type=chunk) [(4) Loans and Allowance for Credit Losses on Loans](index=71&type=section&id=(4)%20Loans%20and%20Allowance%20for%20Credit%20Losses%20on%20Loans) Gross loans held for investment decreased to **$19.4 billion** at December 31, 2022, with a provision for credit losses of **$61.5 million** in 2022, and non-accrual loans decreasing to **$48.3 million** - Loans Held for Investment (December 31, 2022 vs. 2021) | Portfolio Segment | 2022 (in thousands) | 2021 (in thousands) | | :------------------ | :------------------ | :------------------ | | 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** | | Allowance for credit losses on loans | $(253,469) | $(211,866) | | **Total loans held for investment, net** | **$19,033,871** | **$22,595,088** | - The provision for credit losses was **$61.5 million** in 2022, compared to a negative provision of **$29.8 million** in 2021, driven by updated economic forecasts and increased net charge-offs[423](index=423&type=chunk) - Allowance for Credit Losses on Loans by Segment (December 31, 2022 vs. 2021) | Portfolio Segment | 2022 (in thousands) | % of Loans in Category to Total Loans (2022) | 2021 (in thousands) | % of Loans in Category to Total Loans (2021) | | :------------------ | :------------------ | :------------------------------------------- | :------------------ | :------------------------------------------- | | 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%** | - Non-accrual loans held for investment decreased to **$48.3 million** at December 31, 2022, from **$72.5 million** in 2021[244](index=244&type=chunk) - One commercial loan was restructured in 2022 for **$531,000**, involving an adjusted payment schedule. No loans were restructured in 2021[427](index=427&type=chunk) [(5) Leases](index=75&type=section&id=(5)%20Leases) The Company's right-of-use assets increased to **$82.8 million** and lease liabilities to **$106.7 million** in 2022, primarily from operating leases for real estate, with net lease costs rising to **$29.7 million** - Right of Use (ROU) Assets and Lease Liabilities (December 31, 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------ | :------------------ | :------------------ | | ROU assets | $82,754 | $55,589 | | Lease liabilities | $106,691 | $69,443 | - Operating leases primarily relate to real estate for corporate offices and bank branches, with terms generally ranging from **1 to 17 years**[429](index=429&type=chunk) - Net Lease Cost (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :---------------------- | :------------------ | :------------------ | | Finance lease cost | $1,142 | $33 | | Operating lease cost | $23,463 | $15,608 | | Short-term lease cost | $19 | $19 | | Variable lease cost | $5,122 | $4,747 | | Sublease income | $(18) | $(107) | | **Net lease cost** | **$29,728** | **$20,299** | [(6) Goodwill and Other Intangible Assets](index=76&type=section&id=(6)%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill and other intangible assets, net, decreased to **$1.5 million** at December 31, 2022, primarily due to the removal of **$15.4 million** related to the BDCF sale, with no impairment identified in annual tests - Goodwill and Other Intangible Assets, Net (December 31, 2022 vs. 2021) | Asset Type | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Goodwill | $1,496 | $15,094 | | Intangible assets—customer relationships and trademarks | — | $2,168 | | **Total goodwill and intangible assets, net** | **$1,496** | **$17,262** | - The sale of BDCF on November 1, 2022, resulted in the removal of **$15.4 million** in goodwill and other intangible assets[433](index=433&type=chunk) - Annual impairment tests for goodwill in 2022 and 2021 indicated no impairment[434](index=434&type=chunk) [(7) Premises & Equipment](index=76&type=section&id=(7)%20Premises%20%26%20Equipment) Premises and equipment, net, increased to **$26.4 million** at December 31, 2022, with depreciation and amortization expense totaling approximately **$9.5 million** in 2022 - Premises and Equipment, Net (December 31, 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Total cost | $89,511 | $76,461 | | Accumulated depreciation | $(63,129) | $(55,560) | | **Total premises and equipment, net** | **$26,382** | **$20,901** | - Depreciation and amortization expense for premises and equipment was approximately **$9.5 million** in 2022, **$8.1 million** in 2021, and **$9.5 million** in 2020[435](index=435&type=chunk) [(8) Deposits](index=77&type=section&id=(8)%20Deposits) Total deposits decreased to **$22.9 billion** at December 31, 2022, with non-interest bearing deposits at **$9.6 billion** and estimated uninsured deposits at **$13.6 billion** (**59%** of total deposits) - Deposits Summary (December 31, 2022 vs. 2021) | Deposit Type | 2022 (in thousands) | 2021 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Non-interest bearing deposits | $9,618,081 | $13,390,370 | | Interest bearing deposits: | | | | Transaction | $683,562 | $2,837,521 | | Savings | $11,042,658 | $10,682,768 | | Time | $1,512,579 | $1,198,706 | | **Total interest bearing deposits** | **$13,238,799** | **$14,718,995** | | **Total deposits** | **$22,856,880** | **$28,109,365** | - Estimated uninsured deposits were **$13.6 billion** (**59%** of total deposits) at December 31, 2022, compared to **$16.1 billion** (**56%**) at December 31, 2021[255](index=255&type=chunk) - Scheduled Maturities of Time Deposits > $250,000 (December 31, 2022) | Months to Maturity | Amount (in thousands) | | :----------------- | :-------------------- | | Three or less | $70,008 | | Over three through six | $50,282 | | Over six through twelve | $117,435 | | Over twelve | $20,715 | | **Total** | **$258,440** | [(9) Short-Term Borrowings and Long-Term Debt](index=77&type=section&id=(9)%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Short-term borrowings outstanding decreased to **$1.2 billion** at year-end 2022, with a weighted-average interest rate of **1.59%**, while long-term debt totaled **$931.4 million** - Short-Term Borrowings Summary (December 31, 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Amount outstanding at year-end | $1,201,142 | $2,202,832 | | Weighted-average interest rate during the year | 1.59% | 0.19% | | Maximum month-end outstanding during the year | $2,652,320 | $2,907,788 | - Long-Term Debt Summary (December 31, 2022 vs. 2021) | Debt Type | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Bank-issued floating rate senior unsecured credit-linked notes due 2024 | $272,492 | $270,487 | | Bank-issued 5.25% fixed rate subordinated notes due 2026 | $174,196 | $173,935 | | Company-issued 4.00% fixed rate subordinated notes due 2031 | $371,348 | $370,910 | | Trust preferred floating rate subordinated debentures due 2032 to 2036 | $113,406 | $113,406 | | **Total long-term debt** | **$931,442** | **$928,738** |

Financial Data and Key Metrics Changes - Criticized loans increased by $29.2 million or 6% in the quarter, totaling $513.2 million or 2.66% of LHI, although down 12% since year-end 2021 [2][52] - CET 1 capital ratio finished the quarter at 13%, with total risk-based capital at 17.7%, placing the company in the top 10% of peers [3][6] - Total adjusted revenue increased by $51.2 million or 23% compared to the fourth quarter of 2021, with net interest income rising by $8.5 million [50][62] Business Line Data and Key Metrics Changes - C&I loans increased by $2.3 billion or 29% year-over-year, reflecting a strong focus on core Texas-based clients [48][54] - Treasury product fees rose by 27% year-over-year, indicating increased adoption of new cash management capabilities [49] - Wealth management income grew by 14% due to an 11% increase in AUM, despite broader market declines [49] Market Data and Key Metrics Changes - Mortgage originations are expected to decline by more than 25% compared to 2022 levels, with the company anticipating modest outperformance due to market positioning [5][56] - Average full-year commercial operating deposits increased by 15%, reflecting the company's strategy to grow operating accounts [58] - Noninterest-bearing deposits decreased by 16% linked quarter, primarily due to seasonal fluctuations and repositioning of select clients [57] Company Strategy and Development Direction - The company is focused on transforming its business model to reduce reliance on high-cost deposits and improve balance sheet efficiency [15][29] - A new $150 million share repurchase program has been authorized, with a preference for reinvesting capital into growth opportunities [4][32] - The strategic plan includes a commitment to maintaining conservative capital levels, with a CET 1 capital ratio of 12% throughout 2023 [6][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining operating leverage despite potential pressures from interest rate changes, emphasizing a shift towards generating earnings from non-margin sources [23][46] - The company is entering 2023 with a strong capital position and expects total revenue to increase in the mid-teens percent range year-over-year [4][50] - Management acknowledged the challenges of the current economic environment but remains optimistic about the company's strategic positioning and operational improvements [46][62] Other Important Information - The divestiture of the national insurance premium finance business generated approximately $165 million of capital and was accretive to earnings from day one [33][50] - The company has launched over 20 new products and services in the last two years, with a roadmap to deliver over 25 new offerings by 2025 [45][46] Q&A Session Summary Question: Inquiry about asset quality and legacy loan charge-offs - Management indicated that they are closely monitoring legacy credits and expect to realize additional charge-offs in 2023 or 2024 [43][52] Question: Clarification on mortgage financed DDAs - Management clarified that mortgage finance DDAs are approximately 120% of mortgage financed loans, with seasonal fluctuations expected [18][20] Question: Expectations for non-mortgage finance DDA balances - Management expressed optimism about adding commercial operating accounts, with a 15% year-over-year increase in average deposits [21][22] Question: Commentary on maintaining positive operating leverage amid potential rate pauses - Management reiterated the importance of year-over-year quarterly PPNR and emphasized the shift towards less rate-dependent earnings sources [22][23]

Q4-2022 Earnings © 2023 Texas Capital Bank Member FDIC 2 Because forward-looking statements relate to future results and occurrences, they are subject to inherent and various uncertainties, risks, and changes in circumstances that are difficult to predict, may change over time, are based on management's expectations and assumptions at the time the statements are made and are not guarantees of future results. Several factors, many of which are beyond management's control, could cause actual results to differ ...