TEXAS CAPITAL BANCSHARES INC/TX MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations for the three and nine months ended September 30, 2022 and 2021
should be read in conjunction with our audited consolidated financial statements
and the related notes to the consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form
10-K"). Operating results for the three and nine months ended September 30, 2022
are not necessarily indicative of the results for the year ending December 31,
2022 or any future period.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on our beliefs, assumptions and
expectations of our 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 "expects," "estimates,"
"anticipates," "plans," "goals," "objectives," "intends," "seeks," "likely,"
"should," "may" "could" and other similar expressions. These forward-looking
statements are based of the historical performance of the Company or on the
Company's current plans, estimates and expectations. The inclusion of this
forward-looking information should not be regarded as a representation by the
Company that the future plans, estimates or expectations so contemplated will be
achieved, and should not be the primary basis upon which investors evaluate an
investment in our securities. Certain risks, uncertainties and other factors,
including those set forth under "Risk Factors" in Part I, Item 1A of the 2021
Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on
Form 8-K may cause actual results to differ materially from the results
discussed in the forward-looking statements appearing in this discussion and
analysis and may include factors such as, but not limited to, credit quality and
risk, the COVID-19 pandemic, industry and technological changes, uncertainties
related to our sale of BankDirect Capital Finance, LLC, cyber incidents or other
failures, disruptions or security breaches, interest rates, commercial and
residential real estate values, economic conditions, including inflation,
recession, the threat of recession, and market conditions in Texas, the United
States or globally, including governmental and consumer responses to those
economic and market conditions, fund availability, accounting estimates and risk
management processes, the transition away from the London Interbank Offered Rate
(LIBOR), legislative and regulatory changes, ratings or interpretations,
business strategy execution, key personnel, competition, mortgage markets,
fraud, environmental liability and severe weather, natural disasters, acts of
war, terrorism, global conflict or other external events. The Company does not
undertake any obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments or
otherwise.

Overview of our business activities

On September 6, 2022, we announced the sale of BankDirect Capital Finance
("BDCF" or "disposal group"), our insurance premium finance subsidiary, to AFCO
Credit Corporation, an indirect wholly-owned subsidiary of Truist Financial
Corp. The sale of BDCF includes its business operations and loan portfolio of
approximately $3.1 billion as of September 30, 2022. The sale is an all-cash
transaction for a purchase price of approximately $3.4 billion, representing an
8.5% asset premium compared to the value of the purchased loan portfolio as of
September 30, 2022. The sale is expected to close in the fourth quarter of 2022,
subject to various customary closing conditions. For additional information, see
Note 1 - Operations and Summary of Significant Accounting Policies included
elsewhere in this report.



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Operating results

Selected income statement data and key performance indicators are presented in
the table below:

                                             Three months ended
                                                September 30,              Nine months ended September 30,
(dollars in thousands except per share
data)                                           2022                           2021                   2022               2021
Net interest income                      $    239,080                   $       190,536           $ 628,158          $  574,805
Provision for credit losses                    12,000                             5,000              32,000             (20,000)
Non-interest income                            25,333                            24,779              71,857             106,771
Non-interest expense                          197,047                           152,987             514,442             452,363
Income before income taxes                     55,366                            57,328             153,573             249,213
Income tax expense                             13,948                            13,938              38,346              60,404
Net income                                     41,418                            43,390             115,227             188,809
Preferred stock dividends                       4,313                             4,312              12,938              14,408
Net income available to common
stockholders                             $     37,105                   $        39,078           $ 102,289          $  174,401
Basic earnings per common share          $       0.74                   $          0.77           $    2.03          $     3.45
Diluted earnings per common share        $       0.74                   $          0.76           $    2.00          $     3.41
Net interest margin                              3.05     %                        2.11   %            2.64  %             2.06  %
Return on average assets ("ROA")                 0.52     %                        0.47   %            0.47  %             0.66  %
Return on average common equity ("ROE")          5.36     %                        5.41   %            4.90  %             8.35  %
Non-interest income to average earning
assets                                           0.33     %                        0.27   %            0.30  %             0.38  %
Efficiency ratio(1)                              74.5     %                        71.1   %            73.5  %             66.4  %
Non-interest expense to average earning
assets                                           2.53     %                        1.69   %            2.18  %             1.61  %


(1) Non-interest expenses divided by the sum of net interest income and non-interest income.

Three months completed September 30, 2022 compared to the three months ended
September 30, 2021

We reported net income of $41.4 million and net income available to common
stockholders of $37.1 million for the third quarter of 2022, compared to net
income of $43.4 million and net income available to common stockholders of $39.1
million for the third quarter of 2021. On a fully diluted basis, earnings per
common share were $0.74 for the third quarter of 2022, compared to $0.76 for the
third quarter of 2021. ROE was 5.36% and ROA was 0.52% for the third quarter of
2022, compared to 5.41% and 0.47%, respectively, for the third quarter of 2021.
The decrease in net income for the third quarter of 2022 compared to the third
quarter of 2021 resulted primarily from increases in provision for credit losses
and non-interest expense, partially offset by an increase in net interest
income.

End of nine months September 30, 2022 compared to nine months ended September 30, 2021

We reported net income of $115.2 million and net income available to common
stockholders of $102.3 million for the nine months ended September 30, 2022,
compared to net income of $188.8 million and net income available to common
stockholders of $174.4 million for the same period in 2021. On a fully diluted
basis, earnings per common share were $2.00 for the nine months ended
September 30, 2022, compared to $3.41 for the same period in 2021. ROE was 4.90%
and ROA was 0.47% for the nine months ended September 30, 2022, compared to
8.35% and 0.66%, respectively, for the same period in 2021. The decrease in net
income for the nine months ended September 30, 2022 compared to the same period
in 2021 resulted primarily from a decrease in non-interest income coupled with
increases in provision for credit losses and non-interest expense, partially
offset by an increase in net interest income.

Details of the changes in the various components of net income are presented below.

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Analysis of taxable equivalent net interest income – Quarterly(1)

                                                                                                         Three months ended September
                                                Three months ended September 30, 2022                              30, 2021
                                           Average              Income/             Yield/                                 Average             Income/             Yield/
(in thousands except percentages)          Balance              Expense              Rate                                  Balance             Expense              Rate
Assets
Investment securities(2)               $   3,509,044          $  15,002                1.58  %                         $  3,775,812          $  10,684                1.12  %
Interest-bearing cash and cash
equivalents                                4,453,806             24,596                2.19  %                            9,046,095              3,606                0.16  %
Loans held for sale                        1,029,983             11,316                4.36  %                               18,791                 54                1.14  %
Loans held for investment, mortgage
finance                                    5,287,531             52,756                3.96  %                            7,987,521             58,913                2.93  %
Loans held for investment(3)              16,843,922            218,512                5.15  %                           15,266,167            143,864                3.74  %
Less: Allowance for credit losses on
loans                                        229,005                  -                   -                                 220,984                  -                   -
Loans held for investment, net            21,902,448            271,268                4.91  %                           23,032,704            202,777                3.49  %
Total earning assets                      30,895,281            322,182                4.10  %                           35,873,402            217,121                2.40  %
Cash and other assets                        918,630                                                                        855,555
Total assets                           $  31,813,911                                                                   $ 36,728,957
Liabilities and Stockholders' Equity
Transaction deposits                   $   1,444,964          $   5,239                1.44  %                         $  3,012,547          $   4,737                0.62  %
Savings deposits                          10,249,387             46,555                1.80  %                           10,044,995              8,262                0.33  %
Time deposits                              1,701,238              8,523                1.99  %                            1,640,562              1,720                0.42  %
Total interest bearing deposits           13,395,589             60,317                1.79  %                           14,698,104             14,719                0.40  %
Short-term borrowings                      1,931,537             10,011                2.06  %                            2,299,692                748                0.13  %
Long-term debt                               921,707             12,663                5.45  %                              927,626             10,586                4.53  %

Total interest bearing liabilities        16,248,833             82,991                2.03  %                           17,925,422             26,053                0.58  %
Non-interest bearing deposits             12,214,531                                                                     15,363,568
Other liabilities                            305,554                                                                        275,317
Stockholders' equity                       3,044,993                                                                      3,164,650
Total liabilities and stockholders'
equity                                 $  31,813,911                                                                   $ 36,728,957
Net interest income                                           $ 239,191                                                                      $ 191,068
Net interest margin                                                                    3.05  %                                                                        2.11  %
Net interest spread                                                                    2.07  %                                                                        1.82  %


(1)Tax equivalence rates used where applicable. (2) Returns on marketable securities are calculated on the basis of securities available for sale at amortized cost. (3) Average balances include outstanding loans.

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Taxable Equivalent Net Interest Income Analysis – Year to Date(1)

                                                Nine months ended September 30, 2022                          Nine months ended September 30, 2021
                                           Average              Revenue/            Yield/               Average              Revenue/            Yield/
(in thousands except percentages)          Balance              Expense              Rate                Balance              Expense              Rate
Assets
Investment securities(2)               $   3,573,372          $  47,811                1.69  %       $   3,581,845          $  32,412                1.20  %
Interest-bearing cash and cash
equivalents                                5,902,815             37,561                0.85  %          10,814,879              9,500                0.12  %
Loans held for sale                          352,325             11,491                4.36  %             117,604              2,430                2.76  %
Loans held for investment, mortgage
finance                                    5,624,712            146,135                3.47  %           7,875,138            181,256                3.08  %
Loans held for investment(3)              16,386,399            531,054                4.33  %          15,321,641            432,777                3.78  %
Less: Allowance for credit losses on
loans                                        217,728                  -                   -                238,996                  -                   -
Loans held for investment, net            21,793,383            677,189                4.15  %          22,957,783            614,033                3.58  %
Total earning assets                      31,621,895            774,052                3.25  %          37,472,111            658,375                2.35  %
Cash and other assets                        869,867                                                       971,628
Total assets                           $  32,491,762                                                 $  38,443,739
Liabilities and Stockholders' Equity
Transaction deposits                   $   1,846,175          $  13,122                0.95  %       $   3,596,301          $  15,993                0.59  %
Savings deposits                           9,788,290             70,599                0.96  %          11,400,029             28,040                0.33  %
Time deposits                              1,208,213             10,792                1.19  %           1,864,867              6,961                0.50  %
Total interest-bearing deposits           12,842,678             94,513                0.98  %          16,861,197             50,994                0.40  %
Short-term borrowings                      1,978,735             15,628                1.06  %           2,443,853              3,842                0.21  %
Long-term debt                               926,749             34,651                5.00  %             759,584             27,052                4.76  %

Total interest-bearing liabilities        15,748,162            144,792                1.23  %          20,064,634             81,888                0.55  %
Non-interest bearing deposits             13,391,981                                                    14,978,324
Other liabilities                            259,028                                                       286,328
Stockholders' equity                       3,092,591                                                     3,114,453
Total liabilities and stockholders'
equity                                 $  32,491,762                                                 $  38,443,739
Net interest income                                           $ 629,260                                                     $ 576,487
Net interest margin                                                                    2.64  %                                                       2.06  %
Net interest spread                                                                    2.02  %                                                       1.80  %


(4) Equivalent tax rates used where applicable. (5) Returns on marketable securities are calculated on the basis of available-for-sale securities at amortized cost. (6) Average balances include outstanding loans

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Volume/rate analysis

The following table shows the variations in net interest income in taxable equivalent and identifies variations due to differences in the average volume of earning assets and interest-bearing liabilities and variations due to differences in the average interest rate on these assets. and passive.

                                       Three months ended September 30, 2022/2021                      Nine months ended September 30, 2022/2021
                                     Net                     Change due to(1)                        Net                        Change Due To(1)
(in thousands)                      Change            Volume            Yield/Rate(2)              Change                Volume            Yield/Rate(2)
Interest income:
Investment securities            $   4,318          $   (753)         $    

5,071 $15,399 $ (4) $15,403
Cash and interest-bearing cash

                          28,061             (4,368)                 32,429
equivalents                         20,990            (1,852)                 22,842
Loans held for sale                 11,262             2,906                   8,356                   9,061                648                   8,413
Loans held for investment,
mortgage finance loans              (6,157)          (19,940)                 13,783                 (35,121)           (51,706)                 16,585
Loans held for investment           74,648            14,873                  59,775                  98,277             30,046                  68,231

Total                              105,061            (4,766)                109,827                 115,677            (25,384)                141,061
Interest expense:
Transaction deposits                   502            (2,450)                  2,952                  (2,871)            (7,775)                  4,904
Savings deposits                    38,293               170                  38,123                  42,559             (3,974)                 46,533
Time deposits                        6,803                64                   6,739                   3,831             (2,660)                  6,491
Short-term borrowings                9,263              (121)                  9,384                  11,786             (1,027)                 12,813
Long-term debt                       2,077               (68)                  2,145                   7,599              6,255                   1,344
Total                               56,938            (2,405)                 59,343                  62,904             (9,181)                 72,085
Net interest income              $  48,123          $ (2,361)         $       50,484          $       52,773          $ (16,203)         $       68,976

(1) Yield/rate and volume spreads are allocated to yield/rate. (2) Equivalent tax rates used where applicable assuming a tax rate of 21%.

Net interest income

Net interest income was $239.1 million for the three months ended September 30,
2022, compared to $190.5 million for the same period in 2021. The increase was
primarily due to an increase in yields on average earning assets, partially
offset by an increase in funding costs.

Average earning assets for the three months ended September 30, 2022 decreased
$5.0 billion compared to the same period in 2021, which included a $4.6 billion
decrease in average interest-bearing cash and cash equivalents. The decrease in
average interest bearing cash and cash equivalents resulted primarily from our
proactive exit of certain high-cost indexed deposit products beginning in the
second half of 2021. Average interest-bearing liabilities for the three months
ended September 30, 2022 decreased $1.7 billion compared to the same period in
2021, primarily due to a $1.3 billion decrease in average interest-bearing
deposits. Average demand deposits for the three months ended September 30, 2022
decreased $3.1 billion compared to the same period in 2021.

Net interest margin for the three months ended September 30, 2022 was 3.05%,
compared to 2.11% for the same period in 2021. The increase in net interest
margin was primarily due to an increase in yields on average earnings assets and
a shift in earning asset composition, partially offset by an increase in funding
costs. The increases in yields on earnings assets and cost of funds are
attributed to the impact of rising interest rates.

The yield on total loans held for investment increased to 4.91% for the three
months ended September 30, 2022, compared to 3.49% for the same period in 2021,
and the yield on earning assets increased to 4.10% for the three months ended
September 30, 2022, compared to 2.40% for the same period in 2021. Total cost of
deposits increased to 0.93% for the three months ended September 30, 2022 from
0.19% for the same period in 2021, and total funding costs, including all
deposits, long-term debt and stockholders' equity, increased to 1.04% for the
three months ended September 30, 2022, compared to 0.28% for the same period in
2021.

Net interest income was $628.2 million for the nine months ended September 30,
2022, compared to $574.8 million for the same period in 2021. The increase was
primarily due to an increase in yields on earnings assets, partially offset by
rising funding costs.
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Average earning assets decreased $5.9 billion for the nine months ended
September 30, 2022, compared to the same period in 2021, which included a $4.9
billion decrease in average interest-bearing cash and cash equivalents. Average
interest-bearing liabilities decreased $4.3 billion for the nine months ended
September 30, 2022, compared to the same period in 2021, primarily due to a $4.0
billion decrease in average interest-bearing deposits. Average demand deposits
for the nine months ended September 30, 2022 decreased to $13.4 billion from
$15.0 billion for the same period in 2021.

Net interest margin for the nine months ended September 30, 2022 was 2.64%,
compared to 2.06% for the same period of 2021. The increase was primarily due to
the effect of rising interest rates on earning asset yields and a shift in
earning asset composition, partially offset by higher funding costs, also as a
result of rising interest rates, compared to the same period in 2021.

The yield on total loans held for investment increased to 4.15% for the nine
months ended September 30, 2022, compared to 3.58% for the same period in 2021,
and the yield on earning assets increased to 3.25% for the nine months ended
September 30, 2022, compared to 2.35% for the same period in 2021. Total cost of
deposits increased to 0.48% for the nine months ended September 30, 2022 from
0.21% for the same period in 2021 and total funding costs, including all
deposits, long-term debt and stockholders' equity, increased to 0.60% for the
nine months ended September 30, 2022, compared to 0.29% for the same period in
2021.

Non-interest Income

                                              Three months ended
                                                September 30,                Nine months ended September 30,
(in thousands)                                    2022                          2021                   2022                2021
Service charges on deposit accounts         $       5,701                $  

4,622 $17,726 $13,972
Wealth management and trust income

              3,631                           3,382              11,594               9,380
Brokered loan fees                                  3,401                           6,032              11,504              22,276
Servicing income                                      212                             292                 677              15,236
Investment banking and trading income               7,812                           4,127              23,117              17,985
Net gain/(loss) on sale of loans held for
sale                                                    -                          (1,185)                  -               1,317
Other                                               4,576                           7,509               7,239              26,605
Total non-interest income                   $      25,333                $  

24,779 $71,857 $106,771


Non-interest income increased $554,000 during the three months ended
September 30, 2022, compared to the same period in 2021. The increase was
primarily due to increases in service charges on deposit accounts and investment
banking and trading income, as well as the elimination of net losses recorded in
the prior year on the sale of loans held for sale, partially offset by decreases
in brokered loan fees and other non-interest income.

Non-interest income decreased $34.9 million during the nine months ended
September 30, 2022, compared to the same period in 2021. The decrease was
primarily due to decreases in brokered loan fees, servicing fee income and net
gain/(loss) on sale of loans held for sale all as a result of the sale of our
mortgage servicing rights portfolio and transition of the mortgage correspondent
aggregation program in 2021, as well as a decrease in other non-interest income.

Non-interest Expense

                                                   Three months ended      

End of nine months September 30,

                                                     September 30,
(in thousands)                                         2022                          2021                   2022                2021
Salaries and benefits                            $     129,336                $         87,503          $  333,319          $  261,855
Occupancy expense                                        9,433                           8,324              27,192              24,463
Marketing                                                8,282                           2,123              21,765               5,720
Legal and professional                                  16,775                          11,055              38,365              28,479
Communications and technology                           18,470                          28,374              48,819              58,695
FDIC insurance assessment                                3,953                           4,500              11,252              16,339
Servicing-related expenses                                   -                           2,396                   -              27,740
Other                                                   10,798                           8,712              33,730              29,072
Total non-interest expense                       $     197,047                $        152,987          $  514,442          $  452,363


Non-interest expense for the three months ended September 30, 2022 increased
$44.1 million compared to the same period in 2021. The third quarter of 2022
included $13.7 million in salaries and benefits expense and $3.0 million in
legal and professional expense related to the sale of our insurance premium
finance subsidiary. Also contributing to the increase in non-interest expense
were increases in salaries and benefits expense, resulting from an increase in
headcount, and marketing expense, partially offset by a decrease in
communications and technology expense related to the elimination of write-offs
of certain software assets recorded in the prior year.
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Non-interest expense increased by $62.1 million during the nine months ended
September 30, 2022, compared to the same period in 2021. Year-to-date 2022
expenses included $13.7 million in salaries and benefits expense and $3.0
million in legal and professional expense related to the sale of our insurance
premium finance subsidiary. The increase in non-interest expense also included
increases in salaries and benefits expense, driven by an increase in headcount,
and marketing expense, partially offset by a decrease in servicing-related
expenses resulting from the sale of our mortgage servicing rights portfolio in
2021.

Analysis of the financial situation

Loans held for investment purposes

The following table summarizes our loans held for investment by portfolio
segment:


(in thousands)                                                  September 30, 2022           December 31, 2021
Commercial                                                    $         8,813,614          $        9,897,561
Energy                                                                  1,106,097                     721,373
Mortgage finance                                                        4,908,822                   7,475,497

Real estate                                                             5,015,704                   4,777,530

Gross loans held for investment                               $        19,844,237          $       22,871,961
Deferred income (net of direct origination costs)                         (56,456)                    (65,007)
Total loans held for investment                                        19,787,781                  22,806,954
Allowance for credit losses on loans                                     (234,613)                   (211,866)
Total loans held for investment, net                          $        

19,553,168 $22,595,088


Total loans held for investment of $19.8 billion at September 30, 2022 decreased
$3.0 billion from December 31, 2021, primarily as a result of a $3.1 billion
reclassification of our insurance premium finance subsidiary loans from loans
held for investment to loans held for sale as of September 30, 2022. Excluding
the reclassification of loans held for investment to loans held for sale, we
experienced loan growth across all loan categories, except for mortgage finance
loans, as we executed on our long-term strategy. Mortgage finance loans relate
to our mortgage warehouse lending operations in which we purchase mortgage loan
ownership interests that are typically sold within 10 to 20 days and represent
25% of total loans held for investment at September 30, 2022, compared to 33% at
December 31, 2021. Volumes fluctuate based on the level of market demand for the
product and the number of days between purchase and sale of the loans, which can
be affected by changes in overall market interest rates, and tend to peak at the
end of each month. Mortgage finance loan balances have declined as compared to
December 31, 2021 as interest rates have continued to rise during 2022.

We originate a substantial majority of all loans held for investment. We also
participate in syndicated loan relationships, both as a participant and as an
agent. As of September 30, 2022, we had $3.6 billion in syndicated loans, $804.9
million of which we administer as agent. All syndicated loans, whether we act as
agent or participant, are underwritten to the same standards as all other loans
we originate. As of September 30, 2022, none of our syndicated loans were on
non-accrual.

Portfolio Concentrations

Although more than 50% of our total loan exposure is outside of Texas and more
than 50% of our deposits are sourced outside of Texas, our Texas concentration
remains significant. As of September 30, 2022, a majority of our loans held for
investment, excluding mortgage finance loans and other national lines of
business, were to businesses with headquarters or operations in Texas. This
geographic concentration subjects the loan portfolio to the general economic
conditions within this state. The risks created by this concentration have been
considered by management in the determination of the appropriateness of the
allowance for credit losses.
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Non-performing assets

Non-performing assets include unexpired loans and leases and repossessed assets. The table below summarizes our non-performing assets by type and by type of asset securing the credit.

(in thousands)                                                   September 30, 2022         December 31, 2021
Non-accrual loans held for investment(1):
Commercial:

Assets of the borrowers                                         $         23,561           $         18,366
Accounts receivable and inventory                                          3,337                      5,501

Other                                                                      1,070                      2,045
Total commercial                                                          27,968                     25,912

Energy:
Oil and gas properties                                                     6,500                     28,380
Total energy                                                               6,500                     28,380
Real estate:
Assets of the borrowers                                                        -                     13,741
Commercial property                                                        1,268                      2,840

Single family residences                                                     128                      1,629

Total real estate                                                          1,396                     18,210

Total non-accrual loans held for investment                               35,864                     72,502
Non-accrual loans held for sale(2)                                         1,340                          -
Other real estate owned                                                        -                          -
Total non-performing assets                                     $         37,204           $         72,502

Unrecognized loans held for investment purposes versus total loans held for investment purposes

                                                                  0.18   %                   0.32  %
Total non-performing assets to total assets                                 0.12   %                   0.21  %

Allowance for credit losses on loans to unaccrued loans held for investment purposes

                                                                  6.5x                      2.9x

Loans held for investment purposes 90 days past due and still accumulating $30,664

           $          3,467

Loans held for investment 90 days past due versus total loans held for investment

                                                              0.15   %                   0.02  %

Loans held for sale 90 days past due and still outstanding(2)(3) $4,877

           $          3,986


(1)As of September 30, 2022 and December 31, 2021, non-accrual loans include
$2.2 million and $19.4 million, respectively, in loans that met the criteria for
restructured.
(2)Includes $1.3 million in non-accrual loans and $3.1 million in loans past due
90 days and still accruing associated to our insurance premium finance
subsidiary.
(3)Includes loans guaranteed by U.S. government agencies that were repurchased
out of Ginnie Mae securities. Loans are recorded as loans held for sale and
carried at fair value on the balance sheet. Interest on these past due loans
accrues at the debenture rate guaranteed by the U.S. government.

Summary of the credit loss experience

The allowance for credit losses, comprised of an allowance for off-balance sheet loans and credit losses, is charged to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses at each Closing Date.

We recorded a $32.0 million provision for credit losses for the nine months
ended September 30, 2022, compared to a negative provision of $20.0 million for
the same period in 2021. The $32.0 million provision for credit losses resulted
from updated views on the downside risks to the economic forecast, partially
offset by a decline in criticized loans. We recorded $4.9 million in net
charge-offs during the nine months ended September 30, 2022, compared to net
charge-offs of $11.9 million during the nine months ended September 30, 2021.
Criticized loans totaled $484.0 million at September 30, 2022, compared to
$582.9 million and $728.9 million at December 31, 2021 and September 30, 2021,
respectively. The decrease in criticized loans as compared to June 30, 2022 was
primarily due to the resolution of one mortgage finance credit that was
downgraded in the second quarter of 2022 and resolved in the third quarter of
2022 with no losses recorded.
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The table below outlines key metrics related to our credit loss experience:

                                                                   September 30, 2022          September 30, 2021
Allowance for credit losses on loans to total loans held for                    1.19  %                     0.93  %

investment

Allowance for credit losses on loans to average total loans held                1.07  %                     0.96  %
for investment(1)
Total provision for credit losses to average total loans held for               0.19  %                    (0.12) %

investment(1)(2)

Total allowance for credit losses to total loans held for                       1.30  %                     1.01  %

investment


(1)  Ratios are calculated using average balance for the nine months ended
September 30, 2022 and 2021, respectively.
(2) Ratios are annualized utilizing provision for credit losses for the nine
months ended September 30, 2022 and 2021, respectively.

The table below details net charges/(recoveries) as a percentage of average total loans by loan category:

                                                         Nine months ended September
                                                                     30,
                                                               2022                      2021
                                                                                           Net Charge-offs                          Net Charge-offs
                                                                             Net              to Average              Net              to Average
                                                                         Charge-offs           Loans(1)           Charge-offs           Loans(1)
Commercial                                                             $      2,661                     0.03  % $      5,749                     0.08  %
Energy                                                                        1,859                     0.28  %        5,052                     1.01  %
Mortgage finance                                                                  -                        -  %            -                        -  %
Real estate                                                                     350                     0.01  %        1,080                     0.03  %
Total                                                                  $      4,870                     0.03  % $     11,881                     0.07  %


(1)  Interim period ratios are annualized.

Cash and capital resources

Liquidity

In general terms, liquidity is a measurement of our ability to meet our cash
needs. Our objectives in managing our liquidity are to maintain our ability to
meet loan commitments, repurchase investment securities and repay deposits and
other liabilities in accordance with their terms, without an adverse impact on
our current or future earnings. Our liquidity strategy is guided by policies,
formulated and monitored by our senior management and our Asset and Liability
Management Committee ("ALCO"), which take into account the demonstrated
marketability of our assets, the sources and stability of our funding and the
level of unfunded commitments. We regularly evaluate all of our various funding
sources with an emphasis on accessibility, stability, reliability and
cost-effectiveness. Our principal source of funding is customer deposits,
supplemented by short-term borrowings, primarily federal funds purchased and
Federal Home Loan Banks ("FHLB") borrowings, which are generally used to fund
mortgage finance assets and long-term debt. We also rely on the availability of
the mortgage secondary market provided by Ginnie Mae and the
government-sponsored enterprises to support the liquidity of our mortgage
finance assets.

During 2020 and into the first half of 2021, we significantly increased our
interest-bearing cash and cash equivalents to ensure that we had the balance
sheet strength to serve our clients during the COVID-19 pandemic. In the second
half of 2021 and continuing into the first nine months of 2022, these balances
have run off as we have purchased investment securities and proactively exited
certain high-cost indexed deposit products. The following table summarizes these
balances:

(in thousands except percentage data)                   September 30, 2022  

December 31, 2021 September 30, 2021

Interest bearing cash and cash equivalents             $       3,399,638          $       7,765,996          $       8,317,926
Interest bearing cash and cash equivalents as a
percent of:
Total loans held for investment                                     17.2  %                    34.1  %                    35.0  %
Total earning assets                                                11.5  %                    22.9  %                    23.4  %
Total deposits                                                      13.9  %                    27.6  %                    27.9  %


Our liquidity supports growth in loans held for investment and has been
fulfilled primarily through growth in our core customer deposits. Our goal is to
obtain as much of our funding for loans held for investment and other earning
assets as possible from deposits of these core customers. These deposits are
generated principally through development of long-term customer relationships,
with a significant focus on treasury management products. In addition to
deposits from our core customers, we also have access to deposits through
brokered customer relationships.
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We also have access to incremental deposits through brokered retail certificates
of deposit, or CDs. These traditional brokered deposits are generally of short
maturities and are used to fund temporary differences in the growth in loan
balances as compared to customer deposits. The following table summarizes our
period-end and average core customer deposits, relationship brokered deposits
and traditional brokered deposits:

(in thousands)                                     September 30, 2022          December 31, 2021          September 30, 2021
Deposits from core customers                      $       23,209,196          $      25,409,180          $       27,339,071
Deposits from core customers as a percent of
total deposits                                                  94.7  %                    90.4  %                     91.7  %
Relationship brokered deposits                    $           21,799          $       1,855,892          $        1,488,066
Relationship brokered deposits as a percent of
average total deposits                                           0.1  %                     6.6  %                      5.0  %
Traditional brokered deposits                     $        1,267,568          $         844,293          $          986,531
Traditional brokered deposits as a percent of
total deposits                                                   5.2  %                     3.0  %                      3.3  %
Average deposits from core customers(1)           $       24,705,297          $      28,734,460          $       28,930,264
Average deposits from core customers as a percent
of average total deposits                                       94.1  %                    91.1  %                     90.8  %

Average deposits from brokerage relationships(1) $617,273

   $       1,608,587          $        1,516,026
Average relationship brokered deposits as a
percent of average total deposits                                2.4  %                     5.1  %                      4.8  %

Average deposits from traditional brokers(1) $912,089

   $       1,188,544          $        1,393,231
Average traditional brokered deposits as a
percent of average total deposits                                3.5  %                     3.8  %                      4.4  %


(1)  Annual averages presented for December 31, 2021.

We have access to sources of traditional brokered deposits that we estimate to
be $7.5 billion. Based on our internal guidelines, we have currently chosen to
limit our use of these sources to a lesser amount.

We have short-term borrowing sources available to supplement deposits and meet
our funding needs. Such borrowings are generally used to fund our mortgage
finance loans, due to their liquidity, short duration and interest spreads
available. These borrowing sources include federal funds purchased from our
downstream correspondent bank relationships (which consist of banks that are
smaller than our Bank) and from our upstream correspondent bank relationships
(which consist of banks that are larger than our Bank), customer repurchase
agreements and advances from the FHLB and the Federal Reserve. The following
table summarizes the outstanding balance of our short-term borrowings, all of
which mature within one year:

        (in thousands)                    September 30, 2022       December 31, 2021

        Repurchase agreements            $             1,480             2,832
        FHLB borrowings                            1,700,000         2,200,000

Total short-term borrowings $1,701,480 2,202,832

The following table summarizes our short-term borrowing capacity net of outstanding balances.

(in thousands)                                                      

September 30, the 31st of December,

                                                                        2022                  2021
FHLB borrowing capacity relating to loans                          $  3,078,457          $  5,190,703
FHLB borrowing capacity relating to securities                        3,324,946             3,352,111
Total FHLB borrowing capacity(1)                                   $  6,403,403          $  8,542,814
Unused federal funds lines available from commercial banks         $  1,456,000          $    892,000
Unused Federal Reserve borrowings capacity                         $  3,572,804          $  2,414,702
Unused revolving line of credit(2)                                 $     

75,000 $75,000


(1)  FHLB borrowings are collateralized by a blanket floating lien on certain
real estate secured loans, mortgage finance assets and certain pledged
securities.
(2)  Unsecured revolving, non-amortizing line of credit with maturity date of
February 8, 2023. Proceeds may be used for general corporate purposes, including
funding regulatory capital infusions into the Bank. The loan agreement contains
customary financial covenants and restrictions. No borrowings were made against
this line of credit during the nine months ended September 30, 2022.

We also have long-term debt outstanding of $930.8 million as of September 30,
2022, comprised of trust preferred securities, subordinated notes and senior
unsecured credit linked notes with maturity dates ranging from September 2024 to
December 2036. The Company may consider raising additional capital, if needed,
in public or private offerings of debt or equity securities to supplement
deposits and meet our long-term funding needs.

For more information on our borrowings, see Note 5 – Short-term borrowings and long-term debt in the notes to the unaudited consolidated financial statements included elsewhere in this report.

As the Company is a holding company and is a separate operating entity from the
Bank, our primary sources of liquidity are dividends received from the Bank and
borrowings from outside sources. Banking regulations may limit the amount of
dividends that may be paid by the Bank. See Note 7 - Regulatory Ratios and
Capital in the accompanying notes to the consolidated unaudited financial
statements included elsewhere in this report for additional information
regarding dividend restrictions.
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Periodically, based on market conditions and other factors, and subject to
compliance with applicable laws and regulations and the terms of our existing
indebtedness, we or the Bank may repay, repurchase, exchange or redeem
outstanding indebtedness, or otherwise enter into transactions regarding our
debt or capital structure. For example, we and the Bank periodically evaluate
and may engage in liability management transactions, including repurchases or
redemptions of outstanding subordinated notes, which may be funded by the
issuance of, or exchanges of, newly issued unsecured borrowings, as we seek to
actively manage our debt maturity profile and interest cost.

As of September 30, 2022, management is not aware of any events that are
reasonably likely to have a material adverse effect on our liquidity, capital
resources or operations. In addition, management is not aware of any regulatory
recommendations regarding liquidity that would have a material adverse effect on
us.

Capital Resources

Average total equity was $3.1 billion for the nine months ended September 30,
2022. We have not paid any cash dividends on our common stock since we commenced
operations and have no plans to do so in the foreseeable future.

On April 19, 2022, our board of directors authorized a new share repurchase
program under which we may repurchase up to $150.0 million in shares of our
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 we repurchase shares, and
the timing of such repurchases, will be at management's discretion and will
depend upon a variety of factors, including market conditions, our capital
position and amount of retained earnings, regulatory requirements and other
considerations. No time limit was set for the completion of the share repurchase
program, and the program may be suspended or discontinued at any time. During
the nine months ended September 30, 2022, the Company repurchased 941,879 shares
of its common stock for an aggregate purchase price of $50.0 million, at a
weighted average price of $53.11 per share. These repurchases were all made
during the second quarter of 2022.

See Note 7 – Regulatory ratios and capital in the notes to the unaudited consolidated financial statements included elsewhere in this report for additional information regarding capital.

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.

We follow financial accounting and reporting policies that are in accordance
with accounting principles generally accepted in the United States. Certain
significant policies are summarized in Note 1 - Operations and Summary of
Significant Accounting Policies in the notes to the consolidated unaudited
financial statements included elsewhere in this report and in our 2021 Form
10-K. Not all significant accounting policies require management to make
difficult, subjective or complex judgments. However, the policy noted below
could be deemed to be highly dependent on estimates, assumptions and judgments
that meet the SEC's definition of a critical accounting estimate.

Provision 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 ASC 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 our 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. For purposes of determining the
allowance for credit losses, the loan portfolio is segregated by product types
in order to recognize differing risk profiles among categories and then further
segregated by credit grades. Loans that do not share risk characteristics are
evaluated on an individual basis and are not included in the collective
evaluation. 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. Adjustments to historical
loss information are made to incorporate our reasonable and supportable forecast
of future losses at the portfolio segment level as well as any necessary
qualitative adjustments using a Portfolio Level Qualitative Factor ("PLQF")
and/or a Portfolio Segment Level Qualitative Factor ("SLQF"). 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.

Management considers a range of macroeconomic scenarios in connection with the
allowance estimation process. Within the various economic scenarios considered
as of September 30, 2022, the quantitative estimate of the allowance for credit
loss would increase by approximately $73.0 million under sole consideration of
the most severe downside scenario. The quoted
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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.

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
unaudited financial statements included elsewhere in this report for further
discussion of the risk factors considered by management in establishing the
allowance for credit losses.
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