Texas Capital Bancshares

2023 Annual Report

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About Us

Texas Capital Bancshares, Inc. (NASDAQ: TCBI), a member of the Russell 2000 Index and the S&P MidCap 400, is the parent company
of Texas Capital, a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs, and individual customers.
Founded in 1998, the firm is headquartered in Dallas with offices in Austin, Houston, San Antonio, and Fort Worth, and has built a
network of clients across the country. With the ability to service clients through their entire lifecycles, Texas Capital has established commercial
banking, consumer banking, investment banking and wealth management capabilities.

res,I nc.

2021 A nnual R epotr

Corporate Information

Annual Meeting

The annual meeting of stockholders will be held on
April 16, 2024, at 7:30 a.m., central daylight time, at 2000
McKinney Avenue, 9th Floor, Dallas, Texas 75201

Stock Exchange

Corporate Headquarters

2000 McKinney Avenue
Dallas, Texas 75201
214.932.6600

Other Information

Texas Capital Bancshares, Inc. is traded under the symbol
TCBI on the Nasdaq Stock Market®

Corporate governance and other investor information
may be found at www.texascapitalbank.com

Transfer Agent

Computershare
250 Royall Street, Mail Stop 1A
Canton, Massachusetts 02021
800.568.3476

Board of Directors

Robert W. Stallings Chairman, Texas Capital Bancshares, Inc. Chairman and Chief Executive Officer, Stallings Capital Group, Inc.

;

Rob C. Holmes Chief Executive Officer and President of Texas Capital Bancshares, Inc. and Texas Capital

Paola M. Arbour Executive Vice President and Chief Information Officer, Tenet Healthcare Corp.

Jonathan E. Baliff Chief Financial Officer and Director, Redwire Corporation

James H. Browning Former Partner, KPMG LLP

David S. Huntley Former Senior Vice President and Chief Compliance Officer, AT&T Inc.

Charles S. Hyle Former Chief Risk Officer, KeyCorp

Thomas E. Long Co-Chief Executive Officer and Director, Energy Transfer LP

Elysia Holt Ragusa Principal, RCubetti LLC

Steven P. Rosenberg President, SPR Ventures, Inc.

Dale W. Tremblay Executive Chairman, C.H. Guenther & Son LLC

Laura L. Whitley Chief Financial Officer,

Urban Strategies

Executive Officers

Rob C. Holmes Chief Executive Officer and President of Texas Capital Bancshares, Inc. and Texas Capital

Anna M. Alvarado Chief Legal Officer and Corporate Secretary of Texas Capital Bancshares, Inc. and Texas Capital

John W. Cummings Chief Administrative Officer of Texas Capital Bancshares, Inc. and Texas Capital

J. Matthew Scurlock Chief Financial Officer of Texas Capital Bancshares, Inc. and Texas Capital

Tim J. Storms Chief Risk Officer of Texas Capital Bancshares, Inc. and Texas Capital

 
   
  
 





              

       

              

    



   
   
        

       

   





  
 



 

    


 


     

        

   

 

      

      



  

    
      



  

         

                      

 

                        

 

                        
                         
           

 

                   
                      
       

 

                    
                 
            
  
 
  

  



  




                      
                 

                      
                  
          

 

                     
               

                  
                  

                     

 

                       
                      
      

             

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Forward-Looking Statements

TABLE OF CONTENTS

PART I

Business

Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.

Properties

Item 3.

Item 4.

Item 5.

Item 6.

Legal Proceedings

Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Selected Consolidated Financial Data

PART II

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance
Item 11.

Executive Compensation

PART III

Item 12.

Item 13.

Item 14.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Item 15.

Exhibits, Financial Statement Schedules

PART IV

2

Forward-Looking Statements

Certain statements and financial analysis contained in this report that are not historical facts may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on beliefs, assumptions and expectations of future performance taking into account all information available to us at the
time such statements are made. Forward-looking statements may often be identified by the use of words such as “believes,”
“projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,”
“confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of
strategy, objectives, estimates, guidance, expectations and future plans.

Forward-looking statements may include, among other things and without limitation, statements about the credit quality of loan
portfolio, liquidity, general economic conditions in the United States and in the Company’s markets, including with respect to
interest rates and the market generally, the material risks and uncertainties for the U.S. and world economies, and for the
business, expectations regarding rates of default and loan losses, volatility in the mortgage industry, business strategies
(including new lines of business, products and services) and expectations about future financial performance, future growth and
earnings, the appropriateness of the allowance for credit losses and provision for credit losses, the impact of changing
regulatory requirements and legislative changes on the business, increased competition, and technologies (including new
technologies and information security risks).

Forward-looking statements are subject to various risks and uncertainties, which 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. Important factors that
could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but
are not limited to, the following:

•

•

•

•

•

•

•

•

•

Deterioration of the credit quality of the loan portfolio or declines in the value of collateral due to external factors or
otherwise.

The ability to effectively manage credit risks.

Economic or business conditions in Texas, the United States or globally that impact the Company or its customers.

The ability to effectively manage liquidity risk.

The ability to pursue and execute upon growth plans, whether as a function of capital, liquidity or other limitations.

The extensive regulations to which the Company and the Bank are subject and the Company and the Bank’s ability to
comply with applicable governmental regulations, including legislative and regulatory changes that may impose
further restrictions and costs on the business, any regulatory enforcement actions that may be brought against us and
the effect of changes in laws, regulations, policies and guidelines (including, among others, those concerning taxes,
banking, accounting, securities and monetary and fiscal policies) with which the Company must generally comply.

The ability to effectively manage the information technology systems, including third party vendors, cyber or data
privacy incidents or other failures, disruptions or security breaches.

Elevated or further changes in interest rates, including the impact of interest rates on the Company’s securities
portfolio and funding costs, as well as related balance sheet implications stemming from the fair value of our assets
and liabilities.

Changes in market risk associated primarily with the Company’s sales and trading activities.

• Material failures of accounting estimates and risk management processes based on management judgment, or the

•

•

•

•

•

•

supporting assumptions or models.

The ability to effectively manage interest rate risk.

The effectiveness of the Company’s risk management processes strategies and monitoring.

Negative press and social media attention with respect to the banking industry or the Company, in particular.

Recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential
impact of such developments on customer confidence, liquidity and regulatory responses to these developments,
including in the context of regulatory examinations and related findings and actions.

Fluctuations in commercial and residential real estate values, especially as they relate to the value of collateral
supporting the Company’s loans.

Claims and litigation that may arise in the ordinary course of business, including those that may not be covered by
insurers.

3

•

•

•

•

•

•

•

•

•

•

•

The ability to successfully execute its business strategy, including developing and executing new lines of business and
new products and services.

The failure to identify, attract and retain key personnel and other employees.

Increased or expanded competition from banks and other financial service providers in Company markets.

The susceptibility of fraud on the business.

The failure to maintain adequate regulatory capital to support the business.

Environmental liability associated with properties related to lending activities.

Severe weather, natural disasters, acts of war or terrorism, global conflict (including those already reported by the
media, as well as others that may arise) or other external events.

Climate change and related legislative and regulatory initiatives.

The ability to effectively manage ESG risks.

Risks relating to securities, including the volatility of stock price, rights of holders of the indebtedness and preferred
stock and other related factors.

Other factors and other information in this Report and in other reports and filings that we make with the SEC,
including, without limitation, those found in “Part 1 – Item 1A. Risk Factors” of this Report.

Actual outcomes and results may differ materially from what is expressed in the Company’s forward-looking statements and
from its historical financial results due to the factors discussed elsewhere in this report or disclosed in the Company’s other
SEC filings. Forward-looking statements included herein speak only as of the date hereof and should not be relied upon as
representing the Company’s expectations or beliefs as of any date subsequent to the date of this report. Except as required by
law, the Company undertakes no obligation to revise any forward-looking statements contained in this report, whether as a
result of new information, future events or otherwise. The factors discussed herein are not intended to be a complete summary
of all risks and uncertainties that may affect the Company’s businesses. Though management strives to monitor and mitigate
risk, the Company cannot anticipate all potential economic, operational and financial developments that may adversely impact
its operations and the financial results. Forward-looking statements should not be viewed as predictions and should not be the
primary basis upon which investors evaluate an investment in the Company’s securities.

4

ITEM 1.

Background

BUSINESS

Texas Capital Bancshares, Inc. (“TCBI” or the “Company”) is a registered bank holding company and a full-service financial
services firm that delivers customized solutions to businesses, entrepreneurs and individual customers. TCBI is headquartered
in Dallas, with primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, and has built a network of
clients across the country. Substantially all of the Company’s business activities are conducted through its wholly-owned
subsidiary bank Texas Capital Bank (the “Bank”).

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

Business Strategy and Markets

The Company was founded with an entrepreneurial culture and a mission to build a commercial banking presence across Texas.
Drawing on the banking experience and business and community ties of management, the Company’s strategy has evolved to
become a Texas-based full-service financial services firm that can seamlessly serve the best clients in its markets through the
entirety of their life cycles. A core tenant of this strategy is the maintenance of financial resiliency through market and rate
cycles enabling the Company to serve its clients, access markets, and support its communities through changing market
conditions. The Company is well positioned with a wide range of relevant products and services along with best-in-class levels
of liquidity, credit reserves and capital.

Competition

The Company’s business is concentrated in Texas which is a highly competitive market for banking services. TCBI competes
with national, regional, and local bank holding companies and commercial banks. The largest banking organizations operating
in Texas are headquartered outside of the state and are controlled by out-of-state organizations. TCBI also competes with other
providers of financial services, such as non-bank financial institutions, commercial finance and leasing companies, consumer
finance companies, financial technology companies, securities firms, insurance companies, full-service brokerage firms and
discount brokerage firms, credit unions and savings and loan associations. As a tenant of TCBI’s strategic plan, the Company
believes that commercial businesses, entrepreneurs and professionals are interested in banking with a company both
headquartered and with decision-making authority based in Texas.

The Company’s banking centers in its target markets are served by experienced bankers with expertise in the specific industries
found in their market areas and established community ties. The Company believes it is positioned to offer clients more
responsive and personalized service and advice than its competitors. By providing effective service to these customers, the
Company believes it will be able to establish “first call” relationships, and provide all the banking needs of its customers,
thereby enhancing its relevance and financial returns.

While the Texas market continues to be central to its growth and success, the Company has built several lines of business that
offer specialized products and services to businesses and individuals regionally and nationwide, including mortgage finance,
homebuilder finance, investment banking and Bask Bank. Bask Bank is an online division of the Bank that offers depositors
American Airlines AAdvantage® miles in lieu of cash interest as well as traditional interest bearing deposit products such as
savings accounts and certificates of deposit. The Company believes these business lines help to mitigate its geographic
concentration risk in Texas.

Products and Services

The Company offers a variety of loan, deposit account and other financial products and services to its customers.

Business Customers. The Company offers a full range of products and services oriented to the needs of its business customers
including commercial loans for general corporate purposes, including financing for working capital, organic growth, and
acquisitions; real estate term and construction loans; mortgage warehouse lending and mortgage finance services; treasury
management services, including online banking and debit and credit card services; investment banking and advisory services;
and letters of credit.

Individual Customers. The Company also provides comprehensive banking services for its individual customers including
personal wealth management and trust services; certificates of deposit; interest bearing and non-interest bearing checking
accounts; traditional money market and savings accounts; loans, both secured and unsecured; online and mobile banking;
investment banking and advisory services; and Bask Bank.

Lending Activities

The Company targets its lending to commercial businesses, entrepreneurs and professionals who meet certain desired client
characteristics and credit standards. The credit standards are set by a standing Credit Policy Committee with the assistance of
the Chief Credit Officer, who is charged with ensuring that all loans in the portfolio meet the credit standards. The Credit Policy

5

Committee is comprised of senior Bank officers, including the Chief Risk Officer, the Chief Credit Officer and other Bank
officers as deemed appropriate, and is subject to oversight by the Risk Committee of the Company's board of directors. The
Company believes it maintains an appropriately diversified loan portfolio. Credit policies and underwriting guidelines are
tailored to address the unique risks associated with each industry represented in the portfolio. Of note, the Company’s mortgage
finance business encounters seasonal demands for credit, surges and declines in consumer demand driven by changes in interest
rates and month-end upticks of residential mortgage closings.

The credit standards for commercial borrowers are based on numerous criteria with respect to the borrower, including historical
and projected financial information, strength of management, acceptable collateral and associated advance rates, and market
conditions and trends in the borrower’s industry. In addition, prospective loans are analyzed based on current industry
concentrations in the loan portfolio to prevent an unacceptable concentration of loans in any particular industry. The Company
believes its credit standards are consistent with achieving its business objectives in the markets it serves and are an important
part of the Company’s risk mitigation strategy. The Company believes that it is differentiated from its competitors by its client
selection, focus on and targeted marketing to its core customers and by its ability to tailor its products to the individual needs of
its customers.

The Company generally extends variable rate loans in which the interest rate fluctuates with a specified reference rate and may
provide for a minimum floor rate. The use of variable rate loans is designed to protect the Company from risks associated with
interest rate fluctuations since the rates of interest earned will automatically reflect such fluctuations.

Treasury Solutions and Deposit Products

Texas Capital Bank offers treasury solutions and deposit products to meet its customers evolving needs. For commercial
business customers, the Company offers a full suite of deposit solutions including checking, money market savings, and sweep
accounts with competitive industry rates. Treasury products offered include state of the art payment and receivables solutions
ranging from instant payments, wire, ACH, commercial card, merchant, and lockbox solutions underpinned by a commercial
grade digital platform supporting a broad range of payment initiation, information reporting and liquidity management
solutions.

Personal banking deposit products offered by the Bank include checking accounts, savings accounts, money market accounts
and certificates of deposit. Personal banking deposit customers have online and mobile access to fully manage their accounts
leveraging features that include funds transfers, peer-to-peer payments, bill pay, wire transfer requests, remote check deposit
and more.

Wealth Management and Trust

Texas Capital Bank Private Wealth Advisors (“PWA”) services include investment management, lending, depository products,
financial planning, trust and estate services, as well as insurance services. The PWA professionals work with clients to define
objectives, goals, and strategies. Investment managers work alongside the client to choose an individually tailored program that
matches their financial goals and aspirations while managing their risk tolerance. PWA also offers all clients a financial plan
which is used to ensure that they are on track to achieve their long term objectives. Throughout the relationship PWA also
offers insurance solutions as well as trust and estate planning services that work towards a tax efficient transition of assets to
family or charitable types of organizations.

Investment Banking

Texas Capital Securities (“TCS”) offers a full suite of investment banking products and services to clients. TCS professionals
leverage their knowledge of industry dynamics, transaction structure and market conditions complemented by a network of
investors, buyers, lenders and other capital sources, to assist clients in completing underwritten and privately placed offerings of
debt, convertible and equity securities, buy-side and sell-side mergers and acquisitions and other transactions. Additionally,
TCS offers services to manage interest rate, foreign exchange, and commodity risks, and enable market access by offering sales,
trading and other institutional services.

Human Capital

The Company’s focus is to attract, develop, engage and retain the best talent, and to plan for succession of key talent and
executives to achieve strategic objectives. The Company is continually investing in its workforce to further emphasize diversity
and inclusion and to foster its employees' growth and career development. Further, the Company is regularly evaluating the
resources available to employees to address professional, financial and health-related matters, as the health, safety and well-
being of employees and customers is of paramount importance. The Compensation and Human Capital Committee of the Board
of Directors provides input and oversight of human capital management, including talent management, executive succession
planning, diversity and inclusion and company culture.

6

At the Company, diversity, equity and inclusion (“DEI”) is an integral part of the strategy to build a strong culture where
employees can reach their full potential professionally and personally. In 2023, the Company continued its inclusion efforts
through cultural celebrations and employee engagement activities across markets, and the Company broadened communications
internally and externally as it highlighted the stories and experiences of diverse leaders. Listening tours were conducted with
employees to get their perspective of what DEI means to them and where the Company has opportunity to improve.

In 2022, we launched Employee Resource Groups (“ERGs”). In 2023, the Company focused on ensuring charters were clear
and leadership was in place. The Company also prioritized proactive planning, strong execution, and defined processes. With
new leadership teams in place, there was an exponential growth in employee engagement and programming. Employee
participation increased by 40% and programming tripled year over year. In addition to advancing educational awareness, the
ERGs led the way in creating opportunities for our employees to give back to the communities the Company serves through
volunteerism.

The Company offers a comprehensive benefits program to its employees and designs compensation programs to attract, retain
and motivate employees that align with Company performance. The Company’s performance management process is designed
for succession planning deeper into the organization. The Company utilizes feedback from exit interviews to drive
improvements where possible and reduced attrition by 6% in 2023.

The Company also continued enhancements to its training and development program during 2023, which included the
completion of job profiles for roles across the Company with skills, knowledge, and abilities to empower employees to focus on
targeted skill development and career ownership. Further, the Company expanded its use of leadership models, which identify
the critical skills and behaviors necessary to be successful at every level, and success profiles, that describe the critical
knowledge, skills and abilities needed for every role.

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

At December 31, 2023, the Company had 1,987 employees, nearly all of whom are full time and of which approximately 42%
were female and 43% self-identify as ethnically diverse. Due to the Company’s significant Texas-based operations and branch-
lite network, the majority of its employees are based in Texas.

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

Regulation and Supervision

General. The Company is subject to extensive federal and state laws and regulations that impose specific requirements and
provide regulatory oversight of virtually all aspects of its operations. These laws and regulations generally are intended for the
protection of depositors, the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) and the
stability of the U.S. banking system as a whole, rather than for the protection of stockholders and creditors. Complying with the
regulations discussed below did not have and is not expected to have a material effect on capital expenditures, earnings and
competitive position. The Company does not have any environmental control facilities and did not spend any capital
expenditures on such facilities during 2023.

The following discussion summarizes certain laws, regulations and policies to which the Company is subject. It does not
address all applicable laws, regulations and policies that affect the Company currently or might affect it in the future. This
discussion is qualified in its entirety by reference to the full texts of the laws, regulations and policies described.

TCBI’s activities are governed by the Bank Holding Company Act of 1956, as amended (the “BHCA”). It is subject to primary
regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”)
pursuant to the BHCA. The Company files quarterly reports and other information with the Federal Reserve. As a public
company, the Company also files reports with the U.S. Securities and Exchange Commission (“SEC”) and is subject to its
regulatory authority, including the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, with respect to the Company’s securities, financial reporting and certain
governance matters. Because TCBI’s securities are listed on the Nasdaq Global Select Market (“Nasdaq”), the Company is
subject to Nasdaq's rules for listed companies, including rules relating to corporate governance.

The Bank is organized as a Texas state-chartered bank, and is subject to primary regulation, supervision and examination by the
Texas Department of Banking and the FDIC. The Bank’s activities are also subject to regulation by the Consumer Financial
Protection Bureau (the “CFPB”) and by certain other federal and state agencies. The Bank files quarterly reports of condition
and income with the FDIC, which provides insurance for certain of the Bank’s deposits.

The Bank has a wholly owned non-bank subsidiary, TCBI Securities, Inc. (“TCBI Securities”), doing business as Texas Capital
Securities, that is a registered broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority

7

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

Bank Holding Company Regulation. The BHCA limits the Company’s business to banking, managing or controlling banks
and other activities that the Federal Reserve has determined to be closely related to banking. The Gramm-Leach-Bliley Act of
1999, as amended (the “GLB Act”), allows bank holding companies meeting certain management, capital and Community
Reinvestment Act standards to elect to be treated as a financial holding company that may offer customers a more
comprehensive array of financial products and services. The Company has elected to register with the Federal Reserve as a
financial holding company. This authorizes it to engage in any activity that is either (i) financial in nature or incidental to such
financial activity, as determined by the Federal Reserve, or (ii) complementary to a financial activity, so long as the activity
does not pose a substantial risk to the safety and soundness of the Bank or the financial system generally, as determined by the
Federal Reserve. Examples of non-banking activities that are financial in nature include securities underwriting and dealing,
insurance underwriting, providing investment and financial advice, leasing personal property and making merchant banking
investments.

In order for the Company to undertake certain new activities permitted by the BHCA, the Company must be considered “well
capitalized” (as defined below) and well managed, the Bank must have received a rating of at least “satisfactory” in its most
recent examination under the Community Reinvestment Act, and must notify the Federal Reserve within 30 days of engaging in
the new activity.

Under Federal Reserve regulations, which were codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”), TCBI is expected to act as a source of financial and managerial strength to the Bank and commit
resources to its support. Such support may be required even at times when a holding company may not be in a financial
position, or otherwise inclined, to provide such resources. Additionally, TCBI could in certain circumstances be required to
guarantee the capital restoration plan of the Bank if it became undercapitalized.

It is the policy of the Federal Reserve that bank holding companies may maintain their existing rate of cash dividends on
common stock only out of net income available over the past year and only if the prospective rate of earnings retention is
consistent with the organization’s expected future capital needs, asset quality and financial condition. As a general matter, the
Federal Reserve expects a bank holding company’s board of directors to inform it and to eliminate, defer or significantly reduce
the bank holding company’s dividends if (i) the bank holding company’s net income available to stockholders for the past four
quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) the bank holding
company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and
prospective financial condition or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum
regulatory capital adequacy ratios. The policy provides that bank holding companies may not pay cash dividends in an amount
that would undermine the holding company’s ability to serve as a source of strength to its banking subsidiary.

With certain limited exceptions, the BHCA and the Change in Bank Control Act of 1978, as amended (the “CIBC Act”),
together with regulations promulgated thereunder, prohibit a person or company or a group of persons deemed to be an
association or “acting in concert” from, directly or indirectly, acquiring 10% or more (5% or more if the acquirer is a bank
holding company) of any class of the Company’s voting stock or obtaining the ability to control in any manner the election of a
majority of the Company’s directors or otherwise direct the management or policies of the Company without prior notice or
application to and the approval of the Federal Reserve.

If, in the opinion of the applicable federal bank regulatory authorities, a depository institution or holding company is engaged in
or is about to engage in an unsafe or unsound practice (which could include the payment of dividends or repurchase or
redemptions of securities), such authority may require, generally after notice and hearing, that such institution or holding
company cease and desist such practice. The federal banking agencies have indicated that paying dividends that deplete a
depository institution’s or holding company’s capital base to an inadequate level would be such an unsafe or unsound banking
practice. Declaring or paying dividends that exceed its earnings for the relevant period could result in supervisory findings by
the Federal Reserve. Federal Reserve regulations require that the Company, under certain circumstances, provide prior notice to
or obtain prior approval for redemptions or repurchases of its equity securities. Under such regulations, the Federal Reserve
may disapprove such actions if the Federal Reserve finds that they would constitute an unsafe or unsound practice or violate
any law or Federal Reserve order.

Regulation of the Bank by the Texas Department of Banking and the FDIC. Pursuant to applicable Texas and federal law,
Texas state-chartered banks are permitted to engage in any activity permissible for national banks, including non-banking
activities that are permissible for national banks. In addition, Texas state-chartered banks may engage in financial activities or
activities incidental or complementary to a financial activity with prior approval.

The Bank is subject to continuous regulation, supervision and examination by the Texas Department of Banking and the FDIC.
The regulators monitor all areas of the Bank’s operations, including security devices and procedures, adequacy of capitalization
and loss reserves, accounting treatment and impact on capital determinations, loans, investments, borrowings, deposits,

8

liquidity, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches,
corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe and sound lending
and deposit gathering practices. Among other things, the Bank is required by its regulators to maintain specified capital ratios,
file quarterly reports of its financial condition and results of operations and to obtain an annual audit of its financial statements.

Regulation of the Bank by the CFPB. The CFPB has regulation, supervision and examination authority over the Bank with
respect to substantially all federal statutes and regulations protecting the interests of consumers of financial services, including
but not limited to the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home
Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Truth in
Savings Act, the Right to Financial Privacy Act and the Electronic Funds Transfer Act and their respective related regulations.
Penalties for violating these laws and regulations could subject the Bank to lawsuits and administrative penalties, including civil
monetary penalties, payments to affected consumers and orders to halt or materially change the Bank’s consumer banking
activities. The CFPB has broad authority to pursue enforcement actions, including investigations, civil actions and cease and
desist proceedings, and can refer civil and criminal findings to the Department of Justice for prosecution. The Bank is also
subject to other federal and state consumer protection laws and regulations that, among other things, prohibit unfair, deceptive
and abusive, corrupt or fraudulent business practices, untrue or misleading advertising and unfair competition.

Capital Adequacy Requirements. Federal banking regulators adopted a system using certain risk-based capital guidelines to
evaluate the capital adequacy of banks and bank holding companies that is based upon the 1988 capital accord of the Bank for
International Settlements’ Basel Committee on Banking Supervision (the “Basel Committee”), a committee of central banks
and bank regulators from the major industrialized countries that coordinates international standards for bank regulation. Under
the guidelines, specific categories of assets and off-balance-sheet activities such as letters of credit are assigned risk weights,
based generally on the perceived credit or other risks associated with the asset. Off-balance-sheet activities are assigned a credit
conversion factor based on the perceived likelihood that they will become on-balance-sheet assets. These risk weights are
multiplied by corresponding asset balances to determine a “risk weighted” asset base, which is then measured against various
forms of capital to produce capital ratios.

In 2010, the Basel Committee released a set of international recommendations for strengthening the regulation, supervision and
risk management of banking organizations, known as Basel III. In July 2013, the Federal Reserve published final rules for the
adoption of the Basel III regulatory capital framework (the “Basel III Capital Rules”). The Basel III Capital Rules became
effective for the Company on January 1, 2015, with certain transition provisions phasing in over a period that ended on
January 1, 2019.

The Basel III Capital Rules, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”),
(ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting stated requirements,
(iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components
of capital and (iv) defines the scope of the deductions/adjustments to the capital measures. The Basel III Capital Rules also
specify a capital measure for Tier 2 capital, which includes subordinated debt and a portion of the allowance for credit losses, in
each case, subject to certain regulatory requirements. The Company’s preferred stock constitutes Additional Tier 1 capital and
subordinated notes constitute Tier 2 capital.

The Basel III Capital Rules set the CET1 risk-based capital requirement, the Tier 1 risk-based capital requirement and the total
risk-based capital requirement to a minimum of 4.5%, 6.0% and 8.0%, respectively, each plus a 2.5% capital conservation
buffer composed entirely of CET1, producing targeted ratios of 7.0%, 8.5% and 10.5%, respectively. A financial institution
with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend
payments and stock repurchases, and certain discretionary bonus payments to executive officers. The leverage ratio requirement
under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain
other intangible assets and certain other deduction), is 4.0%. Under the Basel III Capital Rules, the Company and the Bank must
maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a
leverage ratio equal to or greater than 4.0%.

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

Because the Company had less than $15 billion in total consolidated assets as of December 31, 2009, it is allowed to continue to
classify its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital up to 25% of that
measure. However, the treatment of existing trust preferred securities as capital may be subject to further regulatory change
prior to their maturity, which could require the Company to seek additional capital. As a non-advanced approaches banking
organization, the Company has elected to exclude the effects of certain accumulated other comprehensive income (“AOCI”)

9

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

In August 2020, the U.S. federal banking agencies adopted a final rule altering the definition of eligible retained income in their
respective capital rules. Under the new rule, eligible retained income is the greater of a firm’s (i) net income for the four
preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii)
average net income over the preceding four quarters. An institution’s eligible retained income, when considered in conjunction
with capital ratios and the capital conservation buffer, provides limitations on capital distributions (including dividends and
share repurchases) and certain executive compensation arrangements for the quarter following the calculation. As of
December 31, 2023, the Company was permitted to use 100% of its eligible retained income for these purposes in the first
quarter of 2024.

In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital
regulations to account for changes to credit loss accounting under accounting principles generally accepted in the United States
(“GAAP”). The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year
period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected
credit losses (“CECL”) on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank
regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also
provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay
for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on
regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted CECL on
January 1, 2020 and elected to utilize the five-year transition option.

Regulators may change capital and liquidity requirements, including previous interpretations of practices related to risk weights,
which could require an increase to the allocation of capital to assets held by the Bank. Regulators could also require the
Company to make retroactive adjustments to financial statements to reflect such changes. A regulatory capital ratio or category
may not constitute an accurate representation of a financial institution’s overall financial condition or prospects. The
Company’s regulatory capital status is addressed in more detail under the heading “Liquidity and Capital Resources” within
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 10 - Regulatory Ratios
and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) established a system of prompt
corrective action regulations and policies to resolve the problems of undercapitalized insured depository institutions. Under this
system, insured depository institutions are ranked in one of five capital categories as described below. Regulators are required
to take mandatory supervisory actions and are authorized to take other discretionary actions of increasing severity with respect
to insured depository institutions in the three undercapitalized categories. The five capital categories for insured depository
institutions under the prompt corrective action regulations consist of:

• Well capitalized - equals or exceeds a 10% total risk-based capital ratio, 8% Tier 1 risk-based capital ratio, 6.5% CET1

capital ratio and 5% leverage ratio and is not subject to any written agreement, order or directive requiring it to
maintain a specific level for any capital measure;

•

•

•

•

Adequately capitalized - equals or exceeds an 8% total risk-based capital ratio, 6% Tier 1 risk-based capital ratio, 4.5%
CET1 capital ratio and 4% leverage ratio;

Undercapitalized - total risk-based capital ratio of less than 8%, or a Tier 1 risk-based ratio of less than 6%, a CET1
capital ratio of less than 4.5% or a leverage ratio of less than 4%;

Significantly undercapitalized - total risk-based capital ratio of less than 6%, or a Tier 1 risk-based capital ratio of less
than 4%, a CET1 capital ratio of less than 3% or a leverage ratio of less than 3%; and

Critically undercapitalized - a ratio of tangible equity to total assets equal to or less than 2%.

The prompt corrective action regulations provide that an institution may be downgraded to the next lower category if its
regulator determines, after notice and opportunity for hearing or response, that the institution is in an unsafe or unsound
condition or has received and not corrected a less-than-satisfactory rating for any of the categories of asset quality,
management, earnings or liquidity in its most recent examination.

Federal bank regulatory agencies are required to implement arrangements for prompt corrective action for institutions failing to
meet minimum requirements to be at least adequately capitalized. FDICIA imposes an increasingly stringent array of
restrictions, requirements and prohibitions as an organization’s capital levels deteriorate. A bank rated “adequately capitalized”
or below may not accept, renew or roll over brokered deposits unless it receives a waiver from the FDIC. A “significantly
undercapitalized” institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions
with affiliates, removal of management and other restrictions. The FDIC has only very limited discretion in dealing with a

10

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

Under the Federal Deposit Insurance Act, as amended (the “FDIA”), “critically undercapitalized” banks may not, beginning 60
days after becoming critically undercapitalized, make any payment of principal or interest on their subordinated debt (subject to
certain limited exceptions). In addition, under Section 18(i) of the FDIA, banks are required to obtain the advance consent of
the FDIC to retire any part of their subordinated notes. Under the FDIA, a bank may not pay interest on its subordinated notes if
such interest is required to be paid only out of net profits, or distribute any of its capital assets, while it remains in default on
any assessment due to the FDIC.

In December 2020, the FDIC issued a final rule that is designed to bring the brokered deposits regulations in line with modern
deposit taking methods and generally reduces the scope of deposits that would be classified as brokered, which most directly
affects banks rated as “adequately capitalized” or “undercapitalized”. The final rule became effective on April 1, 2021, with an
extended compliance date of January 1, 2022. Compliance with the final rule did not have an impact to the Company’s
classification of brokered deposits.

Federal bank regulators may set capital requirements for a particular banking organization that are higher than the minimum
ratios when circumstances warrant. Federal banking guidelines provide that banking organizations experiencing significant
growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets. Concentration of credit risks, interest rate risk (imbalances
in rates, maturities or sensitivities) and risks arising from non-traditional activities, as well as an institution’s ability to manage
these risks, are important factors taken into account by regulatory agencies in assessing an organization’s overall capital
adequacy.

The risk-based and leverage capital ratios established by federal banking regulators are minimum supervisory ratios generally
applicable to banking organizations that meet specified criteria, assuming that they otherwise have received the highest
regulatory ratings in their most recent examinations. Banking organizations not meeting these criteria are expected to operate
with capital positions in excess of the minimum ratios. Regulators can, from time to time, change their policies or
interpretations of banking practices to require changes in risk weights assigned to the Bank's assets or changes in the factors
considered in order to evaluate capital adequacy, which may require the Bank to obtain additional capital to support existing
asset levels or future growth or reduce asset balances in order to meet minimum acceptable capital ratios.

Liquidity Requirements. U.S. capital rules implementing the Basel III standards also include two quantitative liquidity tests
for certain large banking organizations. One of the liquidity tests, referred to as the liquidity coverage ratio (“LCR”), is
designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the
entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an
acute liquidity stress scenario.

The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term
funding of the assets and activities of banking entities over a one-year time horizon. These requirements encourage the covered
banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and to
increase the use of long-term debt as a funding source.

While the LCR and NSFR tests are not currently applicable to the Company or the Bank, other relevant measures of liquidity
are monitored by management and are reported to the board of directors. Regulators may change capital and liquidity
requirements, including previous interpretations of practices related to risk weights, which could require an increase in liquid
assets or in the necessary capital to support the assets held by the Bank. Regulators could also require the Company to make
retroactive adjustments to financial statements and reported capital ratios to reflect such changes.

Stress Testing. Pursuant to the Dodd-Frank Act and regulations published by the federal bank regulatory agencies, the
Company was required to conduct an annual “stress test” of capital and consolidated earnings and losses under a base case and
two severely adverse stress scenarios provided by federal bank regulatory agencies from the years 2016 to 2018. In response to
this requirement, the Company developed dedicated staffing, economic models, policies and procedures to implement stress
testing on an annual basis, the results of which were furnished to regulators. However, the Economic Growth, Regulatory Relief
and Consumer Protection Act, enacted in 2018 (the “Regulatory Relief Act”) terminated TCBI’s stress testing requirements,
however, the Company created its own stress testing framework and continues to perform certain stress tests as a matter of good
governance and risk management and has incorporated the economic models and information developed through the stress
testing program into the Company’s risk management and business, capital and liquidity planning activities, which are subject
to continuing regulatory oversight.

Privacy and Data Security. The financial privacy provisions of the GLB Act generally prohibit financial institutions,
including the Bank, from disclosing non-public personal financial information about customers to non-affiliated third parties
unless customers have the opportunity to “opt out” of the disclosure and have not elected to do so. The Bank is required to
comply with state laws regarding consumer privacy if they are more protective than the GLB Act.

11

The federal banking agencies have adopted guidelines for safeguarding confidential, personal customer information. The
guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an
appropriate committee thereof, to create, implement and maintain a comprehensive written information security program
designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to
the security or integrity of such information and protect against unauthorized access to or use of such information that could
result in substantial harm or inconvenience to any customer. In addition, various U.S. regulators have increased their focus on
cyber security through guidance, examinations and regulations. Banking organizations are required to notify their primary
federal regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification
incident.”

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about
cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and
disclosure requirements under state and federal banking law and regulations.

In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management,
strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Securities
Exchange Act of 1934. Specifically, the final rule requires current reporting about material cybersecurity incidents, periodic
disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in
implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its
oversight of cybersecurity risk. See Item 1C. Cybersecurity for a discussion of the Company’s cybersecurity risk management,
strategy and governance.

Privacy and data security areas are expected to receive increased attention at the federal level. An increasing number of state
laws and regulations have been enacted in recent years to implement privacy and cybersecurity standards and regulations,
including data breach notification and data privacy requirements. Recently, several states have adopted regulations requiring
certain financial institutions to implement cybersecurity programs that meet specified requirements. In addition, other
jurisdictions in which customers do business, such as the European Union, have adopted similar requirements. This trend of
activity is expected to continue to expand, requiring continual monitoring of developments in the states and nations in which the
Company’s customers are located and ongoing investments in its information systems and compliance capabilities.

Community Reinvestment Act. The Community Reinvestment Act of 1977 (the “CRA”) requires depository institutions to
assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each
depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit,
making investments and providing community development services to low- and moderate-income individuals and
communities. Depository institutions are periodically examined for compliance with the CRA and are assigned one of four
ratings. The Bank is subject to examination by the FDIC. In order for a financial holding company to commence new activity
permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a
rating of at least “satisfactory” in its most recent examination under the CRA. The Bank's strategic focus on serving commercial
customers in regional and national markets from a limited number of branches makes it more challenging for it to satisfy CRA
requirements as compared to banks of comparable size that focus on providing retail banking services in markets where they
maintain a network of full-service branches.

On October 24, 2023, the Office of the Comptroller of the Currency (“OCC”), Federal Reserve, and FDIC issued a final rule to
modernize their respective CRA regulations. The revised rules substantially alter the methodology for assessing compliance
with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January
1, 2027. Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of
non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment,
and clarify eligible CRA activities. The final rules are likely to make it more challenging and/or costly for the Bank to receive a
rating of at least “satisfactory” on its CRA exam.

The USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act and the Bank Secrecy
Act. A major focus of U.S. government policy regarding financial institutions in recent years has been combating money
laundering, terrorist financing and other illegal payments. The USA Patriot Act of 2001 and the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001 substantially broadened the scope of U.S. anti-money
laundering laws and penalties, specifically related to the Bank Secrecy Act of 1970, and expanded the extra-territorial
jurisdiction of the U.S. government in this area. Regulations issued under these laws impose obligations on financial institutions
to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing
and other suspicious activity and to verify the identity of their customers and apply additional scrutiny to customers considered
to present greater than normal risk. Failure of a financial institution to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with relevant laws or regulations, could have serious legal, reputational
and financial consequences for the institution. Because of the significance of regulatory emphasis on these requirements, the
Company has expended, and expects to continue to expend, significant staffing, technology and financial resources to maintain

12

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

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in
January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money
laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial
institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and
expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations
and instituting BSA whistleblower incentives and protections.

Office of Foreign Assets Control. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible
for administering and enforcing economic and trade sanctions against specified foreign parties, including countries and regimes,
foreign individuals and other foreign organizations and entities. OFAC publishes lists of prohibited parties that are regularly
consulted by the Bank in the conduct of its business in order to ensure compliance. The Company is responsible for, among
other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed trade and
financial transactions with such parties and reporting blocked transactions after their occurrence. Failure to comply with OFAC
requirements could have serious legal, financial and reputational consequences for the Company.

Safe and Sound Banking Practices; Enforcement. Banks and bank holding companies are prohibited from engaging in unsafe
and unsound banking practices. Bank regulators have broad authority to prohibit and penalize activities of bank holding
companies and their subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws,
regulations or written directives of or agreements with regulators. Regulators have considerable discretion in identifying what
they deem to be unsafe and unsound practices and in pursuing enforcement actions in response to them.

The FDIA requires federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial
standards for all insured depository institutions that relate to, among other things: (i) internal controls, information systems and
audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth and quality; and
(vi) compensation and benefits. Federal banking agencies have adopted regulations and Interagency Guidelines Prescribing
Standards for Safety and Soundness to implement these requirements, which regulators use to identify and address problems at
insured depository institutions before capital becomes impaired. If a regulator determines that a bank fails to meet any standards
prescribed by the guidelines, the bank may be required to submit an acceptable plan to achieve compliance and agree to specific
deadlines for the submission to and review by the regulator of reports confirming progress in implementing the safety and
soundness compliance plan. Failure to implement such a plan may result in an enforcement action against the bank.

Enforcement actions against the Company, the Bank and their respective officers and directors may include the issuance of a
written directive, the issuance of a cease-and-desist order that can be judicially enforced, the imposition of civil money
penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against officers or other institution-affiliated parties, the imposition of restrictions and sanctions under
prompt corrective action regulations, the termination of deposit insurance (in the case of the Bank) and the appointment of a
conservator or receiver for the Bank. Civil money penalties can be over $2 million for each day a violation continues.

Transactions with Affiliates and Insiders. The Bank is subject to Section 23A of the Federal Reserve Act, as amended (the
“FRA”) which places limits on, among other covered transactions, the amount of loans or extensions of credit to affiliates that
may be made by the Bank. Extensions of credit to affiliates must be adequately collateralized by specified amounts and types of
collateral. Section 23A also limits the amount of loans or advances made by the Bank to third party borrowers that are
collateralized by securities or obligations of the Bank’s affiliates. The Bank is also subject to Section 23B of the FRA, which,
among other things, prohibits an institution from engaging in transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliates.

The Company is subject to restrictions on extensions of credit to insiders (namely executive officers, directors, and 10%
stockholders) and their related interests. These restrictions are contained in the FRA and Federal Reserve Regulation O and
apply to all insured depository institutions as well as their subsidiaries and holding companies. These restrictions include limits
on loans to any individual insider and such insider's related interests and certain conditions that must be met before such loans
can be made. There is also an aggregate limitation on all loans to insiders and their related interests, which cannot exceed the
institution’s total unimpaired capital and surplus, unless the FDIC determines that a lesser amount is appropriate. Insiders are
subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.

Restrictions on Payment of Dividends by the Bank. The sole source of funding of TCBI’s financial obligations has consisted
of proceeds of capital markets transactions and cash payments from the Bank. The Bank is subject to federal banking law
requirements concerning the payment of dividends, including, under the FDICIA, the Bank may not pay any dividend if it is
undercapitalized or if payment would cause it to become undercapitalized.

13

Limits on Compensation. The Federal Reserve, OCC and FDIC in 2010 issued comprehensive final guidance on incentive
compensation policies for executive management of banks and bank holding companies. This guidance was intended to ensure
that the incentive compensation policies of banking organizations do not undermine their safety and soundness by encouraging
excessive risk-taking. The objective of the guidance is to ensure that incentive compensation arrangements (i) provide
incentives that do not encourage excessive risk-taking, (ii) are compatible with effective internal controls and risk management
and (iii) are supported by strong corporate governance, including oversight by the board of directors. In 2016, as required by the
Dodd-Frank Act, the Federal Reserve, the FDIC and the SEC proposed rules that would, depending upon the assets of the
institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As
of December 31, 2023, these rules have not been implemented.

Deposit Insurance. The Bank’s deposits are insured through the DIF, which is administered by the FDIC, up to limits
established by applicable law, currently $250,000 per depositor, per account ownership category, per bank. The FDIC
determines quarterly deposit insurance assessments consisting of a percentage of an assessment base equal to the Bank’s
average consolidated total assets less average tangible equity capital and the assignment of one of four risk categories based on
supervisory evaluations, regulatory capital levels and certain other factors. The FDIC has the discretion to adjust an institution’s
risk rating and may terminate its insurance of deposits upon a finding that the institution engaged or is engaging in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or written agreement entered into with the FDIC. The FDIC may also prohibit any
FDIC-insured institution from engaging in any activity it determines to pose a serious risk to the DIF.

For 2023, the FDIC assigned assessment rates based on a scorecard considering CAMELS component ratings, financial
measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity
that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure, all subject to certain
adjustments. As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%. The FDIC, as
required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ratio to
meet or exceed the statutory minimum of 1.35% within eight years. On October 18, 2022, the FDIC adopted an amended
restoration plan to increase the likelihood that the reserve ratio would be restored to at least 1.35% by September 30, 2028. The
FDIC’s amended restoration plan increases the initial base deposit insurance assessment rate schedules uniformly by 2 basis
points, which began the first quarterly assessment period of 2023. The FDIC could further increase the deposit insurance
assessments for certain insured depository institutions, including the Bank, if the DIF reserve ratio is not restored as projected.

In November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the DIF associated
with several bank failures that occurred during early 2023. The assessment base for the special assessment is equal to estimated
uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be collected at an annual rate of
approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, beginning the first quarterly
assessment period of 2024.

The Volcker Rule. The Dodd-Frank Act amended the BHCA to require the federal financial regulatory agencies to adopt rules
that prohibit banks and their affiliates from engaging in proprietary trading in designated types of financial instruments and
from investing in and sponsoring certain hedge funds and private equity funds. The Volcker Rule has not had a material effect
on the Company’s operations. Unanticipated effects of the Volcker Rule’s provisions or future interpretations may have an
adverse effect on business or services provided to the Bank by other financial institutions.

Debit Card Interchange Fees. Dodd-Frank includes a set of rules requiring that interchange transaction fees for electronic
debit transactions be reasonable and proportional to certain costs associated with processing the transactions. Interchange fees
for electronic debit transactions are limited to 21 cents plus 0.05% of the transaction, plus an additional one cent per transaction
fraud adjustment. These rules impose requirements regarding routing and exclusivity of electronic debit transactions, and
generally require that debit cards be usable in at least two unaffiliated networks. On October 25, 2023, the FRB proposed to
lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction. The proposal would
also establish a regular process for updating the maximum amount every other year going forward. We continue to monitor the
development of these proposed rule revisions.

Future Legislation and Regulation. Laws, regulations and policies are continually under review by Congress and state
legislatures and federal and state regulatory agencies. In addition to the specific legislation and regulations described above,
future legislation and regulations or changes to existing statutes, regulations or regulatory policies applicable to the Company
and its subsidiaries may affect the business, financial condition and results of operations in adverse and unpredictable ways and
increase reporting requirements and compliance costs. The substance or impact of pending or future legislation or regulation, or
the application thereof, cannot be predicted.

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Available Information

Under the Securities Exchange Act of 1934, the Company is required to file annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and
information statements and other information that we file electronically with the SEC.

The Company makes available, free of charge through its website, reports on Forms 10-K, 10-Q and 8-K, and amendments to
those reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Additionally, the
Company has adopted and posted on its website a code of business conduct that applies to the principal executive officer,
principal financial officer and principal accounting officer. The address for the website is www.texascapitalbank.com. Any
amendments to, or waivers from, the code of business conduct applicable to the Company’s executive officers will be posted on
the website within four days of such amendment or waiver. The Company will provide a printed copy of any of the
aforementioned documents to any requesting stockholder of the Company.

ITEM 1A.

RISK FACTORS

The Company is subject to risk. The following discussion, along with management’s discussion and analysis and the financial
statements and footnotes, sets forth the most significant risks and uncertainties that management believes could adversely affect
the business, financial condition or results of operations. Additional risks and uncertainties that management is not aware of or
that management currently deems immaterial may also have a material adverse effect on the business, financial condition or
results of operations. There is no assurance that this discussion covers all potential risks that the Company faces. The
occurrence of the described risks could cause results to differ materially from those described in its forward-looking statements
included elsewhere in this report or in other filings with the SEC, and could have a material adverse impact on the business,
financial condition or results of operations.

Summary of Risk Factors

The following is a summary of the most significant risks and uncertainties that management believes could adversely affect the
business, financial condition or results of operations. In addition to the following summary, you should consider the other
information set forth in this “Risk Factors” section and the other information contained in this report before investing in the
Company’s securities.

Credit Risks

•
•

•

•
•

•
•
•

The Company must effectively manage its credit risks.
A significant portion of the Company’s assets consists of commercial loans, which may involve a higher degree of
credit risk.
The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans
are secured by commercial and residential real estate.
Future profitability depends, to a significant extent, upon commercial business customers.
The Company’s business is concentrated in Texas and exposure to the Texas economy, including the energy industry,
could adversely affect its performance.
The Company must effectively manage its counterparty risk.
The Company must maintain an appropriate allowance for credit losses.
Changes in accounting standards could materially affect how the Company reports its financial results.

Liquidity Risks

•
•
•

The Company must effectively manage its liquidity risk.
The Company’s growth plans are dependent on the availability of capital and funding.
The Company is dependent on funds obtained from borrowing or capital transactions or from the Bank to fund its
obligations.

Market Risks

•
•
•

The Company must effectively manage its interest rate risks.
The Company must effectively manage market risk associated primarily with sales and trading activities.
Rising interest rates have decreased the value of the Company’s securities portfolio, and the Company may realize
losses if it were to sell such securities.

Strategic Risks

•

•

•

The Company must be effective in developing and executing new lines of business and new products and services
while managing associated risks.
The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial
service providers.
The Company must effectively execute its business strategy in order to continue asset and earnings growth.

15

Operational Risks

•

•

•
•
•

•

•

The Company, its vendors and customers must effectively manage information systems and cyber risk and threats
which may result in disruptions, failures or breaches in security.
A successful cyber attack affecting the Company could cause significant harm to the Company and its clients and
customers.
The Company’s operations rely extensively on a broad range of external vendors.
The Company must continue to attract, retain and develop key personnel.
The Company’s accounting estimates and risk management processes rely on management judgment, which may
prove inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models.
The risk management strategies and processes may not be effective and the Company’s controls and procedures,
including disclosure controls and procedures and internal control over financial reporting, may fail or be circumvented.
The business is susceptible to fraud and conduct risk.

Legal, Regulatory and Compliance Risks

•
•
•

•

The Company is subject to extensive government regulation and supervision and interpretations thereof.
The Company must maintain adequate regulatory capital to support its business objectives and strategy.
The Company is subject to claims and litigation in the ordinary course of its business, including claims that may not be
covered by insurance.
Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking
industry could increase the Company’s expenses and affect the Company’s operations.

Other Risks Affecting the Business

•
•
•

•
•

•

•
•

The business faces unpredictable economic and business conditions.
The soundness of other financial institutions could adversely affect the business.
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer
confidence in the banking system.
The Company is subject to environmental liability risk associated with lending activities.
Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external and
geopolitical events could significantly impact the business.
Climate change and related legislative and regulatory initiatives including interpretations thereof have the potential to
disrupt the business and result in operational changes and expenditures that could significantly impact the business and
the operations and creditworthiness of the Company’s clients.
Negative public opinion could damage the Company’s reputation and adversely affect its earnings.
Environmental, social and governance (“ESG”) risks could adversely affect the Company’s reputation and shareholder,
employee, client and third-party relationships and may negatively affect the Company’s stock price.

Risks Relating to Company Securities

•
•

•
•

The Company’s stock price can be volatile.
The holders of the Company’s indebtedness and preferred stock have rights that are senior to those of its common
stockholders.
Federal legislation and regulations impose restrictions on the ownership of the Company’s common stock.
Anti-takeover provisions of the Company’s certificate of incorporation, bylaws and Delaware law may make it more
difficult for holders to receive a change in control premium.

Risk Factors Associated with the Business

Credit Risks

The Company must effectively manage its credit risks. The risk of non-payment of loans is inherent in commercial banking,
which may result from many factors, including:

•

•

•

•

Adverse changes in local, U.S. and global economic and industry conditions, and other geopolitical events;

Declines in the value of collateral, including asset values that are directly or indirectly related to external factors such
as commodity prices, real estate values, interest rates or geopolitical risks;

Concentrations of credit associated with specific loan categories, industries or collateral types; and

Exposures to individual borrowers and to groups of entities that may be affiliated on some basis that individually and/
or collectively represent a larger percentage of the Company’s total loans or capital than might be considered common
at other banks of similar size.

16

The Company relies heavily on information provided by third parties when originating and monitoring loans. If this
information is intentionally or negligently misrepresented and the Company does not detect such misrepresentations, the credit
risk associated with the transaction may be increased. Although the Company attempts to manage its credit risk by carefully
monitoring the concentration of its loans within specific loan categories and industries and through prudent loan approval and
monitoring practices in all categories of lending, the Company cannot assure that its approval and monitoring procedures will
reduce these lending risks. The Company’s significant number of large credit relationships (above $20 million) could
exacerbate credit problems precipitated by a regional or national economic downturn. Competitive pressures could erode
underwriting standards, leading to a decline in general credit quality and increases in credit defaults and non-performing asset
levels. If the Company’s credit portfolio management routines, policies and procedures are not able to adequately adapt to
changes in economic, competitive or other conditions that affect customers and the quality of the loan portfolio, the Company
may incur increased losses that could adversely affect its financial results and lead to increased regulatory scrutiny, restrictions
on its lending activity or financial penalties.

A significant portion of the Company’s assets consists of commercial loans, which may involve a higher degree of credit risk.
The Company generally invests a greater proportion of its assets in commercial loans to business customers than other banking
institutions of its size, and its business plan calls for continued efforts to increase its assets invested in these loans. Commercial
loans may involve a higher degree of credit risk than other types of loans due, in part, to their larger average size, the effects of
changing economic conditions on the businesses of the Company’s commercial loan customers, the dependence of borrowers
and counterparties on operating cash flow to service debt and the Company’s reliance upon collateral which may not be readily
marketable. Due to the greater proportion of these commercial loans in its portfolio and because the balances of these loans are,
on average, larger than other categories of loans, losses incurred on a relatively small number of commercial loans could have a
materially adverse impact on results of operations and financial condition.

The Company is subject to risks arising from conditions in the real estate market, as a significant portion of its loans are
secured by commercial and residential real estate. The Company’s real estate lending activities and its exposure to
fluctuations in real estate collateral values are significant and may increase as its assets increase. The market value of real estate
can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which
the real estate is located, in response to factors such as economic downturns, changes in the economic health of industries
heavily concentrated in a particular area and in response to changes in market interest rates, which influence capitalization rates
used to value revenue-generating commercial real estate. If the value of real estate serving as collateral for loans declines
materially, a significant part of the loan portfolio could become under-collateralized and losses incurred upon borrower defaults
would increase. Conditions in certain segments of the real estate industry, including homebuilding, lot development and
mortgage lending, may have an effect on the values of real estate pledged as collateral for loans. The inability of purchasers of
real estate, including residential real estate, to obtain financing may weaken the financial condition of borrowers who are
dependent on the sale or refinancing of property to repay their loans. Changes in the economic health of certain industries can
have a significant impact on other sectors or industries which are directly or indirectly associated with those industries and may
impact the value of real estate in areas where such industries are concentrated.

Future profitability depends, to a significant extent, upon commercial business customers. The Company’s future profitability
depends, to a significant extent, upon revenue it receives from commercial business customers, and their ability to continue to
meet their loan obligations. Adverse economic conditions or other factors affecting this market segment, and the Company’s
failure to timely identify and react to unexpected economic downturns, may have a greater adverse effect than other financial
institutions that have a more diversified customer base. Additionally, the Company’s inability to grow its commercial business
customer base in a highly competitive market could affect its future growth and profitability.

The Company’s business is concentrated in Texas and exposure to the Texas economy, including the energy industry, could
adversely affect its performance. Although more than 50% of the Company’s loan exposure is outside of Texas and more than
50% of its deposits are sourced outside of Texas, the Texas concentration remains significant compared to peer banks. A
majority of the loans held for investment, excluding mortgage finance loans and other national lines of business, are to
businesses with headquarters or operations in Texas. As a result, the Company’s financial condition and results of operations
may be strongly affected by any prolonged period of economic recession or other adverse business, economic or regulatory
conditions affecting Texas businesses and financial institutions. Furthermore, while the Texas economy is increasingly more
diversified, the energy sector continues to play an important role in the overall Texas economy. Furthermore, energy production
and related industries represent a significant part of the economies in some of the primary markets in which the Company
operates. The Company’s portfolio of energy loans consists primarily of producing reserve-based loans to exploration and
production companies, with a smaller portion of loan balances attributable to royalty owners, midstream operators, saltwater
disposal and other service companies whose businesses primarily relate to production, not exploration and development, of oil
and gas. These businesses are significantly affected by volatility in oil and natural gas prices, reserve depletion curves, material
declines in the level of drilling and production activity in Texas and in other areas of the United States and material fluctuations
in investor interest in oil and gas exploration and production investments. There is no assurance that the Company will not be
materially adversely impacted by the direct and indirect effects of current and future economic conditions in Texas.

17

The Company must effectively manage its counterparty risk. Financial services institutions are interrelated as a result of
trading, clearing, counterparty and other relationships. The Company has exposure to many different industries and
counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial
banks, brokers and dealers, investment banks, and other financial market participants. Many of these transactions expose the
Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be
increased when the collateral securing its loans cannot be realized upon or is liquidated at prices not sufficient to recover the
full amount of its credit or derivative exposure. Any such losses could have a material adverse effect on the business, financial
condition, results of operations or profitability.

The Company must maintain an appropriate allowance for credit losses. Management’s experience in the banking industry
indicates that some portion of the Company’s loans will become delinquent, and some may only be partially repaid or may
never be repaid at all. The Company maintains an allowance for credit losses on loans, which is a reserve established through a
provision for credit losses charged to expense each quarter, that is consistent with management’s assessment of the
collectability of the loan portfolio in light of the amount of loans committed and outstanding and current and future economic
conditions and market trends. When specific loan losses are identified, the amount of the expected loss is removed, or charged
off, from the allowance. Management’s methodology for establishing the appropriateness of the allowance for credit losses on
loans depends on subjective application of risk grades as indicators of each borrower’s ability to repay specific loans, together
with an assessment of how actual or projected changes in competitor underwriting practices, competition for borrowers and
depositors and other conditions in markets are likely to impact improvement or deterioration in the collectability of loans as
compared to historical experience.

The Company has a substantially larger percentage of commercial, real estate and other categories of business loans relative to
total assets than most other banks in the market and individual loans are generally larger as a percentage of the Company’s total
earning assets than other banks. As a result, the Company’s business model may make it more vulnerable to changes in the
underlying business credit quality than other entities with which the Company competes. The failure to maintain above-peer
credit quality metrics could have a material adverse impact on growth and profitability. Historically, the Company has sought to
take action prior to economic downturns by slowing growth rates and decreasing the risk level of its assets by, among other
things, allowing runoff of loans that the Company believes may not perform well during a weakening or declining economic
environment.

If management’s assessment of inherent risk and losses in the loan portfolio is inaccurate, or geopolitical, economic and market
conditions or borrowers' financial performance experience material unanticipated changes, the allowance may become
inadequate, requiring larger provisions for loan losses that can materially decrease the Company’s earnings or profitability.
Federal regulators periodically review the Company’s allowance for credit losses and based on their judgments or
interpretations, which may be different than management’s, may require the Company to change classifications or grades of
loans, increase the allowance for credit losses or recognize further loan charge-offs. Any increase in the allowance for credit
losses or in the amount of loan charge-offs required by the Company’s methodology or regulatory agencies could have a
negative effect on results of operations and financial condition.

Changes in accounting standards could materially affect how the Company reports its financial results. The Financial
Accounting Standards Board and the SEC may change the financial accounting and reporting standards, or the interpretation of
those standards, that govern the preparation of the Company’s external financial statements from time to time. The impact of
these changes or the application thereof on the Company’s financial condition and operations can be difficult to predict.

For example, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) on January 1, 2020 which
replaced the incurred loss methodology for determining the provision for credit losses and allowance for credit losses with the
CECL model. Implementation of CECL requires that management determines periodic estimates of lifetime expected future
credit losses on loans in the provision for credit losses in the period when the loans are booked. The adoption of CECL resulted
in an increase to the allowance for credit losses by $9.1 million. The impact of CECL in future periods will be significantly
influenced by the composition, characteristics and quality of the loan portfolio, as well as the prevailing economic conditions
and forecasts utilized. Should these factors materially change, the Company may be required to increase or decrease the
allowance for credit losses, decreasing or increasing reported income, and introducing additional volatility into reported
earnings.

Liquidity Risks

The company must effectively manage its liquidity risk. The Company requires liquidity in the form of available funds to meet
deposit, debt and other obligations as they come due, borrower requests to draw on committed credit facilities including
unexpected demands for cash payments. While neither the Company nor the Bank is subject to Basel III liquidity regulations,
the adequacy of its liquidity is a matter of regulatory interest given the significant portion of the balance sheet represented by
loans as opposed to securities and other more marketable investments. The Company’s principal source of funding consists of
customer deposits, supplemented by its short-term and long-term borrowings, including federal funds purchased and Federal
Home Loan Bank (“FHLB”) borrowings. Recently proposed changes to the FHLB system could adversely impact the

18

Company’s access to FHLB borrowings or increase the cost of such borrowings. The Company also relies on the availability of
the mortgage secondary market provided by Ginnie Mae and the government sponsored entities (“GSEs”) to support the
liquidity of its residential mortgage assets. A substantial majority of the Company’s liabilities consist of demand, savings,
checking and money market deposits, which are payable on demand or upon relatively short notice. By comparison, a
substantial portion of the assets are loans, most of which, excluding mortgage finance loans, cannot be collected or sold in so
short a time frame, creating the potential for an imbalance in the availability of liquid assets to satisfy depositors and loan
funding requirements.

An inability to raise funds through deposits, borrowings, the sale of securities and loans and other sources, or an inability to
access the capital markets, could have a substantial negative effect on the Company’s liquidity. Furthermore, such funding
sources even if available could become more expensive, which could negatively impact the Company’s profitability and net
interest margin. The Company actively manages its available sources of funds to meet expected or anticipated needs under
normal and financially stressed conditions, but there is no assurance that the Company will be able to make new loans, meet
ongoing funding commitments to borrowers, or replace maturing deposits and advances as necessary under all possible
circumstances. The Company’s ability to obtain funding, including on attractive terms, could be impaired by factors beyond its
control, such as disruptions in financial markets, negative expectations regarding the financial services industry generally or in
the markets or negative perceptions of the Company, including credit ratings.

The Company sources a significant volume of its non-interest bearing deposits from its commercial clients, creating
concentrations of deposits that may carry a greater risk of unexpected material withdrawals. These customers are more likely to
actively monitor the Company’s financial condition and results of operations and could withdraw their deposits quickly upon
the occurrence of a material adverse development affecting the Company or its businesses or based on market rumors regarding
the Company or other regional banks. In response to this risk, the Company has increased its liquidity and developed techniques
for monitoring and planning for changes in liquidity and capital, but there is no assurance that the Company will maintain or
have access to sufficient funding and capital to fully mitigate its liquidity risk.

One potential source of liquidity for the Company are brokered deposits arranged by brokers acting as intermediaries, typically
larger money-center financial institutions. The Company receives these deposits from certain of its customers in connection
with its delivery of other financial services to them or their customers. The deposits are subject to regulatory classification as
brokered deposits even though the Company considers these to be relationship deposits and they are not subject to the typical
risks or market pricing associated with conventional brokered deposits. However, brokered deposits are generally considered to
be more sensitive to interest rates, with a higher withdrawal than other deposits if the rates offered are not competitive with
rates offered by the Bank’s competitors. Furthermore, banks with higher levels of brokered deposits may be viewed as having
higher liquidity risks, which may lead to further deposit outflow.

If the Bank does not maintain regulatory capital above the level required to be well capitalized the Bank would be required to
obtain FDIC consent for it to continue to accept, renew or roll over most deposits classified as brokered deposits, and there can
be no assurance that the FDIC would consent under any circumstances. The Bank could also be required to suspend or
eliminate deposit gathering from any source classified as brokered deposits. The FDIC can change the definition of brokered
deposits or extend the classification to deposits not currently classified as brokered deposits. These non-traditional deposits are
subject to greater operational and reputational risk of unexpected withdrawal than traditional demand and time deposits,
particularly those provided by consumers. A significant decrease in balances of brokered deposits could have a material adverse
effect on the Bank’s and the Company’s financial condition, results of operations or profitability. See Management’s
Discussion and Analysis of Financial Condition and Results of Operations below for further discussion of liquidity.

The Company’s growth plans are dependent on the availability of capital and funding. The Company’s historical ability to
raise capital through the sale of capital stock and debt securities may be affected by economic and market conditions or
regulatory changes that are beyond its control. Adverse changes in its operating performance or financial condition could make
raising additional capital difficult or more expensive or limit access to customary sources of funding, including inter-bank
borrowings, repurchase agreements and borrowings from the Federal Reserve Bank of Dallas (“Reserve Bank”) or the FHLB.
Unexpected changes in requirements for capital resulting from regulatory actions could require the Company to raise capital at
a time, and at a price, that might be unfavorable, or could require that the Company forego continuing growth or reduce its then
current loan portfolio. The Company cannot offer assurance that capital and funding will be available to it in the future, in
needed amounts, upon acceptable terms or at all. The Company’s efforts to raise capital could require the issuance of securities
at times and with maturities, conditions and rates that are disadvantageous, and which could have a dilutive impact on its then
or current stockholders. Factors that could adversely affect the Company’s ability to raise additional capital or necessary
funding include conditions in the capital markets, its financial performance, its credit ratings, regulatory actions and general
economic conditions. Increases in cost of capital, including dilution and increased interest or dividend requirements, could
have a direct adverse impact on the Company’s operating performance and its ability to achieve its growth objectives.

The Company’s mortgage finance business has experienced, and will likely continue to experience, highly variable usage of the
Company’s funding capacity resulting from seasonal demands for credit, surges in consumer demand driven by changes in

19

interest rates and month-end “spikes” of residential mortgage closings. These spikes could also result in the Company and the
Bank having capital ratios that are below internally targeted levels or even levels that could cause the Bank to not be well
capitalized and could affect liquidity levels. At the same time, managing this risk by declining to respond fully to the needs of
customers could severely impact the business. The Company has historically responded to these variable funding demands by,
among other things, increasing the extent of participations sold in its mortgage loan interests, as needed, and by maintaining a
substantial borrowing relationship with the FHLB. Its mortgage finance customers have also provided significant low-cost
deposit balances associated with the borrower escrow accounts created at the time certain mortgage loans are funded, which
have benefited liquidity and net interest margin. In response to competitive pressures, the Company sometimes finds it
necessary to pay interest on some of these accounts, as regulations allow or require and this trend may continue, which can
affect its costs of funds. Individual escrow account balances also experience significant variability monthly as principal and
interest payments, including ad valorem taxes and insurance premiums, are paid periodically. While the short average holding
period of its mortgage interests of approximately 20 days will allow the Company, if necessitated by a funding shortfall, to
rapidly decrease the size of the portfolio and its associated capital and funding requirements, any such action might significantly
damage the business and important mortgage finance relationships.

The Company is dependent on funds obtained from borrowing or capital transactions or from the Bank to fund its obligations.
The Company is a financial holding company engaged in the business of managing, controlling and operating the Bank. The
Company conducts no material business or other activity at the parent company level other than activities incidental to holding
equity and debt investments in the Bank. As a result, the Company relies on the proceeds of capital transactions, borrowings
under its revolving line of credit and payments of interest and principal on loans made to the Bank to pay its operating
expenses, to satisfy its obligations to debt holders and to pay dividends on its preferred stock. The profitability of the Bank is
subject to fluctuation based upon, among other things, the cost and availability of funds, changes in interest rates and economic
conditions in general. The Bank’s ability to pay dividends to the Company is subject to regulatory limitations that can, under
certain adverse circumstances, prohibit the payment of dividends to it. The Company’s right to participate in any distribution
from the liquidation or sale of the Bank’s assets is subject to the prior claims of the Bank’s creditors.

If the Company is unable to access funds from capital transactions, borrowing under its revolving line of credit or dividends or
interest on loan payments from the Bank, the Company may be unable to satisfy its obligations to creditors or debtholders or
pay dividends on its preferred stock.

Market Risks

The Company must effectively manage its interest rate risk. The Company’s profitability is dependent to a large extent on its
net interest income, which is the difference between the interest income paid on its loans and investments and the interest the
Company pays to third parties such as its depositors, lenders and debtholders. Changes in interest rates can impact profits and
the fair values of certain assets and liabilities. Models that the Company uses to forecast and plan for the impact of rising and
falling interest rates may be incorrect or fail to consider the impact of competition and other conditions affecting loans and
deposits.

Periods of volatile interest rates may have a material effect on the Company’s earnings. Throughout 2023, the Federal Reserve
has increased the target Federal Funds rate at a steady pace, reaching its current range of 5.25% to 5.50% at the July 2023
meeting. At the most recent meeting in November 2023, the Federal Reserve voted to maintain this target range.

Increases in interest rates and economic conditions affecting consumer demand for housing can have a material impact on the
volume of mortgage originations and refinancings, adversely affecting the profitability of the mortgage finance business.
Interest rate risk can also result from mismatches between the dollar amounts of repricing or maturing assets and liabilities and
from mismatches in the timing and rates at which the assets and liabilities reprice. The Company actively monitors and
manages the balances of maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates,
but there can be no assurance that the Company will be able to avoid material adverse effects on net interest margin in all
market conditions.

Rising interest rates in prior periods have increased interest expense, with a commensurate positive effect on net interest
income, but may not be expected to do so in future periods. In a rising rate environment, competition for cost-effective deposits
increases, making it more costly for the Company to fund loan growth. Rapid and unexpected volatility in interest rates creates
additional uncertainty and potential for adverse financial effects. There can be no assurance that the Company will not be
materially adversely affected by future changes in interest rates.

The company must effectively manage market risk associated primarily with sales and trading activities.
interest rate risk, the Company is exposed to other forms of market risk, principally related to trading activities which support
customer transactions. The Company has typically minimized the market and liquidity risks of customer-related positions with
similar offsetting positions with broker-dealers.

In addition to

20

The Company uses VaR as a primary risk measure to aggregate, monitor and limit risks at the portfolio level across all trading
activities. VaR is calculated based on one year historical moves in key market risk factors relevant to the portfolio and it
estimates potential loss on current portfolio at 95th percentile confidence interval.

Rising interest rates have decreased the value of the Company’s securities portfolio, and the Company may realize losses if it
were to sell such securities. As a result of inflationary pressures and the resulting rapid increases in interest rates over the last
two years, the trading value of previously issued government and other fixed income securities has declined significantly. These
securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in
unrealized losses embedded in U.S. banks’ securities portfolios. If the Company were to sell such securities with embedded
unrealized losses, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations
and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While
the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or
sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term
Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed
securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments,
there is no guarantee that this program or similar programs will be available in the future or effective in addressing liquidity
needs on favorable terms as they arise.

Strategic Risks

The Company must be effective in developing and executing new lines of business and new products and services while
managing associated risks. The Company’s business strategy involves developing and growing new lines of business and
offering new products and services within existing lines of business to grow its client base, retain existing clients and realize
strategic priorities for both loans and deposits. Substantial costs, risks and uncertainties are associated with these efforts,
particularly in instances where the markets are not fully developed. Developing and marketing new activities requires that the
Company invests significant time and resources before new sources of revenues, funding and profits can be realized.
Timetables for the development and launch of new activities may not be achieved and price and profitability targets may not
prove feasible, or their realization may be delayed. External factors, such as compliance with regulations, receipt of necessary
licenses or permits, competitive alternatives and shifting market preferences, may also adversely impact the successful
execution of new activities. New activities necessarily entail additional risks and may present additional risks to the
effectiveness of the Company’s system of internal controls and risk management strategies. All service offerings, including
current offerings and new activities, may become more risky due to changes in economic, competitive and market conditions
beyond the Company’s control. Regulators could determine that the Company’s or the Bank’s risk management practices are
not adequate or the Company’s or the Bank’s capital levels are not sufficiently in excess of well capitalized levels and take
action to restrain growth. Failure to successfully manage these risks, generally and to the satisfaction of regulators, in the
development and implementation of new lines of business or new products or services could have a material adverse effect on
the business, results of operations and financial condition.

The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial service
providers. Competition among providers of financial services in markets, in Texas, regionally and nationally, is intense. The
Company competes with other financial and bank holding companies, state and national commercial banks, savings and loan
associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking
companies, money market mutual funds, asset-based non-bank lenders, government sponsored or subsidized lenders, financial
technology companies and other financial services providers. Many of these competitors have substantially greater financial
resources, lending limits and technological resources and larger branch networks than the Company does and are able to offer a
broader range of products and services than the Company can, including systems and services that could more effectively
protect customers from cyber threats. Many competitors offer lower interest rates and more liberal loan terms that appeal to
borrowers but adversely affect net interest margin and assurance of repayment. The Company is increasingly faced with
competition in many of its products and services by non-bank providers who may have competitive advantages of size, access
to potential customers and fewer regulatory requirements. Failure to compete effectively for deposit, loan and other banking
customers in any of the lines of business could cause the Company to lose market share, slow or reverse growth rate or suffer
adverse effects on financial condition, results of operations or profitability. See the discussion above at Business – Competition
for additional discussion of the Company’s competition.

The Company must effectively execute its business strategy in order to continue asset and earnings growth. The Company’s
core strategy is to develop its business principally through organic growth by offering a differentiated banking experience to
companies in high-value business segments. Its prospects for continued growth must be considered in light of the risks,
expenses and difficulties frequently encountered by growing companies. In order to execute the Company’s business strategy
successfully, the Company must, among other things:

•

•

continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally;

develop new products and services and execute the full range of products and services more efficiently and effectively;

21

•

•

•

•

•

•

•

attract and retain qualified front-line personnel in each of the targeted market segments to build customer base;

respond to market opportunities promptly and nimbly while balancing the demands of risk management and
compliance with regulatory requirements;

expand loan portfolio in an intensely competitive environment while maintaining credit quality;

attract sufficient deposits and capital to fund expected and anticipated loan growth and satisfy regulatory requirements;

compete effectively for investment banking and broker-dealer customers;

control expenses; and

acquire and maintain sufficient qualified staffing and information technology and operational resources to support
growth and compliance with regulatory requirements.

Failure to effectively execute the business strategy could have a material adverse effect on the business, future prospects,
financial condition, results of operations or profitability.

Operational Risks

The Company, its vendors and customers must effectively manage information systems and cyber risk and threats which may
result in disruptions, failures or breaches in security. The Company, its vendors and customers all rely heavily on
communications and information systems to conduct their respective businesses, store sensitive data and work effectively
together. The financial services industry is undergoing rapid technological changes with frequent introductions of new
technology-driven products and services. The Company’s ability to compete successfully depends in part upon its ability to use
technology to provide products and services that will satisfy customer demands. Many of the Company’s larger competitors
invest substantially greater resources in technological capabilities than the Company does. The Company may not be able to
effectively protect, develop and manage mission critical systems and IT infrastructure to support strategic business initiatives,
which could impair its ability to achieve financial, operational, compliance and strategic objectives and negatively affect the
business, results of operations, financial condition or profitability.

Communications and information systems and those of the Company’s vendors and customers remain vulnerable to unexpected
disruptions, failures and cyber-attacks. Any disruptions, failures or breaches in security of these systems could result in
significant disruption to the Company’s operations. Information security breaches and cyber-security-related incidents include,
but are not limited to, attempts to access information, theft of information, credentials or other intellectual property, including
customer and company information, malicious code, computer viruses and denial of service attacks that could result in
unauthorized access, data breaches resulting in misuse, loss or destruction of data (including confidential customer and
employee information), ransomware attacks, account takeovers, unavailability of service or other events. These types of threats
may derive from human error, fraud or malice on the part of external or internal parties or may result from accidental
technological failure. The risk, frequency and intensity of such attacks is escalating, including as a result of remote working
arrangements, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased
sophistication of these threats. Material failures or interruptions of these systems could impair the Company’s ability to serve
customers and to operate the business and could damage the Company’s reputation, result in a loss of business, subject the
Company or the Bank to additional regulatory scrutiny or enforcement or exposure to civil litigation, criminal penalties or
financial liability. While the Company has developed extensive recovery plans, the Company cannot assure that those plans
will be effective to prevent adverse effects resulting from system failures.

The use of the Company’s cloud technologies is also critical to the operation of systems, and its reliance on cloud technologies
is growing. Service disruptions in cloud technologies may lead to delays in accessing, or the loss of, data that is important to the
businesses and may hinder clients’ access to products and services.

The Company collects and stores sensitive data, including personally identifiable information of its customers and employees
and in the ordinary course of business must allow certain vendors access to that data. Breaches of the systems or vendors' or
customers’ systems, thefts of data and other breaches and criminal activity may result in significant costs to respond or
remediate losses if the Company or its vendors are at fault, damage to the Company’s customer relationships, regulatory
scrutiny and enforcement and loss of future business opportunities due to reputational damage. Even the most well-protected
information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly
cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are
rapidly and constantly evolving and generally are not recognized until launched against a target, and in some cases are designed
not to be detected and, in fact, may not be detected for a period of time or at all. Accordingly, the Company may be unable to
anticipate or be prepared for these techniques or to implement adequate security barriers or other preventative measures, and
thus it is impossible for the Company to entirely mitigate this risk.

Breaches can be perpetrated by unknown third parties, but could also be facilitated by employees either inadvertently or by
consciously attempting to create disruption or certain acts of fraud. The Company’s customers and employees have been, and

22

will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate
passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan
horse” programs to the Company’s information systems, the information systems of merchants or third-party service providers
and/or customers' computers. Although the Company, with the help of third-party service providers, will continue to implement
information security technology solutions and establish operational procedures to protect sensitive data, there can be no
assurance that these measures will be effective. The Company advises, or alerts and provides some guidance to customers and
evaluates and imposes security requirements on vendors regarding protection of their respective information systems, but there
is no assurance that these actions will have the intended positive effects or will be effective to prevent losses or attacks.
Successful cyber-attacks on the Company, vendors or customers may affect the Company’s reputation, and failure to meet
customer expectations could have a material impact on the Company’s ability to attract and retain deposits as a primary source
of funding.

A security breach or other significant disruption of information systems or those related to customers, merchants and third-party
vendors, including as a result of cyber-attacks, could (i) disrupt the proper functioning of networks and systems and therefore
the operations and/or those of certain customers; (ii) result in the unauthorized access to, and destruction, loss, theft,
misappropriation or release of confidential, sensitive or otherwise valuable information; (iii) result in a violation of applicable
privacy, data breach and other laws, subjecting the Company to additional regulatory scrutiny and exposure to civil litigation,
criminal penalties, governmental fines or financial liability; (iv) require significant management attention and resources to
respond, remediate or remedy the damages that result; or (v) harm the reputation or cause a decrease in the number of
customers that choose to do business with the Company. The occurrence of any of the foregoing could have a material adverse
effect on the business, financial condition, results of operations or profitability.

A successful cyber attack affecting the Company could cause significant harm to the Company and its clients and customers.
The Company and similar financial institutions are subject to continuous threats from cyber attacks on its computer systems,
software, networks and other technology from various actors, including groups acting on behalf of hostile countries, cyber-
criminals, “hacktivists” (i.e., individuals or groups that use technology to promote a political agenda or social change) and
others. These cyber attacks can take many forms, including attempts to introduce computer viruses or malicious code, which are
commonly referred to as “malware,” into the Company’s systems. These attacks are often designed to: obtain unauthorized
access to confidential information belonging to the Company or its clients, customers, counterparties or employees, manipulate
data, destroy data or systems with the aim of rendering services unavailable, disrupt, sabotage or degrade service on the
Company’s systems, steal money, or extort money through the use of so-called “ransomware.” The Company has experienced
security breaches and cyber attacks in the past, and it is inevitable that additional breaches and attacks will occur in the future.
While such breaches and attacks have not materially impacted the Company to date, future security breaches and cyber attacks
could result in serious and harmful consequences for the Company or its clients and customers. A principal reason that the
Company cannot provide absolute security against cyber attacks is that it may not always be possible to anticipate, detect or
recognize threats to the Company’s systems, or to implement effective preventive measures against all breaches because: the
techniques used in cyber attacks evolve frequently and are increasingly sophisticated, and therefore may not be recognized until
launched, cyber attacks can originate from a wide variety of sources, including the Company’s own employees, cyber-
criminals, hacktivists, groups linked to terrorist organizations or hostile countries, or third parties whose objective is to disrupt
the operations of financial institutions more generally, the Company does not have control over the cybersecurity of the systems
of the large number of clients, customers, counterparties and third-party service providers with which it does business, and it is
possible that a third party, after establishing a foothold on an internal network without being detected, might obtain access to
other networks and systems. The risk of a security breach due to a cyber attack could increase in the future due to factors such
as: the Company’s ongoing expansion of its mobile and digital banking and other internet-based product offerings and its
internal use of internet-based products and applications and the increased use of remote access to facilitate remote arrangements
for employees, vendors and other third parties. In addition, a third party could misappropriate confidential information obtained
by intercepting signals or communications from mobile devices used by the Company’s employees. A successful penetration or
circumvention of the security of the Company’s systems or the systems of a vendor, governmental body or another market
participant could cause serious negative consequences, including: significant disruption of the Company’s operations and those
of its clients, customers and counterparties, including losing access to operational systems, misappropriation of confidential
information of the Company or that of its clients, customers, counterparties, employees or regulators, disruption of or damage to
the Company’s systems and those of its clients, customers and counterparties, the inability, or extended delays in the ability, to
fully recover and restore data that has been stolen, manipulated or destroyed, or the inability to prevent systems from processing
fraudulent transactions, allegations or violations by the Company of applicable privacy and other laws, financial loss to the
Company or to its clients, customers, counterparties or employees, loss of confidence in the Company’s cybersecurity and
business resiliency measures, dissatisfaction among the Company’s clients, customers or counterparties, significant exposure to
litigation and regulatory fines, penalties or other sanctions, and harm to the Company’s reputation. The extent of a particular
cyber attack and the steps that the Company may need to take to investigate the attack may not be immediately clear, and it may
take a significant amount of time before such an investigation or determination, judicial or otherwise, can be completed. While
such an investigation is ongoing, the Company may not necessarily know the full extent of the harm caused by the cyber attack,

23

and that damage may continue to spread. These factors may inhibit the Company’s ability to provide rapid, full and reliable
information about the cyber attack to its clients, customers, counterparties and regulators, and the public. Furthermore, it may
not be clear how best to contain and remediate the harm caused by the cyber attack, and certain errors or actions could be
repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs
and consequences of a cyber attack.

The Company’s operations rely extensively on a broad range of external vendors. The Company relies on a large number of
vendors to provide products and services necessary to maintain the day-to-day operations, particularly in the areas of
operations, treasury management systems, information technology and security. This reliance exposes the Company to the risk
that these vendors will not perform as required by agreements including risks resulting from disruptions in communications
with vendors, cyber-attacks and security breaches at vendors, failure of a vendor to provide services for other reasons and poor
performance of services. An external vendor’s failure to perform in any of these areas could be disruptive to the business and
operations, which could have a material adverse impact on the business, financial condition, results of operations or
profitability, including causing reputational damage. External vendors who must have access to the Company’s information
systems in order to provide their services have been identified as significant sources of information technology security risk and
are monitored. While the Company has implemented an active program of oversight to address this risk, there can be no
assurance that the Company will not experience material security breaches associated with vendors or other third parties.

The Company must continue to attract, retain and develop key personnel. The Company’s success depends to a significant
extent upon its ability to attract, develop and retain experienced personnel in each of its lines of business and markets including
managers in operational areas, compliance and other support areas to build and maintain the infrastructure and controls required
to support continuing growth. Competition for the best people in the industry can be intense, and there is no assurance that the
Company will continue to attract or retain talent or develop personnel. Factors that affect its ability to attract, develop and retain
key employees include compensation and benefits programs, profitability, ability to establish appropriate succession plans for
key talent, reputation for rewarding and promoting qualified employees and market competition for employees with certain
skills, including information systems development and security. The cost of employee compensation is a significant portion of
operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation.
The unanticipated loss of the services of key personnel could have an adverse effect on the business.

The Company’s accounting estimates and risk management processes rely on management judgment, which may prove
inadequate, wrong or be adversely impacted by inaccurate or mistakes in assumptions or models. The processes the
Company’s uses to estimate expected credit losses for purposes of establishing the allowance for credit losses and to measure
the fair value of financial instruments, certain liquidity and capital planning tools, including the processes the Company uses to
estimate the effects of changing interest rates and other market measures on its financial condition and results of operations, all
depend upon management’s judgment. Management’s judgment and the data relied upon by management may be based on
assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances. Additionally,
CECL requires the application of greater management judgment that is supported by new models and more data elements,
including macroeconomic forecasts, than the previous allowance standard. The Company’s adoption of the CECL model has
increased the complexity, and associated risk, of the analysis and processes relying on management judgment, which could
negatively impact the financial condition, results of operations or profitability of the Company.

The risk management strategies and processes may not be effective and the Company’s controls and procedures, including
disclosure controls and procedures and internal control over financial reporting, may fail or be circumvented. The Company
continues to invest in the development of risk management techniques, strategies, assessment methods and related controls and
monitoring approaches on an ongoing basis. However, these risk management strategies and processes may not be fully
effective in mitigating the risk exposure in all economic market environments or against all types of risk. Any failures in risk
management strategies and processes to accurately identify, quantify and monitor risk exposure could limit the ability to
effectively manage risks. Management regularly reviews and updates internal controls over financial reporting, disclosure
controls and procedures, and corporate governance policies and procedures. In particular, any failure to maintain or develop
effective internal control over financial reporting and disclosure controls and procedures and or any difficulties encountered in
their implementation or improvement could cause the Company to fail to meet its reporting obligations and may result in a
restatement of its financial statements for prior periods. Ineffective disclosure controls and procedures and internal control over
financial reporting could also cause investors to lose confidence in the Company’s reported financial and other information,
including if the Company were to report a material weakness, which would likely have a negative effect on the trading price of
the Company’s common stock. If the Company has a material weakness in its internal control over financial reporting, the
Company may not detect errors on a timely basis and its financial statements may be materially misstated. If the Company is
unable to maintain effective internal controls over financial reporting and disclosure controls, the Company could become
subject to investigations by the NASDAQ, the SEC or other regulatory authorities or shareholder litigation, which could require
additional management attention and which could adversely affect the Company’s business, financial condition and results of
operations.

24

Any system of controls, however well designed and operated, is based in part on certain assumptions and management
judgment and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or
circumvention of controls and procedures or failure to comply with regulations related to controls and procedures could have a
material adverse effect on the business, financial condition, results of operations or profitability.

The business is susceptible to fraud and conduct risk. The Company’s business exposes it to fraud risk from loan and deposit
customers, the parties they do business with, as well as from employees, contractors and vendors. The Company relies on
financial and other data from new and existing customers which could turn out to be fraudulent when accepting such customers,
executing their financial transactions and making and purchasing loans and other financial assets. In times of increased
economic stress the Company is at increased risk of fraud losses. The Company believes it has underwriting and operational
controls in place to prevent or detect such fraud, but cannot provide assurance that these controls will be effective in detecting
fraud or that the Company will not experience fraud losses or incur costs or other damage related to such fraud, at levels that
adversely affect financial results or reputation. The Company’s lending customers may also experience fraud in their businesses
which could adversely affect their ability to repay their loans or make use of services. The Company’s and its customers’
exposure to fraud may increase the Company’s financial risk and reputation risk as it may result in unexpected loan losses that
exceed those that have been provided for in the allowance for credit losses. In addition, the Company is subject to risk from the
conduct of its employees, including the negative impact that can result from employee misconduct or failure by employees to
conduct themselves in accordance with the Company’s policies. All of which could damage the Company’s reputation and
result in loss of customers or other financial loss or expose the Company to increased regulatory or other risk.

Legal, Regulatory and Compliance Risks

The Company is subject to extensive government regulation and supervision and interpretations thereof. The Company, as a
bank holding company and financial holding company, and the Bank, as a Texas state-chartered bank, are subject to extensive
federal and state regulation and supervision and the potential for regulatory enforcement actions, which impact the business on
a daily basis. TCBI Securities, Inc., the Bank’s wholly owned non-bank subsidiary, is also subject to the jurisdiction of several
regulatory bodies, including the SEC, FINRA and state securities regulators. These regulations affect lending practices,
permissible products and services and their terms and conditions, customer relationships, capital structure, investment practices,
accounting, financial reporting, operations and ability to grow, among other things. These regulations also impose obligations to
maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing
and to verify the identities of customers. See the discussion above at Business - Regulation and Supervision for additional
discussion of the extensive regulation and supervision the Company and the Bank are subject to.

The level of regulatory scrutiny that the Company and the Bank are subject to may fluctuate over time, based on numerous
factors. In addition, Congress, state legislatures, and federal and state regulatory agencies continually review banking laws,
regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in
interpretation or implementation of statutes, regulations or policies, could affect the Company and the Bank in substantial and
unpredictable ways. Material changes in regulation and requirements imposed on financial institutions, such as the Dodd-Frank
Act, Basel III Capital Rules, European Union's General Data Protection Regulations and California Consumer Privacy Act
result in additional costs, impose more stringent capital, liquidity and leverage requirements, limit the types of financial services
and products the Company may offer and increase the ability of non-bank financial services providers to offer competing
financial services and products, among other things. Such changes could result in new regulatory obligations which could prove
difficult, expensive or competitively impractical to comply with if not equally imposed upon non-bank financial services
providers with whom the Company competes.

The Company is subject to a continuous program and routine of examinations by regulators concerning, among other things,
lending practices, reserve methodology, compliance with changing regulations and interpretations, BSA/AMLA compliance,
interest rate management, liquidity, capital and operational risk, enterprise risk management, regulatory and financial
accounting practices and policies and related matters, which can divert management’s time and attention from focusing on the
business. The Company devotes a significant amount of management time and expense to enhancing the infrastructure to
support its compliance obligations, which can pose significant regulatory enforcement, financial and reputational risks if not
appropriately addressed.

The Regulatory Relief Act passed on May 22, 2018, has provided a limited degree of regulatory relief for institutions of the
Company’s size. Uncertainty regarding how regulators will evaluate or require capital and liquidity planning going forward
remains a risk. The Company continues to increase its capital and liquidity and expand regulatory compliance staffing and
systems in order to address evolving regulatory requirements. There is no assurance that financial performance in future years
will not be similarly burdened.

The Company expends substantial effort and incurs costs to maintain and improve its systems, controls, accounting, operations,
information security, compliance, audit effectiveness, analytical capabilities, staffing and training in order to satisfy regulatory
requirements or recommendations. The Company cannot offer assurance that these efforts will be accepted by regulators as
satisfying the applicable legal and regulatory requirements. Failure to comply with relevant laws, regulations, recommendations

25

or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a
material adverse effect on the business, financial condition and results of operations. While the Company has policies and
procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

The Company must maintain adequate regulatory capital to support its business objectives and strategy. Under regulatory
capital adequacy guidelines and other regulatory requirements, the Company must satisfy capital requirements based upon
quantitative measures of assets, liabilities and certain off-balance sheet items. Satisfaction of these requirements is subject to
qualitative judgments by regulators that may differ materially from management’s and that are subject to being determined
retroactively for prior periods. Additionally, regulators can make subjective assessments about the adequacy of capital levels,
even if the Company’s and the Bank's reported capital exceeds the “well capitalized” requirements. The Company’s ability to
maintain its status as a financial holding company and to continue to operate the Bank as it has in recent periods is dependent
upon a number of factors, including the Bank qualifying as “well capitalized” and “well managed” under applicable prompt
corrective action regulations and upon the Company qualifying on an ongoing basis as “well capitalized” and “well managed”
under applicable Federal Reserve regulations.

Failure to meet regulatory capital standards could have a material adverse effect on the business, including damaging the
confidence of customers, adversely impacting the Company’s and the Bank’s reputation and competitive position and retention
of key personnel. Any of these developments could limit access to:

•

•

•

•

•

brokered deposits;

FRB discount window;

advances from the FHLB;

capital markets transactions; and

development of new financial services.

Failure to meet regulatory capital standards may also result in higher FDIC assessments. If the Company or the Bank falls
below guidelines for being deemed “adequately capitalized” the FDIC or Federal Reserve could impose restrictions on banking
activities and a broad range of regulatory requirements in order to effect “prompt corrective action.” The capital requirements
applicable to the Company and the Bank are in a process of continuous evaluation and revision in connection with actions of
the Basel Committee and regulators. The Company cannot predict the final form, or the effects, of these regulations on the
business, but among the possible effects are requirements that the Company slow the rate of growth or obtain additional capital
which could reduce earnings or dilute existing stockholders.

The Company is subject to claims and litigation in the ordinary course of its business, including claims that may not be covered
by insurance. Customers and other parties the Company engage with may, on a regular basis, assert claims and take legal
action against the Company and the Company regularly takes legal action to collect unpaid borrowers’ obligations, realize on
collateral and assert rights in commercial and other contexts. These actions frequently result in counter claims against the
Company. Litigation arises in a variety of contexts, including lending activities, employment practices, commercial agreements,
fiduciary responsibility related to wealth management services, intellectual property rights and other general business and
banking matters.

Claims and legal actions may result in significant legal costs to defend or assert rights and may result in reputational damage
that adversely affects existing and future customer relationships. If claims and legal actions are not resolved in a favorable
manner, the Company may suffer significant financial liability or adverse effects on its reputation, which could have a material
adverse effect on the business, financial condition, results of operations or profitability. See Legal Proceedings below for
additional disclosures regarding legal proceedings.

The Company purchases insurance coverage to mitigate a wide range of risks. There is no assurance that insurance will be
adequate to protect the Company against material losses in excess of coverage limits or that insurers will perform their
obligations under policies without attempting to limit or exclude coverage. The Company could be required to pursue legal
actions against insurers to obtain payment of amounts owed, and there is no assurance that such actions, if pursued, would be
successful.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry
could increase the Company’s expenses and affect the Company’s operations. The Company also anticipates increased
regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of
similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may
increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased
focus by both regulators and investors on the on-balance sheet liquidity of and funding sources for financial institutions, the
composition of their deposits and the level of uninsured deposits, the amount of accumulated other comprehensive loss, capital
levels and interest rate risk management. As primarily a commercial bank, the Bank has a high degree of uninsured deposits

26

compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, the Bank
could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

Other Risks Affecting the Business

The business faces unpredictable economic and business conditions. The business is directly impacted by general economic,
business and political conditions in Texas, the United States and internationally. The credit quality of the loan portfolio
necessarily reflects, among other things, the general economic conditions in the areas in which the Company and its customers
conduct their respective businesses. The Company’s financial condition can be affected by other factors that are beyond its
control, including:

•

•

•

•

•

•

•

•

•

•

•

•

geopolitical, national, regional and local economic conditions;

the value of the U.S. Dollar in relation to the currencies of other advanced and emerging market countries;

the performance of both domestic and international equity and debt markets and valuation of securities traded on
recognized domestic and international exchanges;

general economic consequences of international conditions and the impact of those conditions on the U.S. and global
economies;

legislative and regulatory changes impacting the banking industry;

impact of the 2024 presidential and congressional elections and other political conditions;

the financial health of customers and economic conditions affecting them and the value of collateral, including effects
from the COVID-19 pandemic and other pandemics and the continued price volatility of oil and gas and other
commodities;

the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting the Company, its
customers and third parties;

structural changes in the markets for origination, sale and servicing of residential mortgages;

changes in governmental economic and regulatory policies, including the extent and timing of intervention in credit
markets by the Federal Reserve or withdrawal from that intervention, generally including changes attributable to
presidential and congressional elections;

acts or threats of war, including the ongoing war in Ukraine and the Israeli Palestinian conflict;

changes in the availability of liquidity at a systemic level; and

• material inflation or deflation.

Substantial deterioration in any of the foregoing conditions can have a material adverse effect on prospects and results of
operations and financial condition. Declining or adverse economic conditions and adverse changes in investor, consumer and
business sentiment generally result in reduced business activity, which may decrease the demand for products and services.
Recently, inflation has been at a higher level than experienced in many decades, which has increased costs and impacted
operations for the Company and many of its customers. There is no assurance that the Company will be able to return to
historical rate of growth or profitability. The Company's customer base is primarily commercial in nature, and the Company
does not have a significant retail branch network or retail consumer deposit base. In periods of economic downturn, business
and commercial deposits may be more volatile than traditional retail consumer deposits. As a result, the financial condition and
results of operations could be adversely affected to a greater degree by these uncertainties than competitors having a larger
retail customer base. Additionally, the Company’s investment banking revenue is directly related to general economic
conditions and corresponding financial market activity. When the outlook for such economic conditions is uncertain or
negative, financial market activity generally tends to decrease, which can be expected to reduce the Company’s investment
banking revenues and prospects for new business.

The soundness of other financial institutions could adversely affect the business. Financial services institutions are interrelated
as a result of trading, clearing, counterparty or other relationships. The Company has exposure to many different industries and
counterparties, and the Company routinely executes transactions with counterparties in the financial services industry, including
broker-dealers, commercial banks, investment banks and other institutional clients. Many of these transactions expose the
Company to credit risk in the event of default of a counterparty or client. In addition, the Company’s credit risk may be
exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover
the full amount of the loan or derivative exposure due. There can be no assurance that any such losses would not materially and
adversely affect results of operations or profitability.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence
in the banking system. The closures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in

27

May 2023, and concerns about similar future events, have generated significant market volatility among publicly traded bank
holding companies and, in particular, regional banks like the Company. These market developments have negatively impacted
customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits
with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially
adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While
the Department of the Treasury, the Federal Reserve, and the FDIC took action to ensure that depositors of these failed banks
had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in
restoring customer confidence in regional banks and the banking system more broadly. Furthermore, there is no guarantee that
regional bank failures or bank runs similar to the ones that occurred in 2023 will not occur in the future and, if they were to
occur, they may have a material and adverse impact on customer and investor confidence in regional banks negatively
impacting the Company’s liquidity, capital, results of operations and stock price.

The Company is subject to environmental liability risk associated with lending activities. A significant portion of the loan
portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to
properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties, and that
the Company may be liable for remediation costs, including personal injury and property damage. Environmental laws may
require incurring substantial expenses and may materially reduce the affected property's value by limiting the ability to use or
sell it. Although the Company has policies and procedures requiring environmental review before initiating any foreclosure
action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs
and any other financial liabilities associated with an environmental hazard could have a material adverse effect on financial
condition, results of operations and profitability. Future laws or regulations or more stringent interpretations or enforcement
policies with respect to existing laws and regulations may increase the Company’s exposure to environmental liability.

Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external and geopolitical
events could significantly impact the business. Severe weather, earthquakes, other natural disasters, pandemics (such as the
COVID-19 pandemic), acts of war or terrorism and other adverse external events could have a significant impact on the
Company’s ability to conduct business. Such events could affect the stability of its deposit base, impair the ability of borrowers
to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of
revenue and/or cause us to incur additional expenses. In recent years, hurricanes have caused extensive flooding and destruction
along the coastal areas of Texas and in other areas in the U.S., including communities where the Company conducts business.
Although management has established disaster recovery policies and procedures, the occurrence of any such events could have
a material adverse effect on the business, financial condition, results of operations or profitability.

Climate change and related legislative and regulatory initiatives including interpretations thereof have the potential to disrupt
the business and result in operational changes and expenditures that could significantly impact the business and the operations
and creditworthiness of the Company’s clients. Climate change has caused severe and abnormal weather patterns and events
that could disrupt operations at one or more of the Company’s locations, which may disrupt its ability to provide financial
products and services to clients. Climate change could also have a negative effect on the financial status and creditworthiness of
clients, which may decrease revenues and business activities from those clients, increase the credit risk associated with loans
and other credit exposures to such clients.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global
environment. As a result, political and social attention to the issue of climate change has increased. In recent years,
governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by
limiting greenhouse gas emissions. The U.S. government has rejoined the Paris Climate Agreement, the most recent
international climate change accord, while the U.S. Congress, state legislatures and federal and state regulatory agencies are
likely to continue to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of
climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of
emission credits, and the implementation of significant operational changes. In 2022, the federal banking agencies proposed
guidance for large banking organizations (defined as those having more than $100 billion in total assets) to address climate-
related issues through risk management practices, accounting for the effects of climate change in stress testing scenarios and
systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and
encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the
effects of climate change. Each of the above-described initiatives, including other similar initiatives and increasing supervisory
expectations, may require the Company to expend significant capital and incur compliance, operating, maintenance and
remediation costs. Given the lack of empirical data on the credit and other financial risks posed by climate change, it is
impossible to predict how climate change may impact the financial condition and operations; however, as a banking
organization, the physical effects of climate change may present certain unique risks. For example, weather disasters, shifts in
local climates and other disruptions related to climate change may adversely affect the value of real properties securing loans,
which could diminish the value of the loan portfolio. Such events may also cause reductions in regional and local economic
activity that may have an adverse effect on customers, which could limit the Company’s ability to raise and invest capital in

28

these areas and communities, each of which could have a material adverse effect on the financial condition, results of operations
or profitability.

Negative public opinion could damage the Company’s reputation and adversely affect its earnings. Reputational risk, or the
risk to earnings and capital from negative public opinion, is inherent in the business. Negative public opinion can result from
the actual or perceived manner in which the Company conducts its business activities; management of actual or potential
conflicts of interest and ethical issues; and protection of confidential client information. The Company’s brand and reputation
may also be harmed by actions taken by third parties that it contracts with to provide services to the extent such parties fail to
meet their contractual, legal and regulatory obligations or act in a manner that is harmful to clients. If the Company fails to
supervise these relationships effectively, it could also be subject to regulatory enforcement, including fines and penalties.
Negative public opinion can adversely affect the Company’s ability to keep and attract clients and can expose it to litigation and
regulatory action. The Company takes steps to minimize reputation risk, but its efforts may not be sufficient.

ESG risks could adversely affect the Company’s reputation and shareholder, employee, client, and third party relationships and
may negatively affect the Company’s stock price. The Company faces increasing public scrutiny related to ESG activities and
if the Company. fails to act responsibly in a number of areas, such as DEI, environmental stewardship, including with respect to
climate change, human capital management, support for our local communities, corporate governance, and transparency, or
fails to consider ESG factors in our business operations, the Company’s brand and reputation may be damaged.

Furthermore, as a result of the Company’s diverse base of clients and business partners, the Company may face potential
negative publicity based on the identity of its clients or business partners and the public’s (or certain segments of the public’s)
view of those entities. Such publicity may arise from traditional media sources or from social media and may increase rapidly in
size and scope. If the Company’s client or business partner relationships were to become intertwined in such negative publicity,
the Company’s ability to attract and retain clients, business partners, and employees may be negatively impacted, and the
Company’s stock price may also be negatively impacted. Additionally, the Company faces pressure to not do business in certain
industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth.

Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG
issues in their business strategy when making investment decisions and when developing their investment theses and proxy
recommendations. The Company may incur meaningful costs with respect to its ESG efforts and if such efforts are negatively
perceived, its reputation and stock price may suffer.

Risks Relating to Company Securities

The Company’s stock price can be volatile. Stock price volatility may make it more difficult to resell or buy common stock.
The stock price can fluctuate significantly in response to a variety of factors including, among other things:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

actual or anticipated variations in quarterly and annual results of operations;

changes in recommendations by securities analysts;

changes in composition and perceptions of the investors who own the Company’s stock and other securities;

changes in ratings from national rating agencies on publicly or privately-owned debt securities and deposits in the
Bank;

operating and stock price performance of other companies that investors deem comparable to the Company;

news reports relating to trends, concerns and other issues in the financial services industry, including regulatory
actions against other financial institutions;

actual or expected economic conditions that are perceived to affect the Company such as changes in commodity prices,
real estate values or interest rates;

perceptions in the marketplace regarding the Company or its competitors;

new technology used, or services offered, by competitors;

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving the Company or competitors;

changes in government regulations and interpretation of those regulations, changes in practices requested or required
by regulators and changes in regulatory enforcement focus;

impacts and disruptions resulting from the COVID-19 pandemic, variants or other pandemics;

environmental or ESG-related concerns or ratings; and

geopolitical conditions such as acts or threats of terrorism or military conflicts.

29

General market fluctuations, industry factors and general economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss trends, could also cause the Company’s stock price to decrease
regardless of operating results.

Additionally, the trading volume in the Company’s common stock is less than that of other larger financial services companies.
Given the lower trading volume of the common stock, significant sales of the common stock, or the expectation of these sales,
could increase the volatility of the Company’s stock price and cause the stock price to fall.

The holders of the Company’s indebtedness and preferred stock have rights that are senior to those of its common stockholders.
As of December 31, 2023, the Company had $375.0 million in outstanding subordinated notes issued by the holding company,
$175.0 million in outstanding subordinated notes issued by the Bank, and $113.4 million in outstanding junior subordinated
notes that are held by statutory trusts which issued trust preferred securities to investors. Payments of the principal and interest
on trust preferred securities are conditionally guaranteed to the extent not paid by each trust, provided the trust has funds
available for such obligations.

The Company’s subordinated notes and junior subordinated notes are senior to the shares of preferred stock and common stock
in right of payment of dividends and other distributions. The Company must be current on interest and principal payments on its
indebtedness before any dividends can be paid on its preferred stock or its common stock. In the event of bankruptcy,
dissolution or liquidation, the holders of the Company’s indebtedness must be satisfied before any distributions can be made to
preferred or common stockholders. If certain conditions are met, the Company has the right to defer interest payments on the
junior subordinated debentures (and the related trust preferred securities) at any time or from time to time for a period not to
exceed 20 consecutive quarters in a deferral period, during which time no dividends may be paid to holders of preferred stock
or common stock. Because the Bank’s subordinated notes are obligations of the Bank, they would, in liquidation of the Bank or
sale of its assets, receive payment before any amounts would be payable to holders of the Company’s common stock, preferred
stock or subordinated notes.

At December 31, 2023, the Company had issued and outstanding 300,000 shares of 5.75% fixed rate non-cumulative perpetual
preferred stock, Series B, with a liquidation preference of $1,000 per share (the “Series B Preferred Stock”) and 12 million
depositary shares, each representing 1/40th interest in a share of the Series B preferred stock. The preferred stock is senior to
the shares of common stock in right of payment of dividends and other distributions. The Company must be current on
dividends payable to holders of preferred stock before any dividends can be paid on the common stock. In the event of the
Company’s bankruptcy, dissolution or liquidation, the holders of preferred stock must be satisfied before any distributions can
be made to common stockholders.

Federal legislation and regulations impose restriction on the ownership of the Company’s common stock. The ability of a
third party to acquire the Company is limited under applicable U.S. banking laws and regulations. The BHCA requires any bank
holding company (as defined therein) to obtain the approval of the Federal Reserve prior to acquiring, directly or indirectly, 5%
or more of the Company’s outstanding common stock. Any “company” (as defined in the BHCA) other than a bank holding
company would be required to obtain Federal Reserve approval before acquiring “control” of the Company. “Control”
generally means (i) the ownership or control of 25% or more of a class of voting securities, (ii) the ability to elect a majority of
the directors or (iii) the ability otherwise to exercise a controlling influence over management and policies. A holder of 25% or
more of outstanding voting common stock, other than an individual, is subject to regulation and supervision as a bank holding
company under the BHCA. In addition, under the CIBC Act and the Federal Reserve’s regulations thereunder, any person,
either individually or acting through or in concert with one or more persons, is required to provide notice to the Federal Reserve
prior to acquiring, directly or indirectly, 10% or more of the Company’s outstanding voting common stock.

Anti-takeover provisions of the Company’s certificate of incorporation, bylaws and Delaware law may make it more difficult
for holders to receive a change in control premium. Certain provisions of the Company’s certificate of incorporation and
bylaws could make a merger, tender offer or proxy contest more difficult, even if such events were perceived by many
stockholders as beneficial to their interests. These provisions include advance notice for nominations of directors and
stockholders' proposals, and authority to issue “blank check” preferred stock with such designations, rights and preferences as
may be determined from time to time by the Company’s board of directors. In addition, as a Delaware corporation, the
Company is subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an interested
stockholder, defined generally as a person owning 15% or more of a corporation's outstanding voting stock, from engaging in a
business combination with the Company for three years following the date that person became an interested stockholder unless
certain specified conditions are satisfied.

ITEM 1B.

None.

UNRESOLVED STAFF COMMENTS

30

ITEM 1C.

CYBERSECURITY

Cybersecurity Risk Management and Strategy

Cybersecurity risks are constantly evolving and becoming increasingly pervasive across all industries. To mitigate these risks
and protect sensitive customer data, financial transactions and our information systems, the Company has implemented a
comprehensive cybersecurity risk management program, which is a component of its overarching enterprise risk management
program. Key components of the cybersecurity risk management program include:

•

•

•

•

•

•

A risk assessment process that identifies and prioritizes material cybersecurity risks; defines and evaluates the
effectiveness of controls to mitigate the risks; and reports results to executive management and the Board of Directors.

A third-party Managed Detection and Response (“MDR”) service, which monitors the security of our information
systems around-the-clock, including intrusion detection and alerting.

A dedicated cybersecurity team covering all critical cyber defense functions such as engineering, data protection,
identity and access management, insider risk management, security operations, threat emulation and threat intelligence.

A training program that educates employees about cybersecurity risks and how to protect themselves from
cyberattacks.

An awareness program that keeps employees informed about cybersecurity threats and how to stay safe online.

An incident response plan that outlines the steps the Company will take to respond to a cybersecurity incident, which
is tested on a periodic basis.

The Company engages reputable third-party assessors to conduct various independent risk assessments on a regular basis,
including but not limited to maturity assessments and various testing. Following a defense-in-depth strategy, the Company
leverages both in-house resources and third-party service providers to implement and maintain processes and controls to
manage the identified risks.

Our Third-Party Risk Management program is designed to ensure that our vendors meet our cybersecurity requirements. This
includes conducting periodic risk assessments of vendors, requiring vendors to implement appropriate cybersecurity controls
and monitoring vendor compliance with our cybersecurity requirements.

The Company’s cybersecurity risk management program and strategy are designed to ensure the company's information and
information systems are appropriately protected from a variety of threats, both natural and man-made. Periodic risk assessments
are performed to validate control requirements and ensure that the Company’s information is protected at a level commensurate
with its sensitivity, value, and criticality. Preventative and detective security controls are employed on all media where
information is stored, the systems that process it, and infrastructure components that facilitate its transmission to ensure the
confidentiality, integrity, and availability of Company information. These controls include, but are not limited to access control,
data encryption, data loss prevention, incident response, security monitoring, third party risk management, and vulnerability
management.

The Company's cybersecurity risk management program and strategy are regularly reviewed and updated to ensure that they are
aligned with the Company's business objectives and are designed to address evolving cybersecurity threats and satisfy
regulatory requirements and industry standards.

Material Effects of Cybersecurity Threats

While cybersecurity risks have the potential to materially affect the Company's business, financial condition, and results of
operations, the Company does not believe that risks from cybersecurity threats or attacks, including as a result of any previous
cybersecurity incidents, have materially affected the Company, including its business strategy, results of operations or financial
condition. However, the sophistication of cyber threats continues to increase, and the Company’s cybersecurity risk
management and strategy may be insufficient or may not be successful in protecting against all cyber incidents. Accordingly, no
matter how well designed or implemented the Company’s controls are, it will not be able to anticipate all cyber security
breaches, and it may not be able to implement effective preventive measures against such security breaches in a timely manner.
For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or
financial condition, please refer to Item 1A Risk Factors.

Governance

Board of Directors Oversight

The Company’s Board of Directors is charged with overseeing the establishment and execution of the Company’s risk
management framework and monitoring adherence to related policies required by applicable statutes, regulations and principles
of safety and soundness. Consistent with this responsibility the Board has delegated primary oversight responsibility over the
Company’s risk management framework, including oversight of cybersecurity risk and cybersecurity risk management, to the

31

Risk Committee of the Board of Directors. The Risk Committee receives regular updates on cybersecurity risks and incidents
and the cybersecurity program through direct interaction with the Chief Information Security Officer (“CISO”) and the Head of
Information Risk and provides periodic updates regarding cybersecurity risks and the cybersecurity program to the full Board of
Directors. Additionally, awareness and training on cybersecurity topics is provided to the Board on an annual basis.

Management's Role

The Information Security department is responsible for implementing and maintaining the Company’s cybersecurity risk
management program. The Information Security department consists of cybersecurity and information risk professionals who
assess, identify, and manage cybersecurity risks. Information Security is led by the CISO, who reports directly to the Chief
Information Officer and the Board of Directors with dotted-line reporting to the Chief Risk Officer. The Company’s CISO has
over 20 years of experience in cybersecurity across the financial services industry as well as experience working in a leading
managed security services provider. Prior to joining the Company, the Company’s CISO served as leader of the Global Threat
Management Center for a major global financial institution. The Information Risk department, led by the Head of Information
Risk who reports directly to the Chief Risk Officer, is responsible for ensuring the protection of electronic and physical
information through the identification and management of risk activities. As a governance and oversight function, the
Information Risk department measures and reports on the quality of information and cyber risk management across all
functions of the firm. Information security risk is reported by both the Information Security and Information Risk departments
through monthly management metric reporting working groups and multiple layers of quarterly risk committees to achieve an
appropriate flow of information risk reporting to the Board. The risk committees include the Operational Risk Management
Committee, the Executive Risk Management Committee and the Risk Committee of the Board of Directors. These committees
establish and oversee policies, programs, and other guidance to provide specific expectations for managing the cybersecurity
risk.

ITEM 2.

PROPERTIES

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

ITEM 3.

LEGAL PROCEEDINGS

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

ITEM 4.

Not applicable.

MINE SAFETY DISCLOSURES

32

 

      
      

                   
                  
                   

  

                   
                    
                
                
                 
             

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   

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  

  

  

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   



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     

     

     

     

     

     


  

  
  

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         

               

 

 

 

 

 

 

 

 

 

 

 

 



  

  

  

   

 

 

  

  

  

  

   

    

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

                  
                  
                  
                  
                 
                  
                    
           

                  
                  
                    
                  
                 
                   
                
        

 





 



  

       
  

               
             
              
                  
                  
                   
                
                   
  

  

             

      

     







  

   

 

 

   

  

 

  

     

    

    

  

    

     

 

     

     

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





















 

 

 

 

 

 

             

           

                  
                  
                     
                      
                   
                     
   

             



         

  



   










 


 





 


 





 


 


 

   

     

     

     





   





     





 

 

 







   

 

  









  

 

 





  









 

 

 

 

 

      



















    

 

  



  





 

 

 

   

  



 



 



 

  

   

 

   

 

 
 

   
 
 

   
  
 

 
    


 

   

     

     





















 





  











 
  

 

 

  




 

 



  

 

 

  




 











 

 

 

 
 
 

 

  

  

 

 

 

 

 

 

      
            
                      

       



 

                  
                    
     

 
 

 

     

   

     

   

  

 

 

 

 

 

 

  

  

   



  










  








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

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

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

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

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 





































































































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

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 



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

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 

























        
           

  

                   
                     
     

                   
                   
                
                     
                
                 
               

                    
                      
                

                     
                      
                       
                  
        



 

 
    

     

  

    
    



  

   

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

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

                 
                    
                  
    

 

 
  
 

  

  
      
 


  

   

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

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


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









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

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

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
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                  
                
                  
                  


   

   

                  
                  
                 
                  
    

                  
              
         

 


 

  



    

      

    

  

  







































                    
                  
                 
                    
                   
                     
               

                 
                     
                  
                   
            

 

                     
                  
                
                
                 
     

                   

  


  

    

   

        

 



    

  

 

  

  

     

  



 

  

 

 

  






  













































 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 
 

                 
                 
                  
                




                
                 
                  

  


 

 

  

   

 

   



 

 

  







  

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

 





















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

 

 

 

 

 

 

 

 

 

 

 

                    
                  
             
            
           
                 
                    
                  
                  
                 
              

                 

  

 

 

 

     

  

  

 

 

 

 

 

 





  

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







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 

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 

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 

    

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 



                 
                  


  
  

 



 



  

 

 



  



















 

 

 

 

 

 

 

 

    

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                 
                 
               
                
                 
                
                   
                   
                       
       

                   
                   
                 
                 
                
                   
               
                 
                    
   

  

                   
              
                 
                
                   
                   
                   
                
  

                
                 
               
                    
                
                  
                
                   
                
                    
                  



                       
    

  

                
                 
                  
                
               
                  
          

  

  

  

  

  
   

    

 


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





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

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





 


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

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     



  

 

 

  

  

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 
 



 

  



    

      

  

    

    

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 

              
           

  
    



 

   

  

   



 

  



 

   





 

     

    

    

  

          
     

           

         

             

         

    

  

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                     
                  
                    
                  
                  
               
                   
                
                

                    
                      
                  
                   
                  
             



            

           

            

          

           

  

  

 

 

 

 

 

 

 

 

               

  



 

  












 
 





 
 
















  



 

 

 







  



 

 

 

 

 

                   
                   
   

  

 

  







 

  
  

    
   

  
  













  

 
 

 
  









    
   
 

 
 

 
 

                    
                   
     



                   
                  
                
                  
     

                 
                  
                    
   

            

  
 

  



 



   









 





 

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

  









 

 

 











  



 

 

 

 

 



                  
                 
      

           

 
  

  

   

   

 



   



  

  





























                   
                
                  
                
              
                   
              
               
                 
                 
         

           

  
     
         

    

  

 

  

  









 

 

 

 

 

 

                      
              
                 
     

  
 

 

 

  

  



  



  











  



 



  



 

 

 



                
                  
              
                   
                
         

 
 

 

    

  





 





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  






            

 
        

      

   

       

    

    

  

  

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











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











                      
                     

                  
                           
   

                 
                
                   
                    
               
                  
       

                    
                 
                      
             
             

                 
                
                
             
                   
   

 

                   
                    
       

                  
                  
                  
                  
                 
                  
                    
           



On January 17, 2024, the Company’s board of directors authorized a new share repurchase program under which the Company
may repurchase up to $150.0 million in shares of its outstanding common stock. Any repurchases under the repurchase program
will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent
to which the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will
depend upon a variety of factors, including market conditions, our capital position and amount of retained earnings, regulatory
requirements and other considerations. The share repurchase program is set to expire on January 31, 2025, and the program may
be suspended or discontinued at any time. Remaining repurchase authorization under the January 18, 2023 share repurchase
program was terminated upon authorization of this new program.

For additional information on the Company’s capital and stockholders’ equity, see Note 10 - Regulatory Ratios and Capital, in
the accompanying notes to the consolidated financial statements included elsewhere in this report.

Critical Accounting Estimates

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those
estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation
uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of
the registrant.

The Company follows financial accounting and reporting policies that are in accordance with accounting principles generally
accepted in the United States. The more significant of these policies are summarized in Note 1 - Operations and Summary of
Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report. Not all
significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy
noted below could be deemed to meet the SEC’s definition of a critical accounting policy.

Allowance for Credit Losses

Management considers the policies related to the allowance for credit losses as the most critical to the financial statement
presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with
Accounting Standards Codification 326, Credit Losses. The allowance for credit losses is established through a provision for
credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation
of the credit losses expected to be recognized over the life of the loans in the Company’s portfolio. The allowance for credit
losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to
be collected on the loans. The allowance for credit losses on off-balance sheet financial instruments is recorded in other
liabilities on the consolidated balance sheets. For purposes of determining the allowance for credit losses, the loan portfolio is
segregated into pools first by portfolio segment and then by past due status or credit grade. Each pool is assigned a loss
estimate, reflecting historical loss rates that incorporate probability of default and severity of losses over the estimated
remaining life of the loans. Loans that do not share risk characteristics are evaluated on an individual basis and are not included
in the collective (pool) evaluation. Management estimates the allowance balance using relevant available information from
internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Modifications
to loss estimates are made to incorporate a reasonable and supportable forecast of future losses at the pool level, as well as any
necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level
Qualitative Factor (“SLQF”). A similar process is employed to calculate a reserve assigned to off-balance sheet financial
instruments, specifically unfunded loan commitments and letters of credit. Modified loss estimates are assigned based on the
balance of the commitments estimated to be outstanding at the time of default. The PLQF and SLQF are utilized to address
factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process. A reserve is
recorded upon origination or purchase of a loan. See “Summary of Credit Loss Experience” above and Note 4 - Loans and
Allowance for Credit Losses on Loans in the accompanying notes to the consolidated financial statements included elsewhere in
this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses.

Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the
various economic scenarios considered as of December 31, 2023, the quantitative estimate of the allowance for credit loss
would increase by approximately $220.4 million under sole consideration of the most severe downside scenario. The quoted
sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent
of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily
reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative
adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the
range of scenarios under management consideration.

47

 

      

                
               
                   
                    
    

                   
               
                  
                    
                 
               
                   
                   
              

                 
                 
                   

   

                   
                     
                  
                     
                  
                   
                    
                 
                     
                   
                     
                     
     

 


     

 

 

 

 

   



   



   

 

 

 

   



 

  

 



 

 

 

 



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
















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









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 


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           
             



                   
                   
               
                 
                   
                     
    

                    
                 
                
                     
               
                  
                 

                  
                      
                      
            

                
             
                   
                 
               
              
                   
            

   

   

   

   

      

  

  

 

 





 

 





                   
                 
                    
                  
                
  

         

                 
      

                     
                    
            

                 
               
                
 

                
        



 

    

    

                    

          

                

             

             

    












Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Texas Capital Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Texas Capital Bancshares, Inc. (the Company) as of
December 31, 2023 and 2022,
the related consolidated statements of income and other comprehensive income/(loss),
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.
generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 13, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosures to which it relates.

51

Description of
the Matter

Allowance for Credit Losses - Loans
The Company’s loans held for investment portfolio totaled $20.3 billion as of December 31, 2023, and the
associated allowance for credit losses (ACL) was $296.3 million. The ACL represents management’s best
estimate of expected credit losses over the contractual life of loans and for off-balance sheet commitments.
The ACL is estimated using relevant available information relating to past events, current conditions, and
reasonable and supportable forecasts, as well as qualitative adjustments using a Portfolio Level Qualitative
Factor and/or Portfolio Segment Level Qualitative Factor (collectively the “qualitative factors”). In the second
quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss
model, the most significant of which are more granular estimates of historical loss rates to incorporate
probability of default and loss severities and allocations of expected losses to outstanding loan balances and
off-balance sheet financial instruments. The qualitative factors are used to bring the ACL to the level
management believes is appropriate based on factors that are otherwise unaccounted for in the quantitative
process. The ACL also includes reserves for loans evaluated on an individual basis, such as certain loans
graded substandard or worse. Management applies judgment in the determination and usage of the qualitative
factors, and in the use of a single or a blend of forecast scenarios used to calculate the reasonable and
supportable forecast.

Auditing management’s estimate of the ACL is complex due to the models utilized and involves a high degree
of subjectivity due to the judgment required in evaluating management’s determination and usage of the
qualitative factors, and in the use of a single or blend of forecast scenarios used to calculate the reasonable
and supportable forecast.

How We
Addressed the
Matter in Our
Audit

Our considerations and procedures performed included evaluation of the process utilized by management to
challenge the model results and determine the best estimate of the ACL as of the balance sheet date. We
obtained an understanding of the Company’s process for establishing the ACL, including determination and
usage of the qualitative factors and determination of a single or blend of multiple forecast scenarios used to
calculate the reasonable and supportable forecast. We evaluated the design and tested the operating
effectiveness of the controls associated with the ACL process, including controls around 1) the reliability and
accuracy of data used in the model; 2) management’s review and approval of the selected qualitative factors;
3) the single or blend of multiple forecast scenarios used to calculate the reasonable and supportable forecast;
4) the governance of the credit loss methodology including model validation; and 5) management’s review
and approval of the ACL.

We performed specific substantive tests of the models utilized, qualitative factors and the single or blend of
forecast scenarios used to calculate the reasonable and supportable forecast. We involved EY specialists to
assist in testing management models including evaluating model methodology and key modeling assumptions,
as well as the appropriateness of management’s qualitative and reasonable and supportable forecast
framework. We evaluated if the qualitative factors were applied based on a comprehensive framework and
compared the adjustments utilized by management
to both internal portfolio metrics and external
macroeconomic data (as applicable) to support the adjustments and evaluate trends in such adjustments. We
searched for and evaluated information that corroborates or contradicts management’s reasonable and
supportable forecast as well as identification and measurement of qualitative factors. In addition, we evaluated
the Company’s estimate of the overall ACL, giving consideration to the Company’s borrowers, loan portfolio,
and macroeconomic trends, independently obtained and compared such information to comparable financial
institutions and considered whether new or contrary information existed.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 1999.

Dallas, TX
February 13, 2024

52

   
  

    


    

     

  

  

 

 

   

     

   

      

    

   

     

   

 

   



  

  

 

  

 

 

 

 

 

       

   

         

    

   

            

  

 

               

      

  

    

  

  













































































































































      



   
     
 

     
 

    
 
     

  

 



 

 

  

  

   

       

 

    

     

  

    
    



  

 

  
 


  
  
     

 


  

   
  
 

  
     

  

   

    

  

  
     
 

    

    

   

























































































































































 







 











































































      



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   
    

 
 

   







 
            













   

  

  

        

     

       

  

       

         

    

     

     

     

     
 

    
      

         
         
    

       
         
      

          
    
     
      
 

   

      
      
   
  

   
    
      

   
     

      
       
       
     

      

       

          

       





















































































































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




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











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



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













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




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

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










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


































      



(1) Operations and Summary of Significant Accounting Policies

Organization and Nature of Business

Texas Capital Bancshares, Inc. (“TCBI” or the “Company”), a Delaware corporation, was incorporated in 1996 and commenced
banking operations in 1998. The consolidated financial statements include the accounts of TCBI and its wholly owned
subsidiary, Texas Capital Bank (the “Bank”), a full-service financial services firm that delivers customized solutions to
businesses, entrepreneurs and individual customers. The Company is headquartered in Dallas, with primary banking offices in
Austin, Dallas, Fort Worth, Houston and San Antonio, and has built a network of clients across the country.

Basis of Presentation

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States
(“GAAP”) and to generally accepted practices within the banking industry. Certain prior period balances have been reclassified
to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial
instruments and the status of contingencies are particularly susceptible to significant change.

In the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss
model, the most significant of which are more granular estimates of historical loss rates to incorporate probability of default and
loss severities and allocations of expected losses to outstanding loan balances and off-balance sheet financial instruments. As a
result of these changes, corresponding adjustments were also made to the Company’s portfolio segments to appropriately pool
loans with similar risk characteristics and to the speed at which the Company reverts to historical loss rates for periods beyond
which management is able to develop reasonable and supportable forecasts.

See the Allowance for Credit Losses accounting policy below for additional details of these changes.

Basic and Diluted Earnings Per Common Share

Basic earnings per common share is based on net income available to common stockholders divided by the weighted-average
number of common shares outstanding during the period excluding non-vested stock-settled awards. Diluted earnings per
common share include the dilutive effect of non-vested stock-settled awards granted using the treasury stock method.

Cash and Cash Equivalents

Cash equivalents include amounts due from banks, interest bearing deposits in other banks and federal funds sold.

Investment Securities

Investment securities include debt securities and equity securities.

Debt Securities

Debt securities are classified as trading, available-for-sale or held-to-maturity. Debt securities not classified as held-to-maturity
or trading are classified as available-for-sale. Management classifies securities at the time of purchase and re-assesses such
designation at each balance sheet date.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the
case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion are included in
interest income from investment securities. Gains or losses realized upon the sale of debt securities is recorded in other non-
interest income on the consolidated statements of income and other comprehensive income. The cost of securities sold is based
on the specific identification method.

The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report
accrued interest separately in accrued interest and other assets on the consolidated balance sheets. Available-for-sale and held-
to-maturity debt securities are placed on non-accrual status when management no longer expects to receive all contractual
amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a
security is placed on non-accrual status. Accordingly, the Company does not recognize an allowance for credit loss against
accrued interest receivable.

57

Trading Account

Debt securities acquired for resale in anticipation of short-term market movements are classified as trading and recorded at fair
value, with realized and unrealized gains and losses recognized in income.

Held-to-Maturity

Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, net of any allowance for credit losses.

Management may transfer debt securities classified as available-for-sale to held-to-maturity when upon reassessment it is
determined that the Company has both the positive intent and ability to hold these securities to maturity. The debt securities are
transferred at fair value resulting in a premium or discount recorded on transfer date. Unrealized gains or losses at the date of
transfer continue to be reported as a separate component of accumulated other comprehensive income/loss, net (“AOCI”). The
premium or discount and the unrealized gain or loss, net of tax, in AOCI will be amortized to interest income over the
remaining life of the securities using the interest method.

Available-for-Sale

Available-for-sale debt securities are recorded at fair value, with unrealized gains and losses, net of tax, reported as a separate
component of AOCI. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it
intends to sell, or it is more-likely-than-not that it will be required to sell, the securities before recovery of the amortized cost
basis. If either of these criteria is met, the securities’ amortized cost basis is written down to fair value as a current period
expense recorded on the consolidated statements of income and other comprehensive income. If either of the above criteria is
not met, management evaluates whether the decline in fair value is the result of credit losses or other factors. In making this
assessment, management may consider various factors including the extent to which fair value is less than amortized cost,
performance of any underlying collateral and adverse conditions specifically related to the security, among other factors. If this
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the
amortized cost basis of the security and any excess is recorded as an allowance for credit losses, limited to the amount by which
the fair value is less than the amortized cost basis. Any impairment not recorded through an allowance for credit losses is
recognized in AOCI, net of tax, as a non-credit related impairment.

Included in debt securities available-for-sale are credit risk transfer (“CRT”) securities, which represent unsecured obligations
issued by government sponsored entities (“GSEs”) such as Freddie Mac and are designed to transfer mortgage credit risk from
the GSE to private investors. CRT securities are structured to be subject to the performance of a reference pool of mortgage
loans in which the Company shares in 50% of the first losses with the GSE. If the reference pool incurs losses, the amount the
Company will recover on the notes is reduced by its share of the amount of such losses, which could potentially be up to 100%
of the amount outstanding. Unrealized losses recognized in AOCI for the CRT securities are primarily related to the difference
between the current market rate for similar securities and the stated interest rate and are not considered to be related to credit
loss events. The CRT securities are generally interest-only for an initial period of time and may be restricted from being
transferred until a future date.

Equity Securities

Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses
reported in income. Equity securities without readily determinable fair values are recorded at cost less any impairment.

Loans

Loans Held for Sale

The Company transitioned its mortgage correspondent aggregation (“MCA”) program to a third party in 2021. Prior to
transition, the Company committed to purchase residential mortgage loans from independent correspondent lenders and
delivered those loans into the secondary market via whole loan sales to independent third parties or in securitization
transactions to third parties such as Ginnie Mae or to GSEs. In some cases, the Company retained the mortgage servicing rights.
Once purchased, these loans were classified as held for sale and carried at fair value pursuant to the election of the fair value
option in accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments. At the commitment date,
the Company entered into a corresponding forward sale commitment with a third party, typically Ginnie Mae or a GSE, to
deliver the loans within a specified timeframe. The estimated gain/(loss) for the entire transaction (from initial purchase
commitment to final delivery of loans) was recorded as an asset or liability.

The fair value of loans held for sale is derived from observable current market prices, when available, and includes the fair
value of the mortgage servicing rights. Adjustments to reflect unrealized gains and losses resulting from changes in fair value
and realized gains and losses upon ultimate sale of the loans are classified as gain/(loss) on sale of loans held for sale on the
consolidated statements of income and other comprehensive income. Residential mortgage loans held for sale are subject to
both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral

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requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially
managed through forward sales contracts, which set the price for loans that will be delivered in the next 60 to 90 days.

From time to time the Company holds for sale certain commercial loans and also the guaranteed portion of Small Business
Administration 7(a) loans, which are carried at lower of cost or fair value.

Loans Held for Investment

Loans held for investment (including financing leases) are stated at the amount of unpaid principal reduced by unearned
income, net of direct loan origination costs. Interest on loans is recognized using the simple interest method on the daily
balances of the principal amounts outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees
are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.

A loan is considered past due when a contractually due payment has not been received by the contractual due date. The
Company places a loan on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to
meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual
status, all previously accrued and unpaid interest is reversed as a reduction of current period interest income. Interest income is
subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If
collectability is questionable, then cash payments are applied to principal. A loan is placed back on accrual status when both
principal and interest are current and it is probable that all amounts due will be collected (both principal and interest) according
to the terms of the loan agreement.

Loans held for investment includes legal ownership interests in mortgage loans that the Company purchases through its
mortgage finance division. The ownership interests are purchased from unaffiliated mortgage originators who are seeking
additional liquidity to facilitate their ability to originate loans. The mortgage originator has no obligation to offer and the
Company has no obligation to purchase these interests. The originator closes mortgage loans consistent with underwriting
standards established by approved investors, and, at the time of the sale to the investor, the Company’s ownership interest and
that of the originator are delivered to the investor selected by the originator and approved. The Company typically purchases up
to a 99% ownership interest in each mortgage with the originator owning the remaining percentage. These mortgage ownership
interests are generally held for a period of less than 30 days and more typically 10-20 days. Because of conditions in
agreements with originators designed to reduce transaction risks, under ASC 860, Transfers and Servicing of Financial Assets
(“ASC 860”), the ownership interests do not qualify as participating interests. Under ASC 860, the ownership interests are
deemed to be loans to the originators and payments received from investors are deemed to be payments made by or on behalf of
the originator to repay the loan. Because the Company has an actual, legal ownership interest in the underlying residential
mortgage loan, these interests are reported as extensions of credit to the originators that are secured by the mortgage loans as
collateral.

Due to market conditions or events of default by the investor or the originator, the Company could be required to purchase the
remaining interests in the mortgage loans and hold them beyond the expected 10-20 days. Mortgage loans acquired under these
conditions would require mark-to-market adjustments to income and could require further allocations of the allowance for
credit losses or be subject to charge-off in the event the loans become impaired.

Allowance for Credit Losses

The Company’s allowance for credit losses is determined using a current expected credit loss (“CECL”) model. The
measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized
cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not
accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and
net investments in leases recognized by a lessor in accordance with ASU 2016-02 "Leases (Topic 842)".

The following is a discussion of the allowance for credit losses on loans held for investment and off-balance sheet credit
exposures. See “Investment Securities - Debt Securities” above for discussion of the allowance for credit losses on available-
for-sale and held-to maturity debt securities.

The CECL methodology recognizes lifetime expected credit losses immediately when a financial asset is originated or
purchased. The allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of
loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the
allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously
charged-off and expected to be charged-off. The allowance for credit losses on off-balance sheet financial instruments is
recorded in other liabilities on the consolidated balance sheets.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating
to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis
for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-
specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term, as well as for

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changes in macroeconomic conditions, such as changes in unemployment rates, gross domestic product, property values, or
other relevant factors.

The allowance for credit losses is comprised of reserves measured on a collective (pool) basis when similar risk characteristics
exist. Loans that do not share risk characteristics are assigned a reserve based on an individual evaluation and are not included
in the collective (pool) evaluation. For purposes of determining the collective (pool) allowance for credit losses, the loan
portfolio is segregated into pools first by portfolio segment and then by past due status or credit grade. Each pool is assigned a
loss estimate, reflecting historical loss rates that incorporate probability of default and severity of losses over the estimated
remaining life of the loans. These loss estimates are then modified to incorporate a reasonable and supportable forecast of future
losses at the pool level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”)
and/or a Portfolio Segment Level Qualitative Factor (“SLQF”). A similar process is employed to calculate a reserve assigned to
off-balance financial instruments, specifically unfunded loan commitments and letters of credit. Modified loss estimates are
assigned based on the balance of the commitments estimated to be outstanding at the time of default. The PLQF and SLQF are
utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative
process. The PLQF is used to apply a qualitative adjustment across the entire portfolio of loans, while the SLQF is designed to
apply a qualitative adjustment across a single portfolio segment. Even though portions of the allowance may be allocated to
specific loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

The Company generally uses a two-year forecast period, based on a single forecast scenario or a blend of multiple forecast
scenarios, using variables management believes are most relevant to each portfolio segment. For periods beyond which
management is able to develop reasonable and supportable forecasts, the Company reverts to the average historical loss rate,
reflecting historical default probabilities and loss severities, using a reversion speed that approximates 1 to 2 years. The forecast
period and scenario(s) used are reviewed on a quarterly basis and may be adjusted based on management's view of the current
economic conditions and level of predictability the forecast can provide.

Portfolio segments are used to pool loans with similar risk characteristics and align with the Company’s methodology for
measuring expected credit losses. A summary of the primary portfolio segments is as follows:

Commercial. The commercial loan portfolio is comprised of lines of credit for working capital, term loans, reserve-based loans
to energy exploration and production companies, and leases to finance equipment and other business assets across a variety of
industries. These loans are used for general corporate purposes including financing working capital, internal growth, and
acquisitions and are generally secured by accounts receivable, inventory, oil and gas reserves, equipment and other assets of
clients’ businesses.

Mortgage Finance. Mortgage finance loans relate to mortgage warehouse lending operations in which the Company purchases
mortgage loan ownership interests from unaffiliated mortgage originators that are generally held for a period of less than 30
days and more typically 10-20 days before they are sold to an approved investor. Volumes fluctuate based on the level of
market demand for the product and the number of days between purchase and sale of the loans, which can be affected by
changes in overall market interest rates and housing demand and tend to peak at the end of each month. Mortgage finance loans
are consistently underwritten based on standards established by the approved investors. Market conditions or events of default
by an investor or originator could require that the Company repurchases the remaining interests in the mortgage loans and hold
them beyond the expected 10-20 days.

Commercial Real Estate (“CRE”). The CRE portfolio is comprised of construction/development financing and limited term
financing provided to professional real estate developers, owners/managers of commercial real estate projects and properties,
and residential builders/developers. Collateral properties include office buildings, warehouse/distribution buildings, shopping
centers, hotels/motels, senior living, apartment buildings, residential and commercial tract developments, and raw land or lots to
be developed into single-family homes. The primary source of repayment on these loans is expected to come from the sale,
permanent financing or lease of the real property collateral. The performance of these loans is impacted by fluctuations in
collateral values, the ability of the borrower to obtain permanent financing, and, in the case of loans to residential builder/
developers, volatility in consumer demand.

Consumer. This category of loans is comprised of loans made to consumers for personal expenditures, first and second lien
mortgages made for the purpose of purchasing or constructing 1-4 family residential dwellings and home equity revolving lines
of credit.

The Company has several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that
are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but
warrant more than the normal level of monitoring. Within the criticized/classified credit grades are special mention, substandard
and doubtful. Special mention loans are those that are currently protected by the sound worth and paying capacity of the
borrower, but that are potentially weak and constitute an additional credit risk. These loans have the potential to deteriorate to a
substandard grade due to the existence of financial or administrative deficiencies. Substandard loans have a well-defined
weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the

60

Company will sustain some loss if the deficiencies are not corrected. Some substandard loans are inadequately protected by the
sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired. Substandard
loans can be accruing or can be on non-accrual depending on the circumstances of the individual loans. Loans classified as
doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make
collection in full highly questionable and improbable. The possibility of loss is extremely high. All doubtful loans are on non-
accrual.

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and
responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the pool-basis
allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new
information. As the Company’s portfolio has matured, historical loss ratios have been closely monitored. The review of the
appropriateness of the allowance is performed by executive management and presented to the audit and risk committees of the
board of directors for their review. The committees report to the board as part of the board's quarterly review of the Company’s
consolidated financial statements.

When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not
considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs,
when appropriate. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and
repayment is expected to be provided substantially through the operation or sale of the collateral.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when
appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following
applies: management has a reasonable expectation that a loan will be restructured or the extension or renewal options are
included in the borrower contract and are not unconditionally cancellable.

The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances
are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as discussed
above.

Other Real Estate Owned

Other real estate owned (“OREO”), which is included in other assets on the consolidated balance sheet, consists of real estate
that has been foreclosed. When foreclosure occurs, the acquired asset is recorded at fair value less selling costs, generally based
on appraised value, which may result in partial charge-off of the loan through a charge to the allowance for credit losses, if
necessary. Subsequent write-downs required for declines in value are recorded through a valuation allowance, or taken directly
to the asset, and are recorded in other non-interest expense on the consolidated statements of income and other comprehensive
income. Gains or losses on sale of OREO are recorded in other non-interest income on the consolidated statements of income
and other comprehensive income.

Goodwill and Other Intangible Assets, Net

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual
or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related
contract, asset or liability. The Company had $1.5 million of goodwill at both December 31, 2023 and December 31, 2022.
Intangible assets with definite useful lives are amortized over their estimated life. No amortization expense related to intangible
assets was recorded during the year ended December 31, 2023, as compared to $338,000 and $405,000 during the years ended
December 31, 2022 and 2021, respectively. Goodwill and intangible assets are tested for impairment at least annually or
whenever changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted
cash flows. If impaired, the assets are recorded at fair value. In 2023 and 2022, the annual test of goodwill impairment was
performed, and in both periods, no impairment was indicated.

Premises and Equipment, Net

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Furniture and equipment are generally depreciated over three
to five years, while leasehold improvements are generally depreciated over the term of their respective lease. Gains or losses on
disposals of premises and equipment are included in other non-interest income on the consolidated statements of income and
other comprehensive income.

Software

Costs incurred in connection with development or purchase of internal use software and cloud computing arrangements,
including in-substance software licenses, are capitalized. Amortization is computed on a straight-line basis over the estimated

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useful life of the asset, which generally ranges from one to five years. Capitalized software is included in other assets on the
consolidated balance sheets.

Financial Instruments with Off-Balance Sheet Risk

The Company has undertaken certain guarantee obligations in the ordinary course of business which include liabilities with off-
balance sheet risk.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit
that involve varying degrees of credit risk in excess of the amount recognized on the consolidated balance sheets. The
Company’s exposure to credit loss in the event of non-performance by the other party to these financial instruments is
represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary,
is based on management’s credit evaluation of the borrower.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.
Commitments to extend credit generally do not include mortgage finance arrangements with mortgage loan originators through
the mortgage warehouse lending division, which are established as uncommitted “guidance” purchase and sale facilities under
which the mortgage originator has no obligation to offer and the Company has no obligation to purchase interests in the
mortgage loans subject to the arrangements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

In conjunction with the sale and securitization of loans held for sale and their related servicing rights, the Company may be
exposed to liability resulting from recourse, repurchase and make-whole agreements. If it is determined subsequent to the sale
of a loan or its related servicing rights that a breach of the representations or warranties made in the applicable sale agreement
has occurred, which may include guarantees that prepayments will not occur within a specified and customary time frame, the
Company may have an obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest and related
advances, (b) indemnify the purchaser against any loss it suffers or (c) make the purchaser whole for the economic benefits of
the loan and its related servicing rights. The repurchase, indemnification and make-whole obligations vary based upon the terms
of the applicable agreements, the nature of the asserted breach and the status of the mortgage loan at the time a claim is made.
The Company establishes reserves for estimated losses of this nature inherent in the sale of mortgage loans by estimating the
losses inherent in the population of all loans sold based on trends in claims and actual loss severities experienced. The reserve
will include accruals for probable contingent losses in addition to those identified in the pipeline of claims received.

Leases

Right of use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities
represent its obligation to make lease payments arising from the lease. Lease agreements may contain extension options which
typically provide for an extension of a lease term at the then fair market rental rates. As these extension options are not
generally considered reasonably certain of exercise, they are not included in the lease term. Operating leases relate primarily to
real estate used for corporate offices and bank branches and finance leases relate primarily to equipment. The Company does
not separate lease and non-lease components for real estate leases.

For those leases with a term greater than one year, ROU assets and lease liabilities are recognized at lease commencement
based on the present value of the remaining lease payments using a discount rate that represents the incremental borrowing rate
on the effective date of the lease, which is based on the Company’s collateralized borrowing capabilities over a similar term as
the related lease payments. ROU assets are further adjusted for lease incentives.

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities,
and are included in other assets and other liabilities, respectively, on the consolidated balance sheets. Operating lease expense,
which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is
recognized on a straight-line basis over the lease term and recorded in net occupancy expense on the consolidated statements of
income and other comprehensive income.

Finance leases in which the Company is the lessee are recorded as finance lease ROU assets and finance lease liabilities and are
included in premises and equipment, net, and other liabilities, respectively, on the consolidated balance sheets. Finance lease
expense is comprised of amortization of the ROU asset, which is recognized on a straight-line basis over the lease term and

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 

               
                  
                    
                     
      

                
                 
             
                   




               
             
             
                
                 
  

                 
              
              
                
  

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                 
               
             
               
                 
                   
    



        

    

 



   









































            
             
              
              
           

             
              
               
               
     



                 
                   
              



transactions through card networks. The Company’s performance obligations are generally complete when the
transactions generating the fees are processed.

Stock-based Compensation

The Company accounts for all stock-based compensation transactions in accordance with ASC 718, Compensation — Stock
Compensation (“ASC 718”), which requires that stock compensation transactions be recognized as compensation expense on
the consolidated statements of income and other comprehensive income based on their fair values on the measurement date,
which is generally the date of the grant.

Income Taxes

The Company and its subsidiary file a consolidated federal income tax return. The Company utilizes the liability method in
accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference
between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted
tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is
provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized. Deferred tax
assets, net, are included in other assets on the consolidated balance sheets.

The tax effect of unrealized gains and losses on available-for-sale debt securities and derivative instruments designated as
hedges is recorded to other comprehensive income and is not a component of income tax expense/(benefit).

GAAP does not permit the adjustment of tax amounts in AOCI for changes in tax rates; as a result the effects become
“stranded” in AOCI. Stranded tax effects caused by the revaluation of deferred taxes are reclassified from AOCI to retained
earnings in accordance with ASU 2018-02 “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income.”

Unrecognized tax benefits for the uncertain portion of recorded tax benefits and related interest may result from the application
of complex tax laws, rules, regulations and interpretations. Unrecognized tax benefits, as well as estimated penalties and
interest, are assessed quarterly and may be adjusted through current income tax expense in future periods based on changing
facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations.

Fair Values of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring
fair value under GAAP and enhances disclosures about fair value measurements. The standard describes three levels of inputs
that may be used to measure fair value as provided below.

Level 1

Level 2

Level 3

Quoted prices in active markets for identical assets or liabilities.

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.

Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair values requires significant
management judgment or estimation.

Also required are disclosures of fair value information about financial instruments, whether or not recognized on the balance
sheet, for which it is practical to estimate that value. In cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The disclosure of fair value information about financial
instruments does not and is not intended to represent the fair value of the Company.

The following are descriptions of the methods and significant assumptions used by the Company in estimating its fair value
disclosures for financial instruments:

Cash and Cash Equivalents, Variable Rate Loans, Variable Rate Short-term Borrowings and Variable Rate Long-term Debt

The fair value of these financial instruments approximates carrying value.

Investment Securities

The fair value of the Company’s U.S. Treasury, U.S. government agency and residential mortgage-backed securities are based
on prices obtained from independent pricing services. The Company’s U.S. Treasury securities are valued based on quoted

64

market prices for identical securities in an active market and are classified as Level 1 assets in the fair value hierarchy, while the
Company’s U.S. government agency and residential mortgage-backed securities are valued based on quoted market prices for
the same or similar securities and are characterized as Level 2 assets in the fair value hierarchy. Management obtains
documentation from the primary independent pricing service regarding the processes and controls applicable to pricing
investment securities, and on a quarterly basis independently verify the prices that were received from the service provider
using two additional independent pricing sources. CRT securities are valued using a discounted cash flow model, which utilizes
Level 3 inputs, and are classified as Level 3 assets in the fair value hierarchy.

Within the investment securities portfolio, the Company holds equity securities that consist of investments that qualify for
consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds.
Some of these equity securities are valued using quoted market prices for identical equity securities in an active market and are
classified as Level 1 assets in the fair value hierarchy and others are traded in less active markets and are classified as Level 2
assets in the fair value hierarchy.

Loans Held for Sale

The fair value for loans held for sale is derived from quoted market prices for similar loans, in which case they are characterized
as Level 2 assets in the fair value hierarchy, or is derived from third party pricing models, in which case they are characterized
as Level 3 assets in the fair value hierarchy.

Securities Sold Not Yet Purchased

The fair value for securities sold but not yet purchased is derived from quoted prices in active markets and are classified as
Level 1 liabilities in the fair value hierarchy.

Derivative Assets and Liabilities

The estimated fair value of derivative assets and liabilities is obtained from independent pricing services based on quoted
market prices for similar derivative contracts and these financial instruments are characterized as Level 2 assets and liabilities in
the fair value hierarchy. On a quarterly basis, management independently verifies the fair value using an additional independent
pricing source.

Derivative Financial Instruments

All contracts that satisfy the definition of a derivative are recorded at fair value in other assets and other liabilities on the
consolidated balance sheets, and the related cash flows are recorded in the operating activities section of the consolidated
statement of cash flows. The Company records the derivatives on a net basis when a right of offset exists with a single
counterparty that is subject to a legally enforceable master netting agreement.

Non-Hedging Derivatives

The Company enters into interest rate derivative instruments with customers while at the same time entering into offsetting
interest rate derivative instruments with another financial institution. These transactions allow the customer to effectively
manage their exposure to a variable rate loan. Because the Company acts as an intermediary for its customers, changes in the
fair value of the underlying derivative instruments substantially offset each other and do not have a material impact on the
Company’s results of operations.

The Company offers forward contract derivative instruments, such as to-be-announced U.S. agency residential mortgage-back
securities, to its mortgage banking customers to allow the customers to mitigate exposure to market risks associated with the
purchase or origination of mortgage loans. To mitigate the Company’s exposure to these forward contracts, the Company will
enter into offsetting forward contracts, most typically with a financial institution. Any changes in fair value to the forward
contract derivative instruments are recorded in investment banking and trading income on the consolidated statements of
income and other comprehensive income.

The Company also offers foreign currency derivative instruments in which the Company enters into a contract with a customer
to buy or sell a foreign currency at a future date for a specified price while at the same time entering into an offsetting contract
with a financial institution to buy or sell the same currency at the same future date for a specified price. The transaction allows
the customer to manage their exposure to foreign currency exchange rate fluctuations. Because the Company acts as an
intermediary for its customers, changes in the fair value of the underlying derivative instruments substantially offset each other
and do not have a material impact on the Company’s results of operations.

Derivatives Designated as Hedges

The Company enters into interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the
exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. To qualify
for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on
an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the

65

                   
                 
                     
                     
                     
                 
                     
             

 

                  
                 
               
            

   

            

       


 

  

     



       

     

        

    

    

   

   







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














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

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


















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

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












  

         

 
  

  

  

   

  

 

   

  

  

   

 

  

  

  

  

   

  

 

   

 

  

  

 

  














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
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

                      

                     
               
                 



 

                     
  

                 
               
                 
  

 

   

      

      

   







 

 

 

 

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

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























                 
                   
  

   

      

      

   



 


 
 

 
 

 

 

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 

                
                     

   

   



 

 

 

 

 

 

 

  

  

   

  

 



  

  

   

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  











 



















  



  



                  
              
                 
                    
                      
                  
                
                   
           

                 
                 
          

 

              
                 
                
  

 
     

       

       

   



























        

                   
                  
                  
       

       

 

   


 

  



    

      

    

     

     

   

    

        

    

  

  

































































                       

          



                 

 

  



 












 


 



  
 
 



 

 

























 

  

   

 











































 

 





















 

 

 

  

   

 

  

  

 

  

   

 

   



 

  

   

 











 

 

 

 

 

 





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 

 

 

 

 

 





 

 





































 

 













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















































 

























































 

















 















 

 

 

 



























 

  













  



 















 

 























 

























 

  



 












 


 



  
 
 



 





























 

  

   

 











































 

 

 

  

   

 

  

  

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  

   

 

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   

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

 

  

   

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                   
                  
                  
                   
                
                 
                 

 
    

 

     





  

 

    

 

     





  

 







 





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





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





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

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















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

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

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 



                    
                   
                 
                   
                   
     

                
                   
            
       

            

 
  



 

  





 
 

 
 

  
 


 










 


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

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

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 

 

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

                         
                     
                     


     

              
               
              
     



                  
          

 



  











 


 

 


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 
 
 


 

 

 









               
      



  

 


 
 

 

 





  

  









                 
                 
     

                    
                  

 

  



  



 
 

 
 





















 



 



























          

                

     

    





 

  



 


 
 

 


 
 

 


 
 

 

 





 

 





 

 





                    
                 
   



 

        

 

 

 

 



 

 

 



   













































                    
      

        

 

  

   

   

  

  

  

 

  

          

     

     

     

        

        

           

        

        

     

     







   



























































   









 

 





 

 



              

 











  

  

 

    

 

 





































































                   
                   
 

   

      

 


  

 

 

    

 

































               
        

 

    

 
  
  





   

 

 

































              

 










  





















                 
  



     

                 

  
  

   

   

     

     

     

  

   

   

     

     

     

 









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

 



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 



 

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

 



 



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

 

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 





 



 



            

 
        

      

   

       

    

    

  

  

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











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











                      
                     

                  
                           
   

        

 

  

  

        

       

       

         

  

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

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



















                   
      

             

  
 

   

    

   



 

 
  
  

 
  
  

 
  
  

 
  
  

 
  
  

















  
 

  
 

  
 

  
 

 

 

 

 





  
 

 



      

                  
                
                 
                  
                   
                   
          

 
    

 

     

 

    

 

     

 

 

       

       

    







 



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

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





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









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





     

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

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





                 
               
                  
                 
                
               
                
 

                
                  
                
                  
        

                  
                    
                 
              
                  
                 
                    
                  
                  
                    
                 
                   
                

                   
                  
                  
                
                  



                  
                       
                
                 

                
                     
                    
       

                  
                  
                  
                    
                   
                
           

                      
                  

                       
                        
                

                   
                 

  
  







    





     





     





  







    





     





     







 


   
 
















 

  

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

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

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 

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 

 

  

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

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 

 





 

 





 

 





 

 





 

 









 

 





 

 





 

 



 

                           

                   



                      

                     
                
              

  

                    
                 
                
                  
                  
                
 

                 
                      
                 
                  
                  
                 
                  
                  
      

                  
              
                    
                 
               

                
                   
                  
              
                 
                 

                  
          

    



  

    

        
        

 

  

   

  

  

  



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
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 

                  
                     
                    



    







  

 

  

     

      

  

  

  












 
 






















 
 







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





 
 













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 

 



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 

 



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 

 







       

       

 

 

 

 

 

 

                 
                     
                  
                 

                   
      

                   
                     
                    
                  

  

      

 
















 







   











































































                      

  
  

 

 

 

 

 























   

















  
 

 

 

 

 
 





  

















  
 

 

 

 

 


  

















 

 



 

 

 
 

 

                  


                     
    

                
                     

 
  

   

 

  

 

 

  

    



   

  

  



  





   

   

   

 







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

























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



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































                   
                   
                
              



         

 
  

  

  

   

  

 

 

    

   

 

    

 

    

  

  

  

   

  

 

 

 

 

    

   

 

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            


                  

    

               


                      
                      
     

               
                
                     

                

  

                    

 

    

  

 

    

  

 

 

 


 






 
 


 







 

 

 







  







 

 

 

   













 





 











                   

        

                       

 



 

                     
                  
                   
                   
                  
        

   

                 
                     
                   
                 
                 
        

    

               




  



 

 

 





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

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



 

 

  

 

   

  

  

 

   

    

 

 

 

 

 

    

 

  

 

   

  

  

 

   

    

 

 

 

 

 

 



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

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

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















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

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







































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







































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

   

                

 
   

  

  

  

 

   

   

  



   

   

 

 

     

     

  

  

  

  



















 



 



 



 











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

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

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

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











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

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

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



























       



 





 



                  
                  
                
                
                  
                 
                 
                 
               

               
                    
                  
                   
                   
                  
               
                   
               
                     
                    
                   
  

     

                  
                

                   
                      
                  
                    
               



    

         

 

    

 

   

    

   

  

      

 

    

 

   

    

   

  

      

 

   

  









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 











 

 





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

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

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 

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

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









 

 

 















                 
                 
                    
               
         

   

          

 

 


   

 

  

 

 

   



 

 

 

 

 

 

  

 

 

   

  

    





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 

















































































  

 
   

 

 

 

 

  

  

  

 

          

  

       

     

 

  

   






































































































     











   

 
 

 

            

     

 

     

     

     

     

 

    

      

     

      

 

      

      

   

   

   

   

      

      

      

       

       

   



















































































































































(18) New Accounting Standards

ASU 2023-06 “Disclosure Improvements” (“ASU 2023-06”) amends the disclosure or presentation requirements related to
various subtopics in the FASB Accounting Standards Codification (the “Codification”). ASU 2023-06 was issued in response to
the SEC’s initiative to update and simplify disclosure requirements. The SEC identified 27 disclosure requirements that were
incremental to those in the Codification and referred them to the FASB for potential incorporation into U.S. GAAP. To avoid
duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations as the FASB
incorporated them into the relevant Codification subtopics. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation
requirements to the Codification. ASU 2023-06 is to be applied prospectively, and early adoption is prohibited. For reporting
entities subject to the SEC’s existing disclosure requirements, the effective dates of ASU 2023-06 will be the date on which the
SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. If by June 30,
2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the
related amendment will be removed from the Codification and will not become effective for any entities. ASU 2023-06 is not
expected to have a significant impact on our financial statements.

ASU 2023-07 “Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures” (“ASU 2023-07”) amends
the disclosure requirements related to segment reporting primarily through enhanced disclosure about significant segment
expenses and by requiring disclosure of segment information on an annual and interim basis. ASU 2023-07 is effective January
1, 2024 and is not expected to have a significant impact on our financial statements.

ASU 2023-09 “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures” (“ASU 2023-09”) enhances the
transparency and decision usefulness of income tax disclosures. ASU 2023-09 will require disaggregated information about a
reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. Entities will also be required to
disclose income/(loss) from continuing operations before income tax expense/(benefit) disaggregated between domestic and
foreign, as well as income tax expense/(benefit) from continuing operations disaggregated by federal, state and foreign. ASU
2023-09 is effective January 1, 2025 and is not expected to have a significant impact on our financial statements.

ITEM 9.

None.

ITEM 9A.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the supervision and participation of the Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by
this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the
end of such period, disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed in the reports that the Company files or submits under the Exchange Act and
were effective in ensuring that information required to be disclosed in the reports filed or submitted under the Exchange Act is
accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(f) under the
Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. The internal control over financial reporting is a process designed under the supervision of the Chief Executive
Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.

As of December 31, 2023, management assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in “Internal Control—Integrated
Framework (2013),” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on
the assessment, management determined that the Company maintained effective internal control over financial reporting as of
December 31, 2023.

86

Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the
Company included in this Annual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2023. The report, which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, is included in this Item under
the heading “Report of Independent Registered Public Accounting Firm.”

87

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Texas Capital Bancshares, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Texas Capital Bancshares, Inc.’s internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Texas Capital Bancshares, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the
COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated
statements of income and other comprehensive income/(loss), stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2023, and the related notes and our report dated February 13, 2024 expressed an unqualified
opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP
Dallas, TX
February 13, 2024

88

ITEM 9B.

None.

ITEM 9C.

None.

ITEM 10.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item is set forth in the definitive proxy materials regarding the annual meeting of stockholders to
be held April 16, 2024, which proxy materials will be filed with the SEC no later than March 7, 2024.

ITEM 11.

EXECUTIVE COMPENSATION

Information required by this item is set forth in the definitive proxy materials regarding the annual meeting of stockholders to
be held April 16, 2024, which proxy materials will be filed with the SEC no later than March 7, 2024.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

Information required by this item is set forth in the definitive proxy materials regarding the annual meeting of stockholders to
be held April 16, 2024, which proxy materials will be filed with the SEC no later than March 7, 2024.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

Information required by this item is set forth in the definitive proxy materials regarding the annual meeting of stockholders to
be held April 16, 2024, which proxy materials will be filed with the SEC no later than March 7, 2024.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this item is set forth in the definitive proxy materials regarding the annual meeting of stockholders to
be held April 16, 2024, which proxy materials will be filed with the SEC no later than March 7, 2024.

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report

(1) All financial statements

Independent Registered Public Accounting Firm’s Report of Ernst & Young LLP

(2) All financial statements required by Item 8

Independent Registered Public Accounting Firm’s Report of Ernst & Young LLP

(3) Exhibits

89

3.1

3.2

3.3

3.4

3.5

3.6

3.7

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

Certificate of Incorporation, which is incorporated by reference to Exhibit 3.1 to the Company’s
Registration Statement on Form 10 dated August 24, 2000
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to Exhibit
3.2 to the Company’s Registration Statement on Form 10 dated August 24, 2000
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to Exhibit
3.3 to the Company’s Registration Statement on Form 10 dated August 24, 2000
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to Exhibit
3.4 to the Company’s Registration Statement on Form 10 dated August 24, 2000
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to Exhibit
3.1 to the Company’s Quarterly Report on Form 10-Q dated October 30, 2008
Amended and Restated Bylaws of Texas Capital Bancshares, Inc. which is incorporated by reference to
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q dated October 22, 2020
Certificate of Designation of 5.75% Non-Cumulative Perpetual Preferred Stock, Series B, which is
incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 3,
2021

Description of Capital Stock registered pursuant to Section 12 of the Securities Exchange Act of 1934
and is incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
April 19, 2022

Placement Agreement by and between Texas Capital Bancshares Statutory Trust I and SunTrust Capital
Markets, Inc., which is incorporated by reference to Exhibit 1.1 to the Company’s Current Report on
Form 8-K dated December 4, 2002

Certificate of Trust of Texas Capital Bancshares Statutory Trust I, dated November 12, 2002 which is
incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December
4, 2002

Amended and Restated Declaration of Trust by and among State Street Bank and Trust Company of
Connecticut, National Association, Texas Capital Bancshares, Inc. and Joseph M. Grant, Raleigh
Hortenstine III and Gregory B. Hultgren, dated November 19, 2002 which is incorporated by reference to
Exhibit 3.3 to the Company’s Current Report on Form 8- K dated December 4, 2002

Indenture dated November 19, 2002 which is incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated December 4, 2002
Guarantee Agreement between Texas Capital Bancshares, Inc. and State Street Bank and Trust of
Connecticut, National Association dated November 19, 2002, which is incorporated by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K dated December 4, 2002

Placement Agreement by and among Texas Capital Bancshares, Inc., Texas Capital Statutory Trust II and
Sandler O’Neill & Partners, L.P., which is incorporated by reference to Exhibit 1.1 to the Company’s
Current Report on Form 8-K dated June 11, 2003

Certificate of Trust of Texas Capital Statutory Trust II, which is incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K dated June 11, 2003
Amended and Restated Declaration of Trust by and among Wilmington Trust Company, Texas Capital
Bancshares, Inc., and Joseph M. Grant and Gregory B. Hultgren, dated April 10, 2003, which is
incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K dated June 11,
2003

Indenture between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated April 10, 2003,
which is incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
June 11, 2003

Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated
April 10, 2003, which is incorporated by reference to Exhibit 4.2 to the Company’s Current Report on
Form 8-K dated June 11, 2003

Amended and Restated Declaration of Trust for Texas Capital Statutory Trust III by and among
Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Texas Capital Bancshares,
Inc. as Sponsor, and the Administrators named therein, dated as of October 6, 2005, which is incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 13, 2005
Indenture between Texas Capital Bancshares, Inc., as Issuer, and Wilmington Trust Company, as Trustee,
for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures, dated as of October 6, 2005,
which is incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
October 13, 2005

90

4.14

4.15

4.16

4.17

4.18

4.19

4.20

4.21

4.22

4.23

4.24

4.25

4.26

10.1

10.2

10.3

10.4

10.5

Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated as
of October 6, 2005, which is incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated October 13, 2005

Amended and Restated Declaration of Trust for Texas Capital Statutory Trust IV by and among
Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Texas Capital Bancshares,
Inc. as Sponsor, and the Administrators named therein, dated as of April 28, 2006, which is incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 3, 2006

Indenture between Texas Capital Bancshares, Inc., as Issuer, and Wilmington Trust Company, as Trustee,
for Floating Rate Junior Subordinated Deferrable Interest Debentures dated as of April 28, 2006, which is
incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 3,
2006
Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated as
of April 28, 2006, which is incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated May 3, 2006

Amended and Restated Trust Agreement for Texas Capital Statutory Trust V by and among Wilmington
Trust Company, as Property Trustee and Delaware Trustee, Texas Capital Bancshares, Inc., as Depositor,
and the Administrative Trustees named therein, dated as of September 29, 2006, which is incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2006

Junior Subordinated Indenture between Texas Capital Bancshares, Inc. and Wilmington Trust Company,
as Trustee, for Floating Rate Junior Subordinated Note dated as of September 29, 2006, which is
incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October
5, 2006

Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated as
of September 29, 2006, which is incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated October 5, 2006

Issuing and Paying Agency Agreement, dated January 31, 2014, between Texas Capital Bank, N.A., as
Issuer, and U.S. Bank National Association, as Agent, which is incorporated by reference to Exhibit 4.1
to the Company’s Current Report on Form 8-K dated January 31, 2014.

Form of Global 5.25% Subordinated Note due 2026, which is incorporated by reference to Exhibit 4.2 to
the Company’s Current Report on Form 8-K dated January 31, 2014.
First Supplemental Indenture, dated May 6, 2021, between the Company and the Trustee, which is
incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 6,
2021.

Note Purchase Agreement, dated as of March 9, 2021, which is incorporated by reference to Exhibit 4.1
to the Company’s Current Report on Form 8-K, dated March 9, 2021.
Deposit Agreement, dated March 3, 2021, among the Company, Computershare, Inc. and Computershare
Trust Company, N.A., acting jointly as depositary, and the holders from time to time of the depositary
receipts described therein, which is incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K, dated March 3, 2021

Purchase Agreement dated as of September 5, 2022 by and between AFCO Credit Corporation and Texas
Capital Bank, which is incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-d dated September 8, 2022

Amended and Restated Employment Agreement, dated as of January 23, 2023, between Texas Capital
Bancshares, Inc. and Robert C. Holmes, which is incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 27, 2023+

Form of Indemnity Agreement for directors and officers of Texas Capital Bancshares, Inc., which is
incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K dated
February 21, 2014+

Texas Capital Bancshares, Inc. Amended and Restated 2006 Employee Stock Purchase Plan, which is
incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K dated
February 9, 2021+

Third Amended and Restated Texas Capital Bancshares, Inc. Nonqualified Deferred Compensation Plan,
which is incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on form 10-K dated
February 9, 2021+

Texas Capital Bancshares, Inc. 2022 Long-Term Incentive Plan, which is incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 20, 2022+

91

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

21
23.1
31.1

31.2
32.1

32.2
97.1
101.INS

101.SCH
101.CAL

101.DEF
101.LAB
101.PRE

104

Form of 2020 Performance Award Agreement for Executive Officers pursuant to the Texas Capital
Bancshares, Inc. 2015 Long-Term Incentive Plan, which is incorporated by reference to Exhibit 10.21 to
the Company’s Annual Report on Form 10-K dated February 9, 2021+

Form of 2021 Performance Award Agreement for Executive Officers pursuant to the Texas Capital
Bancshares, Inc. 2015 Long-Term Incentive Plan, which is incorporated by reference to Exhibit 10.12 to
the Company’s Annual Report on Form 10-K dated February 9, 2022+

Form of 2022 Time-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2015 Lon-
Term Incentive Plan, which is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q dated April 21, 2022+

Form of 2022 Performance-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2015
Lon-Term Incentive Plan, which is incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q dated April 21, 2022+

Form of 2023 Time-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022 Long-
Term Incentive Plan, which is incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q dated April 20, 2023+

Form of 2023 Performance-Based Award Agreement pursuant to the Texas Capital Bancshares, Inc. 2022
Long-Term Incentive Plan, which is incorporated by reference to Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q dated April 20, 2023+
Key Executive Severance Policy, which is incorporated by reference to Exhibit 10.14 to the Company’s
Annual Report on Form 10-K dated February 9, 2022+
Key Executive Change-in-Control Severance Policy, which is incorporated by reference to Exhibit 10.15
to the Company’s Annual Report on Form 10-K dated February 9, 2022+

Subsidiaries of the Registrant*
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act*
Section 1350 Certification of Chief Executive Officer**

Section 1350 Certification of Chief Financial Officer**
Policy Relating to Recovery of Erroneously Awarded Compensation*
XBRL Instance Document*

XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Calculation Linkbase Document*

XBRL Taxonomy Extension Definition Linkbase Document*
XBRL Taxonomy Extension Label Linkbase Document*
XBRL Taxonomy Extension Presentation Linkbase Document*

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in
Exhibit 101)

*
**
+

Filed herewith
Furnished herewith
Management contract or compensatory plan arrangement

92

                     
            



   

   



   

  
    

                   
              

   

   

   

   

   

   

   

   

   

   

   

   

   

   

  
     



  

  
  
  

   

  
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About Us

Texas Capital Bancshares, Inc. (NASDAQ: TCBI), a member of the Russell 2000 Index and the S&P MidCap 400, is the parent company

of Texas Capital, a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs, and individual customers.

Founded in 1998, the firm is headquartered in Dallas with offices in Austin, Houston, San Antonio, and Fort Worth, and has built a

network of clients across the country. With the ability to service clients through their entire lifecycles, Texas Capital has established commercial

banking, consumer banking, investment banking and wealth management capabilities.

res,I nc.

2021 A nnual R epotr

Corporate Information

Annual Meeting

The annual meeting of stockholders will be held on

April 16, 2024, at 7:30 a.m., central daylight time, at 2000

McKinney Avenue, 9th Floor, Dallas, Texas 75201

Stock Exchange

Corporate Headquarters

2000 McKinney Avenue

Dallas, Texas 75201

214.932.6600

Other Information

Texas Capital Bancshares, Inc. is traded under the symbol

TCBI on the Nasdaq Stock Market®

Corporate governance and other investor information

may be found at www.texascapitalbank.com

Transfer Agent

Computershare

250 Royall Street, Mail Stop 1A

Canton, Massachusetts 02021

800.568.3476

Board of Directors

Robert W. Stallings Chairman, Texas Capital Bancshares, Inc. Chairman and Chief Executive Officer, Stallings Capital Group, Inc.

;

Rob C. Holmes Chief Executive Officer and President of Texas Capital Bancshares, Inc. and Texas Capital

Paola M. Arbour Executive Vice President and Chief Information Officer, Tenet Healthcare Corp.

Jonathan E. Baliff Chief Financial Officer and Director, Redwire Corporation

James H. Browning Former Partner, KPMG LLP

David S. Huntley Former Senior Vice President and Chief Compliance Officer, AT&T Inc.

Charles S. Hyle Former Chief Risk Officer, KeyCorp

Thomas E. Long Co-Chief Executive Officer and Director, Energy Transfer LP

Elysia Holt Ragusa Principal, RCubetti LLC

Steven P. Rosenberg President, SPR Ventures, Inc.

Dale W. Tremblay Executive Chairman, C.H. Guenther & Son LLC

Laura L. Whitley Chief Financial Officer,

Urban Strategies

Executive Officers

Rob C. Holmes Chief Executive Officer and President of Texas Capital Bancshares, Inc. and Texas Capital

Anna M. Alvarado Chief Legal Officer and Corporate Secretary of Texas Capital Bancshares, Inc. and Texas Capital

John W. Cummings Chief Administrative Officer of Texas Capital Bancshares, Inc. and Texas Capital

J. Matthew Scurlock Chief Financial Officer of Texas Capital Bancshares, Inc. and Texas Capital

Tim J. Storms Chief Risk Officer of Texas Capital Bancshares, Inc. and Texas Capital

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www.texascapitalbank.com

Member FDIC