Texas capital

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 months ended March 31, 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 months ended March 31, 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, cyber incidents
or other failures, disruptions or security breaches, interest rates, commercial
and residential real estate values, economic and market conditions in Texas, the
United States or internationally, fund availability, accounting estimates and
risk management processes, the transition away from the London Interbank Offered
Rate (LIBOR), legislative and regulatory changes, business strategy execution,
key personnel, competition, mortgage markets, fraud, environmental liability and
severe weather, natural disasters, acts of war or terrorism 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.

Operating results

Three months completed March 31, 2022 compared to the three months ended March 31, 2021

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

                                                       For the Three Months Ended
(dollars in thousands except per share data)              March 31, 2022                   March 31, 2021
Net interest income                                   $         183,547                  $        194,812
Provision for credit losses                                      (2,000)                           (6,000)
Non-interest income                                              20,282                            44,353
Non-interest expense                                            153,092                           150,316
Income before income taxes                                       52,737                            94,849
Income tax expense                                               13,087                            22,911
Net income                                                       39,650                            71,938
Preferred stock dividends                                         4,313                             3,779
Net income available to common stockholders           $          35,337                  $         68,159
Earnings per common share - basic                     $            0.70                  $           1.35
Earnings per common share - diluted                   $            0.69                  $           1.33
Net interest margin                                                2.23    %                         2.04  %
Return on average assets                                           0.47    %                         0.73  %
Return on average common equity                                    4.97    %                        10.08  %
Non-interest income to average earning assets                      0.25    %                         0.46  %
Efficiency ratio(1)                                                75.1    %                         62.9  %
Non-interest expense to average earning assets                     1.86    %                         1.57  %


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

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We reported net income of $39.7 million and net income available to common
stockholders of $35.3 million for the first quarter of 2022 compared to net
income of $71.9 million and net income available to common stockholders of $68.2
million for the first quarter of 2021. On a fully diluted basis, earnings per
common share were $0.69 for the first quarter of 2022, compared to $1.33 for the
first quarter of 2021. Return on average common equity ("ROE") was 4.97% and
return on average assets ("ROA") was 0.47% for the first quarter of 2022,
compared to 10.08% and 0.73%, respectively, for the first quarter of 2021. The
decrease in net income for the first quarter of 2022 compared to the first
quarter of 2021 resulted primarily from decreases in net interest income and
non-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

                                                                                                         Three months ended March 31,
                                                  Three months ended March 31, 2022                                  2021
                                           Average              Income/             Yield/                                 Average             Income/             Yield/
(in thousands except percentages)          Balance              Expense              Rate                                  Balance             Expense              Rate
Assets
Investment securities(1)               $   3,669,257          $  17,743                1.96  %                         $  3,422,571          $  10,359                1.23  %
Interest bearing cash and cash
equivalents                                8,552,300              3,571                0.17  %                           11,845,547              2,933                0.10  %
Loans held for sale                            7,633                113                6.01  %                              243,326              1,595                2.66  %
Loans held for investment, mortgage
finance                                    5,732,901             43,466                3.07  %                            8,177,759             64,942                3.22  %
Loans held for investment(1)(2)           15,686,319            144,134                3.73  %                           15,457,888            143,935                3.78  %
Less: Allowance for credit losses on
loans                                        212,612                  -                   -                                 254,697                  -                   -
Loans held for investment, net            21,206,608            187,600                3.59  %                           23,380,950            208,877                3.62  %
Total earning assets                      33,435,798            209,027                2.54  %                           38,892,394            223,764                2.33  %
Cash and other assets                        819,486                                                                      1,064,679
Total assets                           $  34,255,284                                                                   $ 39,957,073
Liabilities and Stockholders' Equity
Transaction deposits                   $   2,432,687          $   3,962                0.66  %                         $  3,991,966          $   5,861                0.60  %
Savings deposits                          10,420,545              8,583                0.33  %                           12,889,974             10,788                0.34  %
Time deposits                              1,038,722              1,085                0.42  %                            2,204,242              3,355                0.62  %
Total interest bearing deposits           13,891,954             13,630                0.40  %                           19,086,182             20,004                0.43  %
Short-term borrowings                      1,770,781                758                0.17  %                            2,686,398              2,592                0.39  %
Long-term debt                               929,005             10,595                4.63  %                              464,731              5,743                5.01  %

Total interest bearing liabilities        16,591,740             24,983                0.61  %                           22,237,311             28,339                0.52  %
Non-interest bearing deposits             14,235,749                                                                     14,421,505
Other liabilities                            243,141                                                                        309,644
Stockholders' equity                       3,184,654                                                                      2,988,613
Total liabilities and stockholders'
equity                                 $  34,255,284                                                                   $ 39,957,073
Net interest income(1)                                        $ 184,044                                                                      $ 195,425
Net interest margin                                                                    2.23  %                                                                        2.04  %
Net interest spread                                                                    1.93  %                                                                        1.81  %


(1)Tax equivalence rates used where applicable. (2) Average balances include outstanding loans which are presented net of unearned income.

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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 completed March, 31st2022/2021

                                                                   Net                        Change due to(1)
(in thousands)                                                   Change                Volume            Yield/Rate(2)
Interest income:
Investment securities                                       $        7,384          $     748          $        6,636
Interest bearing cash and cash equivalents                             638               (812)                  1,450
Loans held for sale                                                 (1,482)            (1,546)                     64
Loans held for investment, mortgage finance loans                  (21,476)           (19,412)                 (2,064)
Loans held for investment                                              199              2,129                  (1,930)

Total                                                              (22,759)           (18,829)                 (3,930)
Interest expense:
Transaction deposits                                                (1,899)            (2,307)                    408
Savings deposits                                                    (2,205)            (2,070)                   (135)
Time deposits                                                       (2,270)            (1,782)                   (488)
Short-term borrowings                                               (1,834)              (880)                   (954)
Long-term debt                                                       4,852              5,735                    (883)
Total                                                               (3,356)            (1,304)                 (2,052)
Net interest income                                         $      (19,403)         $ (17,525)         $       (1,878)

(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 $183.5 million for the three months ended March 31, 2022compared to $194.8 million for the same period in 2021. The decrease is mainly due to a decrease in the average number of loans held for investment purposes, mortgage financing, partially offset by an increase in investment securities yields.

Average earning assets for the three months ended March 31, 2022 decreased $5.5
billion compared to the same period in 2021, and included a $3.3 billion
decrease in average interest-bearing cash and cash equivalents and a $2.4
billion decrease in average loans held for investment, mortgage finance. The
decrease in average interest bearing cash and cash equivalents resulted
primarily from our proactive exit of certain high-cost indexed deposit products
in the second half of 2021. The decrease in average loans held for investment,
mortgage finance, was primarily due to reduced volumes as a result of the rising
interest rate environment. Average interest-bearing liabilities for the three
months ended March 31, 2022 decreased $5.6 billion compared to the same period
in 2021, primarily due to a $5.2 billion decrease in average interest-bearing
deposits. Average demand deposits for the three months ended March 31, 2022
decreased $185.8 million compared to the same period in 2021.

Net interest margin for the three months ended March 31, 2022 was 2.23% compared
to 2.04% for the same period in 2021, primarily due to a shift in the
composition of earning assets, primarily declines in interest-bearing cash and
cash equivalents and LHI, mortgage finance.

The yield on total loans held for investment decreased to 3.59% for the three
months ended March 31, 2022 compared to 3.62% for the same period in 2021, and
the yield on earning assets increased to 2.54% for the three months ended
March 31, 2022 compared to 2.33% for the same period in 2021. The average cost
of total deposits decreased to 0.20% for the three months ended March 31, 2022
from 0.24% for the same period in 2021, and total funding costs, including all
deposits, long-term debt and stockholders' equity, increased to 0.30% for the
three months ended March 31, 2022 compared to 0.29% for the same period in 2021.
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Non-interest Income

                                                                      Three months ended
                                                                           March 31,
(in thousands)                                                            2022                         2021
Service charges on deposit accounts                                 $        6,022                $     4,716
Wealth management and trust fee income                                       3,912                      2,855
Brokered loan fees                                                           3,970                      9,311
Servicing income                                                               237                      9,009
Investment banking and trading income                                        4,179                      5,787
Net gain/(loss) on sale of loans held for sale                                   -                      5,572
Other                                                                        1,962                      7,103
Total non-interest income                                           $       20,282                $    44,353


Non-interest income decreased $24.1 million during the three months ended
March 31, 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.

Non-interest Expense

                                    Three months ended March 31,
(in thousands)                               2022                           2021
Salaries and benefits           $                     100,098            $  87,522
Occupancy expense                                       8,885                8,274
Marketing                                               4,977                1,697
Legal and professional                                 10,302                8,277
Communications and technology                          14,700               15,969
FDIC insurance assessment                               3,981                6,613
Servicing-related expenses                                  -               12,989
Other                                                  10,149                8,975
Total non-interest expense      $                     153,092            $ 150,316


Non-interest expense for the three months ended March 31, 2022 increased $2.8
million compared to the same period in 2021. The increase was primarily due to
increases in salaries and benefits, partially offset by a decrease in
servicing-related expenses. The increase in salaries and benefits expense was
primarily due to an increase in headcount, while the decrease in service-related
expenses resulted primarily 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)                                                  March 31, 2022           December 31, 2021
Commercial                                                    $    10,175,668          $        9,897,561
Energy                                                                797,191                     721,373
Mortgage finance                                                    5,827,965                   7,475,497

Real estate                                                         4,943,195                   4,777,530

Gross loans held for investment                               $    21,744,019          $       22,871,961
Deferred income (net of direct origination costs)                     (66,620)                    (65,007)
Total loans held for investment                                    21,677,399                  22,806,954
Allowance for credit losses on loans                                 (211,151)                   (211,866)
Total loans held for investment, net                          $    

21,466,248 $22,595,088


Total loans held for investment were $21.7 billion at March 31, 2022, a decline
of $1.1 billion from December 31, 2021. The decline in total loans held for
investment was primarily due to a decline in mortgage finance loans, partially
offset by increases in commercial and real estate loans. 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 27% of total loans held for investment at March 31, 2022 compared
to 33% at December 31, 2021. Volumes fluctuate based on the level of market
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demand for the product and the number of days between purchase and sale of the
loans, which can be affected by changes in overall market interest rates, and
tend to peak at the end of each month. The balances of mortgage finance loans
have continued to decline in the first quarter of 2022 as interest rates have
continued to rise.

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 March 31, 2022, we had $2.7 billion in syndicated loans, $649.5
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 March 31, 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 March 31, 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.

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)                                                   March 31, 2022         December 31, 2021
Non-accrual loans held for investment(1):
Commercial:

Assets of the borrowers                                         $      17,927          $         18,366
Accounts receivable and inventory                                       5,450                     5,501

Other                                                                   2,093                     2,045
Total commercial                                                       25,470                    25,912

Energy:
Oil and gas properties                                                 18,267                    28,380
Total energy                                                           18,267                    28,380
Real estate:
Assets of the borrowers                                                12,666                    13,741
Commercial property                                                     2,738                     2,840

Single family residences                                                 
186                     1,629

Total real estate                                                      15,590                    18,210

Total non-accrual loans held for investment                            59,327                    72,502
Non-accrual loans held for sale                                             -                         -
Other real estate owned                                                     -                         -
Total non-performing assets                                     $      

$59,327 72,502

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

                                                               0.27  %                   0.32  %

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

                                                              3.6x                      2.9x

Loans held for investment purposes 90 days past due and still outstanding(2)

                                                     $       

6,031 $3,467 Loans held for investment 90 days past due to total loans held for investment

                                                           0.03  %                   0.02  %

Loans held for sale 90 days past due and still outstanding(3) $3,865 $3,986


(1)As of March 31, 2022 and December 31, 2021, non-accrual loans included $18.0
million and 19.4 million, respectively, in loans that met the criteria for
restructured.
(2)At March 31, 2022 and December 31, 2021, loans past due 90 days and still
accruing includes premium finance loans of $3.2 million and $3.3 million,
respectively.
(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, which consists of an allowance for off-balance sheet loans and credit losses, is charged to income in order to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses at each Closing Date.

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We recorded a $2.0 million negative provision for credit losses for the three
months ended March 31, 2022, compared to a negative provision of $6.0 million
for the three months ended March 31, 2021. The $2.0 million negative provision
for credit losses resulted from a decline in criticized loans, partially offset
by an increase in loans held for investment, excluding mortgage finance. We
recorded $512,000 in net recoveries during the three months ended March 31,
2022, compared to net charge-offs of $6.4 million during the three months ended
March 31, 2021. Criticized loans totaled $476.1 million at March 31, 2022,
compared to $945.1 million at March 31, 2021.

The table below outlines key metrics related to our credit loss experience:

                                                                  March 31, 2022            March 31, 2021
Allowance for credit losses on loans to total loans held for                0.97  %                   0.99  %

investment

Allowance for credit losses on loans to total average loans                 0.99  %                   1.03  %
held for investment
Total provision for credit losses to average total loans held              (0.04) %                  (0.10) %
for investment(1)
Total allowance for credit losses to total loans held for                   1.05  %                   1.06  %

investment

(1) Interim period ratios are annualized.

The table below details net charge-offs (recoveries) as a percentage of average
total loans by loan category:

                                                                           Three months ended March 31,
                                                            2022                                                 2021
                                                                 Net Charge-offs                                        Net Charge-offs
                                        Net Charge-offs        to Average Loans(1)           Net Charge-offs          to Average Loans(1)
Commercial                              $       (107)                           -  %       $          1,401                         0.06  %
Energy                                          (755)                       (0.40) %                  5,017                         2.94  %
Mortgage finance                                   -                            -  %                      -                            -  %
Real estate                                      350                         0.03  %                      -                            -  %
Total                                   $       (512)                       (0.01) %       $          6,418                         0.11  %

(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
FHLB borrowings, which are generally used to fund mortgage finance assets, as
well as 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 three 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)                     March 31, 2022    

December 31, 2021 March 31, 2021

Interest-bearing cash and cash equivalents               $    5,136,680          $       7,765,996          $  11,212,276
Interest-bearing cash and cash equivalents as a
percent of:
Total loans held for investment                                    23.7  %                    34.1  %                45.9  %
Total earning assets                                               17.0  %                    22.9  %                28.8  %
Total deposits                                                     20.2  %                    27.6  %                33.6  %


Our liquidity needs to support growth in loans held for investment have 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)                                     March 31, 2022         December 31, 2021          March 31, 2021
Deposits from core customers                      $  24,020,695          $      25,409,180          $  30,102,156
Deposits from core customers as a percent of
total deposits                                             94.7  %                    90.4  %                90.1  %
Relationship brokered deposits                    $     812,108          $       1,855,892          $   1,933,376
Relationship brokered deposits as a percent of
average total deposits                                      3.2  %                     6.6  %                 5.8  %
Traditional brokered deposits                     $     545,135          $         844,293          $   1,356,438
Traditional brokered deposits as a percent of
total deposits                                              2.1  %                     3.0  %                 4.1  %
Average deposits from core customers(1)           $  25,906,368          $      28,734,460          $  29,980,945
Average deposits from core customers as a percent
of average total deposits                                  92.1  %                    91.1  %                89.5  %

Average relationship brokerage deposits(1) $1,517,430 $

      1,608,587          $   1,912,099
Average relationship brokered deposits as a
percent of average total deposits                           5.4  %                     5.1  %                 5.7  %

Average of traditional intermediated deposits(1) $703,905 $

      1,188,544          $   1,614,643
Average traditional brokered deposits as a
percent of average total deposits                           2.5  %                     3.8  %                 4.8  %


(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)                    March 31, 2022       December 31, 2021
          Repurchase agreements            $         2,033            

2,832

          FHLB borrowings                        1,425,000         

2,200,000

Total short-term borrowings $1,427,033 2,202,832

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

(in thousands)                                                                               December 31,
                                                                     March 31, 2022              2021
FHLB borrowing capacity relating to loans                          $     4,200,346          $  5,190,703
FHLB borrowing capacity relating to securities                           3,378,391             3,352,111
Total FHLB borrowing capacity(1)                                   $     7,578,737          $  8,542,814
Unused federal funds lines available from commercial banks         $     1,096,000          $    892,000
Unused Federal Reserve borrowings capacity                         $     2,806,914          $  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 three months ended March 31, 2022.

We also have long-term debt outstanding of $929.4 million as of March 31, 2022,
comprised of trust preferred securities, subordinated notes and senior unsecured
credit linked notes with maturity dates ranging from September 2024 to December
2036. The 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 – Borrowings 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 our
subsidiary 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
Restrictions 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 March 31, 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

Our equity capital averaged $3.2 billion for the three months ended March 31,
2022 compared to $3.0 billion for the same period in 2021. 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.

See Note 7 – Regulatory Restrictions in the Notes to the Unaudited Consolidated Financial Statements included elsewhere in this report for additional information regarding dividend restrictions.

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. 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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