We serveThe Company serves the needs of commercial businesses, entrepreneurs and successful professionals and entrepreneurs located in Texas as well as operate several linesthrough a custom array of financial products and services with high-quality personal service.

The Texaswhich is a highly competitive market for banking services is highly competitive. Texas’services. TCBI competes with national, regional, and local bank holding companies and commercial banks. The largest banking organizations operating in Texas are headquartered outside of Texasthe state and are controlled by out-of-state organizations. WeTCBI also competecompetes with other providers of financial services, such as savingsnon-bank lenders, commercial finance and loan associations, credit unions,leasing companies, consumer finance companies, financial technology companies, securities firms, insurance companies, commercial finance and leasing companies, full servicefull-service brokerage firms and discount brokerage firms. We believefirms, credit unions and savings and loan associations. As a tenant of TCBI’s strategic plan, the Company believes that many middle market companiescommercial businesses, entrepreneurs and successful professionals and entrepreneurs are interested in banking with a company both headquartered in, and with decision-making authority based in Texas and with established Texas bankers who have the expertise to act as trusted advisors to customers with regard to their banking needs.Texas.

We, through our Bank, engage in traditional banking activities that are deemed financial in nature. In order for usthe Company to undertake certain new activities permitted by the BHCA, we and our Bankthe Company must be considered "well capitalized"“well capitalized” (as defined below) and well managed, ourthe Bank must have received a rating of at least satisfactory“satisfactory” in its most recent examination under the Community Reinvestment Act, and we must notify the Federal Reserve within thirty30 days of engaging in the new activity. We do not currently expect to engage in any non-banking activities at the holding company level.

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

Additionally, the Basel III Capital Rules specify a capital conservation buffer with respect to each of the CET1, Tier 1 and total capital to risk-weighted assets ratios, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. The capital conservation buffer is subject to a three year phase-in period that began on January 1, 2016 and will be fully phased-in on January 1, 2019 at 2.5%. The required phase-in capital conservation buffer during 2017 was 1.25%. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. The leverage ratio requirement under the Basel III Capital Rules, calculated as the ratio of Tier 1 capital to total assets, is 4.0%. The Company and the Bank must maintain CET1, Tier 1 and total capital ratios that are equal to or greater than 7.0%, 8.5% and 10.5%, respectively, and a leverage ratio equal to or greater than 5.0%.

to specific deadlines for the submission to and review by the regulator of reports confirming progress in implementing the safety and soundness compliance plan. Failure to implement such a plan may result in an enforcement action against the bank.

The Dodd-Frank Act significantly reduces the ability of national banks to rely upon federal preemption of state consumer financial laws and permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Although the OCC, as the primary regulator of national banks, has the ability to make preemption determinations where certain conditions are met, the broad rollback of federal preemption has the potential to create a patchwork of federal and state compliance obligations and enforcement. This may result in significant state regulatory requirements applicable to us and certain of our lending activities, with potentially significant changes in our operations and increases in our compliance costs.

demands for cash payments. While we are notneither the Company nor the Bank is subject to Basel III liquidity regulations, the adequacy of ourits liquidity is a matter of regulatory interest given the significant portion of ourthe balance sheet represented by loans as opposed to securities and other more marketable investments. Our Bank’sThe Company’s principal source of funding consists of customer deposits. Wedeposits, supplemented by its short-term and long-term borrowings, including federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings. The Company also relyrelies on the availability of the mortgage secondary market provided by Ginnie Mae and the GSEsgovernment sponsored entities (“GSEs”) to support the liquidity of ourits residential mortgage assets. A substantial majority of our Bank’sthe Company’s liabilities consist of demand, savings, interest checking and money market deposits,

Our BankThe Company sources a significant volume of its demandnon-interest bearing deposits from financial services companies, mortgage finance customers and other commercial sources, resulting in a larger percentage of large deposits and a smaller number of sources of deposits than would be typical of other banks in ourcompeting markets, creating concentrations of deposits that carry a greater risk of unexpected material withdrawals. In recent periods, over half of our total deposits have been attributable to customers whose balances exceed the $250,000 FDIC insurance limit. Many of these customers actively monitor ourthe Company’s financial condition and results of operations and could withdraw their deposits quickly upon the occurrence of a material adverse development affecting our Bankthe Company or theirits businesses. Significant deterioration in ourthe Company’s credit quality or a downgrade in ourits credit or other ratings could affect funding sources such as financial institutions and broker dealers, as well as our borrowing capacity at the Federal Home Loan Bank.dealers. In response to this risk, we have substantiallythe Company has increased ourits liquidity over the past three years,and developed techniques for monitoring and planning for changes in liquidity and capital, but there is no assurance that wethe Company will maintain or have access to sufficient liquidityfunding and capital to fully mitigate thisits liquidity risk.

Our communicationscondition could make raising additional capital difficult or more expensive or limit access to customary sources of funding, including inter-bank borrowings, repurchase agreements and information systemsborrowings from a Federal Reserve Bank (“FRB”) or the FHLB. Unexpected changes in requirements for capital resulting from regulatory actions could require the Company to raise capital at a time, and those of our vendorsat a price, that might be unfavorable, or could require that the Company forego continuing growth or reduce its then current loan portfolio. The Company cannot offer assurance that capital and customers remain vulnerable to unexpected disruptions, failures and cyber-attacks. The frequency and intensity of such attacks is escalating. Failures or interruptions of these systems could impair our ability to serve our customers and to operate our business and could damage our reputation, result in a loss of business, subject us to additional regulatory scrutiny or enforcement or expose us to civil litigation and possible financial liability. While we have developed extensive recovery plans, we cannot assure that those plansfunding will be effectiveavailable to prevent adverse effects upon us and our customers resulting from system failures.

We collect and store sensitive data, including personally identifiable information of our customers and employees andit in the ordinary coursefuture, in needed amounts, upon acceptable terms or at all. The Company’s efforts to raise capital could require the issuance of business must allow certain of our vendors access tosecurities at times and with maturities, conditions and rates that data. Computer break-ins of our systems or our vendors' or customers’ systems, thefts of dataare disadvantageous, and other breaches and criminal activity may result in significant costs to respond, liability for customer losses if we or our vendors are at fault, damage to our customer relationships, regulatory scrutiny and enforcement and loss of future business opportunities due to reputational damage. Breaches can be perpetrated by unknown third parties, but could also be facilitated by employees either inadvertently or by consciously attempting to create disruption or certain acts of fraud. Although we, with the help of third-party service providers, will continue to implement information security technology solutions and establish operational procedures to protect sensitive data, there can be no assurance that these measures will be effective. We advise and provide training to our customers and evaluate and impose security requirements on our vendors regarding protection of their respective information systems, but there is no assurance that these actions will have the intended positive effects or will be effective to prevent losses. In some cases we may elect to contribute to the cost of responding to cybercrime against our customers, even when we are not at fault, in order to maintain valuable customer relationships. Successful cyber-attacks on our Bank, vendors or customers may affect the reputation of our Bank, and failure to meet customer expectations could have a material impact on our ability to attract and retain deposits as a primary source of funding.

The Dodd-Frank Act has not yet been fully implemented and there are many additional regulations called forbe adversely affected by the Act that have not been proposed, or if proposed, have not been adopted. The full impact of the Dodd-Frank Act on our business strategies is not completely known at this time as there is uncertainty related to regulations still pending. The 2016 national election results and more recent statements and actions by the administration and members of Congress have contributed to continuing uncertainty regarding future implementation and enforcement of the Dodd-Frank Acttransition away from LIBOR for its variable rate loans, derivative contracts and other financial sector regulatory requirements. While these developments have contributedassets and liabilities. The business relies upon a large volume of loans, derivative contracts and other financial instruments which are directly or indirectly dependent on LIBOR to increased market valuationsestablish their interest rate and/or value. The administrator of a broad range of financial services companies, including the Company, there is no assurance that anyLIBOR extended publication of the anticipatedmost commonly used U.S. dollar LIBOR settings to June 30, 2023 and ceased publishing other LIBOR settings on December 31, 2021. On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act, 2022, which provides for a statutory transition to a replacement rate selected by the Federal Reserve based on the SOFR for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.On December 16, 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. The Company has significant but declining exposure to financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value, some of which mature after June 30, 2023.

We receive inquiries from our regulators from time to time regarding, amongreference other things, lending practices, reserve methodology, compliance with changing regulations and interpretations, our managementmethods of interest rate liquidity, capitaldeterminations and operational risk, enterprise risk management, regulatoryinternal and financial accounting practicesexternal stakeholders are apprised of the transition. Based on the transition progress to date, the Company ceased originating LIBOR-based products and policies and related matters, which can divert management’s time and attention from focusing on our business. We have significantly increasedbegan originating alternative indexed products in December 2021. Over the amount of management time and expense devoted to developingnext 6 months, the infrastructure to support our expanding compliance obligations, which can pose significant regulatory enforcement, financial and reputational risks if not appropriately addressed.

WeCompany will continue to respondtransition all remaining LIBOR-based products to stress testing requirements contained in the Dodd-Frank Act (“DFAST”)an alternative benchmark. The Company will also continue to evaluate the adequacytransition process and align its trajectory with regulatory guidelines regarding the cessation of our capitalLIBOR including monitoring new developments for transitioning to alternative reference rates, if necessary and liquidity planning. Uncertainties regarding how the financial models of our business created pursuantas needed. Any successor or replacement interest rates to this requirement will respond to the regulatory scenarios issued annually, and how our regulators will evaluate our report of the results obtained, subject us to increased regulatory risk in future years as the standards for DFAST and regulatory use of our reported data continue to evolve. Any change to our practices or policies requested or required by our regulators, or any changes in interpretation of regulatory policy applicable to our businesses,LIBOR may have a material adverse effect on our business, results of operations or financial condition. We have increased our capital and liquidity and expanded our regulatory compliance staffing and systems in recent years in order to address regulatory expectations for high-growth institutions,perform differently, which reduced ourmay affect net interest marginincome, change market risk profile and earnings in those periods.  There is no assurance that our financial performance in future years will not be similarly burdened.require changes to risk, pricing and hedging strategies. Any failure to adequately manage this transition could adversely impact the Company’s or the Bank’s reputation or lead to regulatory action.

We have entered into loan purchase commitments and forward sales commitments in connection with the MCA business. While we believe that our hedging strategies will be successful in mitigating our exposure to interest rate risk associated with the purchase of mortgage loans held for sale, no hedging strategy can completely protect us. Poorly designed strategies, improperly executed transactions, or inaccurate assumptions regarding future interest rates or market conditions could have a material adverse effect on ourthe business, future prospects, financial condition, and results of operations.operations or profitability.

We may incur other costs and losses as a result of actual or alleged violations of regulations related to the origination and purchase of residential mortgage loans. The origination of residential mortgage loans is governed by a variety of federal and state laws and regulations, which are frequently changing. We sell residential mortgage loans that we have purchased or that we have originated to various parties, including Ginnie Mae and GSEs such as Fannie Mae or Freddie Mac and other financial institutions that purchase mortgage loans for investment or private label securitization. We may also pool FHA-insured and VA-guaranteed mortgage loans which back securities issued by Ginnie Mae. Our accrued mortgage repurchase liability represents management’s best estimate of the probable loss that we may expect to incur for the representations and warranties in the contractual provisions of our sales of mortgage loans,their respective information systems, but there is no assurance that ourthese actions will have the intended positive effects or will be effective to prevent losses or attacks. Successful cyber-attacks on the Company, vendors or customers may affect the Company’s reputation, and failure to meet customer expectations could have a material impact on the Company’s ability to attract and retain deposits as a primary source of funding.

market measures on ourits financial condition and results of operations, all depend upon management’s judgment. Management’s judgment and the data relied upon by management may be based on assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances. As a bank with total assets exceeding $10 billion we have become subject toAdditionally, CECL requires the stress testing requirementsapplication of greater management judgment that is supported by new models and more data elements, including macroeconomic forecasts, than the previous allowance standard. The company’s adoption of the Dodd-Frank ActCECL model has increased the complexity, and our forecastingassociated risk, of the analysis and modeling requirements have increased and become more complex. Even ifprocesses relying on management judgment, which could negatively impact the relevant factual assumptions determined by management are accurate, our decisions may prove to be inadequate or inaccurate because of other flaws in the design or use of analytical tools by management. Any such failures in our processes for producing accounting estimates and managing risks could have a material adverse effect on our business, financial condition, and results of operations.operations or profitability of the Company.

(and (and the related trust preferred securities) at any time or from time to time for a period not to exceed 20 consecutive quarters in a deferral period, during which time no dividends may be paid to holders of our preferred stock or common stock. Because ourthe Bank’s subordinated notes are obligations of the Bank, they would, in liquidation of ourthe Bank or sale of its assets, receive payment before any amounts would be payable to holders of ourthe Company’s common stock, preferred stock or subordinated notes.