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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2021
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from              to             
Commission file number 001-34657
TEXAS CAPITAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware   75-2679109
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
2000 McKinney Avenue
Suite 700
Dallas TX USA 75201
(Address of principal executive offices) (Zip Code)
(214) 932-6600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share TCBI Nasdaq Stock Market
6.5% Non-Cumulative Perpetual Preferred Stock Series A, par value $0.01 per share TCBIP Nasdaq Stock Market
5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per share TCBIO Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý        No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý        ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer
Non-Accelerated Filer Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes          No  ý
APPLICABLE ONLY TO CORPORATE ISSUERS:
On April 21, 2021, the number of shares set forth below was outstanding with respect to each of the issuer's classes of common stock:
Common Stock, par value $0.01 per share 50,581,310


Table of Contents
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended March 31, 2021

Index
 





Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data) March 31, 2021 December 31, 2020
(Unaudited)
Assets
Cash and due from banks $ 215,835  $ 173,573 
Interest-bearing deposits in other banks 11,212,276  9,032,807 
Investment securities 3,443,058  3,196,970 
Loans held for sale ($176.3 million and $239.1 million at March 31, 2021 and December 31, 2020, respectively, at fair value)
176,286  283,165 
Loans held for investment, mortgage finance 9,009,081  9,079,409 
Loans held for investment (net of unearned income) 15,399,174  15,351,451 
Less: Allowance for credit losses on loans 242,484  254,615 
Loans held for investment, net 24,165,771  24,176,245 
Mortgage servicing rights, net 121,096  105,424 
Premises and equipment, net 23,346  24,546 
Accrued interest receivable and other assets 679,199  715,699 
Goodwill and intangible assets, net 17,566  17,667 
Total assets $ 40,054,433  $ 37,726,096 
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing $ 15,174,642  $ 12,740,947 
Interest-bearing 18,217,328  18,255,642 
Total deposits 33,391,970  30,996,589 
Accrued interest payable 5,629  11,150 
Other liabilities 316,797  339,486 
Federal funds purchased and repurchase agreements 115,587  111,751 
Other borrowings 2,400,000  3,000,000 
Long-term debt 664,968  395,896 
Total liabilities 36,894,951  34,854,872 
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares—10,000,000
Issued shares—6,300,000 shares issued at March 31, 2021 and 6,000,000 at December 31, 2020
450,000  150,000 
Common stock, $0.01 par value:
Authorized shares—100,000,000
Issued shares— 50,558,184 and 50,470,867 at March 31, 2021 and December 31, 2020, respectively
505  504 
Additional paid-in capital 984,207  991,898 
Retained earnings 1,781,215  1,713,056 
Treasury stock (shares at cost: 417 at March 31, 2021 and December 31, 2020)
(8) (8)
Accumulated other comprehensive income/(loss), net of taxes (56,437) 15,774 
Total stockholders’ equity 3,159,482  2,871,224 
Total liabilities and stockholders’ equity $ 40,054,433  $ 37,726,096 
See accompanying notes to consolidated financial statements.
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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME/(LOSS) - UNAUDITED
  Three months ended March 31,
(in thousands except per share data) 2021 2020
Interest income
Interest and fees on loans $ 215,592  $ 283,625 
Investment securities 9,887  2,183 
Federal funds sold and securities purchased under resale agreements 614 
Interest-bearing deposits in other banks 2,932  19,586 
Total interest income 228,412  306,008 
Interest expense
Deposits 20,004  62,174 
Federal funds purchased 75  669 
Other borrowings 2,517  9,582 
Long-term debt 5,743  5,264 
Total interest expense 28,339  77,689 
Net interest income 200,073  228,319 
Provision for credit losses (6,000) 96,000 
Net interest income after provision for credit losses 206,073  132,319 
Non-interest income
Service charges on deposit accounts 4,716  3,293 
Wealth management and trust fee income 2,855  2,467 
Brokered loan fees 9,311  8,015 
Servicing income 9,009  4,746 
Swap fees 526  2,757 
Net gain/(loss) on sale of loans held for sale 5,572  (13,000)
Other 7,103  3,502 
Total non-interest income 39,092  11,780 
Non-interest expense
Salaries and employee benefits 87,522  77,193 
Net occupancy expense 8,274  8,712 
Marketing 1,697  8,522 
Legal and professional 8,277  17,466 
Communications and technology 15,969  13,791 
FDIC insurance assessment 6,613  5,849 
Servicing-related expenses 12,989  16,354 
Merger-related expenses —  7,270 
Other 8,975  10,260 
Total non-interest expense 150,316  165,417 
Income/(loss) before income taxes 94,849  (21,318)
Income tax expense/(benefit) 22,911  (4,631)
Net income/(loss) 71,938  (16,687)
Preferred stock dividends 3,779  2,438 
Net income/(loss) available to common stockholders $ 68,159  $ (19,125)
Other comprehensive loss
Change in unrealized gain/(loss) on available-for-sale debt securities arising during period, before tax $ (91,407) $ (5,292)
Income tax expense/(benefit) (19,196) (1,111)
Other comprehensive loss, net of tax (72,211) (4,181)
Comprehensive loss $ (273) $ (20,868)
Basic earnings/(loss) per common share $ 1.35  $ (0.38)
Diluted earnings/(loss) per common share $ 1.33  $ (0.38)
See accompanying notes to consolidated financial statements.
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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

Preferred Stock Common Stock Additional   Treasury Stock Accumulated
Other
 
  Paid-in Retained Comprehensive  
(in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total
Balance at December 31, 2019 (audited) 6,000,000  $ 150,000  50,338,158  $ 503  $ 978,205  $ 1,663,671  (417) $ (8) $ 8,950  $ 2,801,321 
Impact of adoption of new accounting standards, net of taxes (1) (7,154) —  (7,154)
Comprehensive loss:
Net loss —  —  —  —  —  (16,687) —  —  —  (16,687)
Change in unrealized gain/(loss) on available-for-sale securities, net of taxes —  —  —  —  —  —  —  —  (4,181) (4,181)
Total comprehensive loss (20,868)
Stock-based compensation expense recognized in earnings
—  —  —  —  3,227  —  —  —  —  3,227 
Preferred stock dividend —  —  —  —  —  (2,438) —  —  —  (2,438)
Issuance of stock related to stock-based awards
—  —  70,037  (1,493) —  —  —  —  (1,492)
Balance at March 31, 2020 6,000,000  $ 150,000  50,408,195  $ 504  $ 979,939  $ 1,637,392  (417) $ (8) $ 4,769  $ 2,772,596 
Balance at December 31, 2020 (audited) 6,000,000  $ 150,000  50,470,867  $ 504  $ 991,898  $ 1,713,056  (417) $ (8) $ 15,774  $ 2,871,224 
Comprehensive loss:
Net income —  —  —  —  —  71,938  —  —  —  71,938 
Change in unrealized gain/(loss) on available-for-sale securities, net of taxes —  —  —  —  —  —  —  —  (72,211) (72,211)
Total comprehensive loss (273)
Stock-based compensation expense recognized in earnings
—  —  —  —  5,461  —  —  —  —  5,461 
Issuance of preferred stock 300,000  300,000  —  —  (10,277) —  —  —  —  289,723 
Preferred stock dividend —  —  —  —  —  (3,779) —  —  —  (3,779)
Issuance of stock related to stock-based awards
—  —  87,317  (2,875) —  —  —  —  (2,874)
Balance at March 31, 2021 6,300,000  $ 450,000  50,558,184  $ 505  $ 984,207  $ 1,781,215  (417) $ (8) $ (56,437) $ 3,159,482 
(1)    Represents the impact of adopting Accounting Standard Update ("ASU") 2016-13. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information.

See accompanying notes to consolidated financial statements.
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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
  Three months ended March 31,
(in thousands) 2021 2020
Operating activities
Net income $ 71,938  $ (16,687)
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses (6,000) 96,000 
Depreciation and amortization 26,067  13,122 
Net (gain)/loss on sale of loans held for sale (5,572) 13,000 
Increase/(decrease) in valuation allowance on mortgage servicing rights (16,448) 10,015 
Stock-based compensation expense 6,368  3,369 
Purchases and originations of loans held for sale (1,133,239) (2,356,710)
Proceeds from sales and repayments of loans held for sale 1,233,725  4,126,102 
Changes in operating assets and liabilities:
Accrued interest receivable and other assets 48,927  (141,940)
Accrued interest payable and other liabilities (27,335) 39,473 
Net cash provided by operating activities 198,431  1,785,744 
Investing activities
Purchases of investment securities (461,381) (1,951)
Principal payments received on investment securities 118,316  4,788 
Originations of mortgage finance loans (48,097,222) (37,932,501)
Proceeds from pay-offs of mortgage finance loans 48,167,550  38,513,547 
Net increase in loans held for investment, excluding mortgage finance loans (54,141) (438,869)
Purchase of premises and equipment, net (924) (1,007)
Net cash provided by/(used in) investing activities (327,802) 144,007 
Financing activities
Net increase in deposits 2,395,381  655,670 
Costs from issuance of stock related to stock-based awards and warrants (2,874) (1,492)
Net proceeds from issuance of preferred stock 289,723  — 
Preferred dividends paid (3,779) (2,438)
Net increase/(decrease) in other borrowings (600,000) 2,500,000 
Net increase in federal funds purchased and repurchase agreements 3,836  153,501 
Net proceeds from issuance of long-term debt 268,815  — 
Net cash provided by financing activities 2,351,102  3,305,241 
Net increase in cash and cash equivalents 2,221,731  5,234,992 
Cash and cash equivalents at beginning of period 9,206,380  4,425,583 
Cash and cash equivalents at end of period $ 11,428,111  $ 9,660,575 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 33,860  $ 73,480 
Cash paid during the period for income taxes 440  519 
See accompanying notes to consolidated financial statements.
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(1) Operations and Summary of Significant Accounting Policies
Organization and Nature of Business
Texas Capital Bancshares, Inc. (the "Company” or "TCBI"), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998. The consolidated financial statements of the Company include the accounts of Texas Capital Bancshares, Inc. and its wholly owned subsidiary, Texas Capital Bank, National Association (the "Bank”). We serve the needs of commercial businesses and successful professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional or national clientele of commercial borrowers. We are primarily a secured lender, with the majority of our loans held for investment, excluding mortgage finance loans and other national lines of business, being made to businesses headquartered or with operations in Texas. Our national lines of business provide specialized lending products to businesses throughout the United States.
Basis of Presentation
Our accounting and reporting policies conform to accounting principles generally accepted in the United States ("GAAP") and to generally accepted practices within the banking industry. Certain prior period balances have been reclassified to conform to the current period presentation.
The consolidated interim financial statements are unaudited and certain information and footnote disclosures presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Subsequent Event
On April 20, 2021, we entered into an agreement to sell our portfolio of mortgage servicing rights to a third party. The third party has also, in a separate letter of intent, agreed to extend employment opportunities to many of the Company’s Mortgage Correspondent Aggregation (“MCA”) employees and the Company has agreed to make best efforts to cooperate in transitioning its MCA client base to the third party, resulting in the wind-down of the Company’s MCA program. The sale and transition of employees and clients is expected to be completed in the second quarter of 2021, subject to customary closing conditions, and will result in the Company recording an expected gain on sale of mortgage servicing rights ("MSRs") and severance costs in the second quarter of 2021, both of which are not expected to be material.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change.
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(2) Earnings Per Share
The following table presents the computation of basic and diluted earnings per share:
  Three months ended March 31,
(in thousands except share and per share data) 2021 2020
Numerator:
Net income/(loss) $ 71,938  $ (16,687)
Preferred stock dividends 3,779  2,438 
Net income/(loss) available to common stockholders $ 68,159  $ (19,125)
Denominator:
Denominator for basic earnings per share—weighted average shares 50,513,277  50,373,580 
Effect of employee stock-based awards(1) 556,234  101,222 
Denominator for dilutive earnings per share—adjusted weighted average shares and assumed conversions
51,069,511  50,474,802 
Basic earnings/(loss) per common share $ 1.35  $ (0.38)
Diluted earnings/(loss) per common share $ 1.33  $ (0.38)
(1)SARs and RSUs outstanding of 80,263 at March 31, 2021 and 428,007 at March 31, 2020 have not been included in diluted earnings/(loss) per share because to do so would have been antidilutive for the periods presented.
(3) Investment Securities
Available-for-Sale Debt Securities
The following is a summary of available-for-sale debt securities: 
(in thousands) Amortized
Cost(1)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
March 31, 2021
Available-for-sale debt securities:
U.S. government agency securities $ 125,000  $ —  $ (5,160) $ 119,840 
Residential mortgage-backed securities 3,166,816  367  (71,396) 3,095,787 
Tax-exempt asset-backed securities 173,569  7,997  —  181,566 
Credit risk transfer securities 14,713  —  (3,248) 11,465 
Total $ 3,480,098  $ 8,364  $ (79,804) $ 3,408,658 
December 31, 2020
Available-for-sale debt securities:
U.S. government agency securities $ 125,000  $ $ (1,412) $ 123,589 
Residential mortgage-backed securities 2,818,518  11,566  (1,128) 2,828,956 
Tax-exempt asset-backed securities 184,940  14,236  —  199,176 
Credit risk transfer securities 14,713  —  (3,296) 11,417 
Total
$ 3,143,171  $ 25,803  $ (5,836) $ 3,163,138 
(1)Excludes accrued interest receivable of $6.3 million and $6.0 million at March 31, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
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The amortized cost and estimated fair value, excluding accrued interest receivable, and weighted average yield of available-for-sale debt securities are presented below by contractual maturity:  
(in thousands, except percentage data) Less Than
One Year
After One
Through
Five Years
After Five
Through
Ten Years
After Ten
Years
Total
March 31, 2021
Available-for-sale:
U.S. government agency securities:(1)
Amortized cost $ —  $ —  $ 125,000  $ —  $ 125,000 
Estimated fair value —  —  119,840  —  119,840 
Weighted average yield(3) —  % —  % 1.13  % —  % 1.13  %
Residential mortgage-backed securities:(1)
Amortized cost $ —  $ 449  $ 17,368  $ 3,148,999  $ 3,166,816 
Estimated fair value —  499  16,442  3,078,846  3,095,787 
Weighted average yield(3) —  % 4.59  % 1.08  % 1.16  % 1.16  %
Tax-exempt asset-backed securities:(1)
Amortized Cost $ —  $ —  $ —  $ 173,569  $ 173,569 
Estimated fair value —  —  —  181,566  181,566 
Weighted average yield(2)(3) —  % —  % —  % 4.95  % 4.95  %
CRT securities:(1)
Amortized Cost $ —  $ —  $ —  $ 14,713  $ 14,713 
Estimated fair value —  —  —  11,465  11,465 
Weighted average yield(3) —  % —  % —  % 0.11  % 0.11  %
Total available-for-sale debt securities:
Amortized cost $ 3,480,098 
Estimated fair value $ 3,408,658 
December 31, 2020
Available-for-sale:
U.S. government agency securities:(1)
Amortized cost $ —  $ —  $ 125,000  $ —  $ 125,000 
Estimated fair value —  —  123,589  —  123,589 
Weighted average yield(3) —  % —  % 1.13  % —  % 1.13  %
Residential mortgage-backed securities:(1)
Amortized cost $ —  $ 545  $ 17,500  $ 2,800,473  $ 2,818,518 
Estimated fair value —  605  17,490  2,810,861  2,828,956 
Weighted average yield(3) —  % 4.58  % 1.08  % 1.25  % 1.25  %
Tax-exempt asset-backed securities:(1)
Amortized Cost $ —  $ —  $ —  $ 184,940  $ 184,940 
Estimated fair value —  —  —  199,176  199,176 
Weighted average yield(2)(3) —  % —  % —  % 4.92  % 4.92  %
CRT securities:(1)
Amortized Cost $ —  $ —  $ —  $ 14,713  $ 14,713 
Estimated fair value —  —  —  11,417  11,417 
Weighted average yield(3) —  % —  % —  % 0.15  % 0.15  %
Total available-for-sale debt securities:
Amortized cost $ 3,143,171 
Estimated fair value $ 3,163,138 
(1)Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
(2)Yields have been adjusted to a tax equivalent basis assuming a 21% federal tax rate.
(3)Yields are calculated based on amortized cost.
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The following table discloses our available-for-sale debt securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months:
Less Than 12 Months 12 Months or Longer Total
(in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
March 31, 2021
U.S. government agency securities $ 119,840  $ (5,160) $ —  $ —  $ 119,840  $ (5,160)
Residential mortgage-backed securities 3,067,739  (71,396) —  —  3,067,739  (71,396)
CRT securities —  —  11,465  (3,248) 11,465  (3,248)
Total $ 3,187,579  $ (76,556) $ 11,465  $ (3,248) $ 3,199,044  $ (79,804)
December 31, 2020
U.S. government agency securities $ 98,588  $ (1,412) $ —  $ —  $ 98,588  $ (1,412)
Residential mortgage-backed securities 354,387  (1,128) —  —  354,387  (1,128)
CRT securities —  —  11,417  (3,296) 11,417  (3,296)
Total $ 452,975  $ (2,540) $ 11,417  $ (3,296) $ 464,392  $ (5,836)
At March 31, 2021, we had 108 securities in an unrealized loss position, comprised of 5 U.S. government agency securities, 2 CRT securities and 101 residential mortgage-backed securities. Based upon our March 31, 2021 review of securities with unrealized losses we have determined that all losses resulted from factors not deemed credit-related. We have evaluated the near-term prospects of each securities portfolio in relation to the severity of the unrealized losses and adverse conditions related to the securities among other factors. Based on that evaluation management has determined that we have the ability and intent to hold the securities until recovery of fair value and have recorded the unrealized losses in accumulated other comprehensive income ("AOCI").
Available-for-sale debt securities with carrying values of approximately $28.1 million and $1.6 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2021. The comparative amounts at December 31, 2020 were $31.7 million and $1.9 million, respectively.
Equity Securities
Equity securities consist of Community Reinvestment Act funds and investments related to our non-qualified deferred compensation plan. At March 31, 2021 and December 31, 2020, we had $34.4 million and $33.8 million, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income in the consolidated statements of income and other comprehensive income:
Three months ended March 31,
(in thousands) 2021 2020
Net gains/(losses) recognized during the period $ 378  $ (2,977)
Less: Realized net gains/(losses) recognized during the period on equity securities sold
398  (19)
Unrealized net gains/(losses) recognized during the period on equity securities still held
$ (20) $ (2,958)
(4) Loans Held for Investment and Allowance for Credit Losses on Loans
Loans held for investment are summarized by portfolio segment as follows:
(in thousands) March 31, 2021 December 31, 2020
Commercial $ 8,969,224  $ 8,861,580 
Energy 691,806  766,217 
Mortgage finance(1) 9,009,081  9,079,409 
Real estate 5,810,590  5,794,624 
Gross loans held for investment(2) 24,480,701  24,501,830 
Unearned income (net of direct origination costs) (72,446) (70,970)
Allowance for credit losses on loans (242,484) (254,615)
Total loans held for investment, net(2) $ 24,165,771  $ 24,176,245 
(1)    Balances at March 31, 2021 and December 31, 2020 are stated net of $1.0 billion and $1.2 billion of participations sold, respectively.
(2)    Excludes accrued interest receivable of $55.9 million and $56.5 million at March 31, 2021 and December 31, 2020, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
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The following table summarizes our gross loans held for investment by year of origination and internally assigned credit grades:
(in thousands) 2021 2020 2019 2018 2017 2016 and prior Revolving lines of credit Revolving lines of credit converted to term loans Total
March 31, 2021
Commercial
(1-7) Pass $ 341,043  $ 3,548,075  $ 602,736  $ 462,947  $ 290,409  $ 318,287  $ 2,989,607  $ 44,992  $ 8,598,096 
(8) Special mention —  4,120  87,653  47,936  19,139  7,276  10,194  12,734  189,052 
(9) Substandard - accruing 17,850  1,903  27,269  28,182  10,464  26,775  23,804  7,635  143,882 
(9+) Non-accrual —  7,135  3,254  1,037  5,971  12,912  7,218  667  38,194 
Total commercial $ 358,893  $ 3,561,233  $ 720,912  $ 540,102  $ 325,983  $ 365,250  $ 3,030,823  $ 66,028  $ 8,969,224 
Energy
(1-7) Pass $ 15,515  $ —  $ —  $ 4,844  $ 8,893  $ 29,279  $ 515,359  $ —  $ 573,890 
(8) Special mention —  —  —  —  —  10,664  53,299  —  63,963 
(9) Substandard - accruing —  —  —  —  —  —  24,585  —  24,585 
(9+) Non-accrual 10,036  —  8,153  —  —  11,179  —  —  29,368 
Total energy $ 25,551  $ —  $ 8,153  $ 4,844  $ 8,893  $ 51,122  $ 593,243  $ —  $ 691,806 
Mortgage finance
(1-7) Pass $ 14,962  $ 716,845  $ 951,866  $ 799,447  $ 455,911  $ 6,070,050  $ —  $ —  $ 9,009,081 
(8) Special mention —  —  —  —  —  —  —  —  — 
(9) Substandard - accruing —  —  —  —  —  —  —  —  — 
(9+) Non-accrual —  —  —  —  —  —  —  —  — 
Total mortgage finance $ 14,962  $ 716,845  $ 951,866  $ 799,447  $ 455,911  $ 6,070,050  $ —  $ —  $ 9,009,081 
Real estate
CRE
(1-7) Pass $ 60,652  $ 418,403  $ 935,071  $ 862,447  $ 370,347  $ 554,723  $ 50,041  $ 60,805  $ 3,312,489 
(8) Special mention —  3,475  15,071  34,642  48,234  59,183  —  —  160,605 
(9) Substandard - accruing —  —  318  47,240  53,504  92,750  —  15,390  209,202 
(9+) Non-accrual —  —  —  458  —  4,991  —  1,247  6,696 
RBF
(1-7) Pass 54,499  164,712  38,505  28,451  1,538  15,351  592,624  —  895,680 
(8) Special mention —  —  —  —  —  —  —  —  — 
(9) Substandard - accruing —  —  —  —  —  —  —  —  — 
(9+) Non-accrual —  —  —  —  —  —  —  —  — 
Other
(1-7) Pass 26,932  195,760  149,874  108,258  101,509  183,679  17,412  32,983  816,407 
(8) Special mention —  —  6,650  48  —  8,686  —  1,018  16,402 
(9) Substandard - accruing —  —  —  4,228  14,354  16,238  —  —  34,820 
(9+) Non-accrual —  —  —  —  908  8,057  —  14,289  23,254 
Secured by 1-4 family
(1-7) Pass 19,857  64,953  61,951  40,974  47,903  89,788  4,535  —  329,961 
(8) Special mention —  —  —  —  —  1,770  —  —  1,770 
(9) Substandard - accruing —  —  —  —  818  2,268  —  —  3,086 
(9+) Non-accrual —  —  —  —  —  218  —  —  218 
Total real estate $ 161,940  $ 847,303  $ 1,207,440  $ 1,126,746  $ 639,115  $ 1,037,702  $ 664,612  $ 125,732  $ 5,810,590 
Total loans held for investment $ 561,346  $ 5,125,381  $ 2,888,371  $ 2,471,139  $ 1,429,902  $ 7,524,124  $ 4,288,678  $ 191,760  $ 24,480,701 

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The following table details activity in the allowance for credit losses on loans. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
(in thousands) Commercial Energy Mortgage
Finance
Real
Estate
Total
Three months ended March 31, 2021
Allowance for credit losses on loans:
Beginning balance $ 73,061  $ 84,064  $ 4,699  $ 92,791  $ 254,615 
Provision for credit losses on loans (1,001) (5,852) 211  929  (5,713)
Charge-offs 2,451  5,732  —  —  8,183 
Recoveries 1,050  715  —  —  1,765 
Net charge-offs (recoveries) 1,401  5,017  —  —  6,418 
Ending balance $ 70,659  $ 73,195  $ 4,910  $ 93,720  $ 242,484 
Three months ended March 31, 2020
Allowance for credit losses on loans:
Beginning balance $ 102,254  $ 60,253  $ 2,265  $ 30,275  $ 195,047 
Impact of Current Expected Credit Loss ("CECL") adoption (15,740) 24,154  2,031  (1,860) 8,585 
Provision for credit losses on loans 24,902  66,821  35  3,271  95,029 
Charge-offs 20,653  37,730  —  —  58,383 
Recoveries 257  423  —  —  680 
Net charge-offs (recoveries) 20,396  37,307  —  —  57,703 
Ending balance $ 91,020  $ 113,921  $ 4,331  $ 31,686  $ 240,958 
We recorded a $6.0 million negative provision for credit losses for the first quarter of 2021, compared to a provision of $96.0 million for the first quarter of 2020. The decreased provision for credit losses in the first quarter of 2021 as compared to the first quarter of 2020 resulted primarily from a decrease in charge-offs and improvement in the economic outlook as the economy begins to recover from the impacts of the COVID-19 pandemic. We recorded $6.4 million in net charge-offs during the first quarter of 2021, compared to $57.7 million during the first quarter of 2020. Criticized loans totaled $945.1 million at March 31, 2021, compared to $675.9 million at March 31, 2020. Criticized loan levels remain elevated when compared to pre-pandemic levels due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic.
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent gross loans held for investment by collateral type as follows:
Collateral Type
(in thousands) Real Property Rolling Stock Total
March 31, 2021
Commercial $ —  $ 774  $ 774 
Real estate
CRE 4,619  —  4,619 
Other 5,984  —  5,984 
Total collateral-dependent loans held for investment
$ 10,603  $ 774  $ 11,377 

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The table below provides an age analysis of our loans held for investment:
(in thousands) 30-59 Days
Past Due
60-89 Days
Past Due
90 Days or More Past Due(1) Total Past
Due
Non-accrual loans as of March 31, 2021 (2) Current Total Non-accrual With No Allowance
March 31, 2021
Commercial $ 15,563  $ 2,905  $ 3,885  $ 22,353  $ 38,194  $ 8,908,677  $ 8,969,224  $ 15,860 
Energy —  —  —  —  29,368  662,438  691,806  18,189 
Mortgage finance loans
—  —  —  —  —  9,009,081  9,009,081  — 
Real estate
CRE
14,939  —  2,238  17,177  6,696  3,665,119  3,688,992  1,849 
RBF
—  —  —  —  —  895,680  895,680  — 
Other
105  —  —  105  23,254  867,524  890,883  7,864 
Secured by 1-4 family
55  —  64  119  218  334,698  335,035  — 
Total loans held for investment
$ 30,662  $ 2,905  $ 6,187  $ 39,754  $ 97,730  $ 24,343,217  $ 24,480,701  $ 43,762 
(1)Loans past due 90 days and still accruing includes premium finance loans of $3.1 million. These loans are generally secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The receipt of the refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(2)As of March 31, 2021 and December 31, 2020, none of our non-accrual loans were earning interest income on a cash basis. Additionally, no interest income was recognized on non-accrual loans for the three months ended March 31, 2021. Accrued interest of $339,000 was reversed during the three months ended March 31, 2021.
As of March 31, 2021 and December 31, 2020, we did not have any loans considered restructured that were not on non-accrual. Of the non-accrual loans at March 31, 2021 and December 31, 2020, $33.7 million and $45.4 million, respectively, met the criteria for restructured. These loans had no unfunded commitments at their respective balance sheet dates.
We did not have any loans that were restructured during the three months ended March 31, 2021 or 2020. As of March 31, 2021 and 2020, we did not have any loans that were restructured within the last 12 months that subsequently defaulted.
(5) Certain Transfers of Financial Assets
The table below presents a reconciliation of the changes in loans held for sale:
Three Months Ended March 31,
(in thousands) 2021 2020
Outstanding balance(1):
Beginning balance $ 281,137  $ 2,568,362 
Loans purchased and originated 1,133,239  2,356,710 
Payments and loans sold (1,236,738) (4,165,492)
Ending balance 177,638  759,580 
Fair value adjustment:
Beginning balance 2,028  8,772 
Increase/(decrease) to fair value (3,380) 5,712 
Ending balance (1,352) 14,484 
Loans held for sale at fair value $ 176,286  $ 774,064 
(1)    Includes $44.1 million of loans held for sale that are carried at lower of cost or market as of December 31, 2020, as well as $5.8 million as of December 31, 2019.
No loans held for sale were on non-accrual as of March 31, 2021. At December 31, 2020 we had $7.0 million in non-accrual loans held for sale, comprised of one loan previously reported in loans held for investment that was transferred to loans held for sale as of December 31, 2020 and subsequently sold at carrying value. At March 31, 2021 and December 31, 2020, we had $16.4 million and $16.7 million, respectively, of loans held for sale that were 90 days or more past due. The $16.4 million in loans held for sale that were 90 days or more past due at March 31, 2021 included $3.3 million of loans guaranteed by U.S. government agencies that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also included in the $16.4 million were $12.9 million in loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not the obligation, to repurchase if defined delinquent loan criteria are met, and therefore must record as held for sale on our balance sheet regardless of whether the repurchase option has been exercised. At December 31, 2020, $3.3 million of the $16.7
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million in loans held for sale that were 90 days or more past due were loans guaranteed by U.S. government agencies that were purchased out of Ginnie Mae securities and recorded as loans held for sale, at fair value, on the balance sheet and $13.4 million were loans that we have the unilateral right, but not the obligation, to repurchase if defined delinquent loan criteria are met.
From time to time we retain the right to service the loans sold through our MCA program, creating MSRs which are recorded as assets on our consolidated balance sheets. A summary of MSR activity is as follows:
Three months ended March 31,
(in thousands) 2021 2020
MSRs:
Balance, beginning of year $ 131,391  $ 70,707 
Capitalized servicing rights 11,867  20,615 
Amortization (12,643) (4,885)
Balance, end of period $ 130,615  $ 86,437 
Valuation allowance:
Balance, beginning of year $ 25,967  $ 5,803 
Change in valuation allowance (16,448) 10,015 
Balance, end of period $ 9,519  $ 15,818 
MSRs, net $ 121,096  $ 70,619 
MSRs, fair value $ 132,580  $ 70,619 
At March 31, 2021 and December 31, 2020, our servicing portfolio of residential mortgage loans had outstanding principal balances of $13.6 billion and $13.8 billion, respectively.
In connection with the servicing of these loans, we hold deposits in the name of investors representing escrow funds for taxes and insurance, as well as collections in transit to the investors. These escrow funds are segregated and held in separate non-interest-bearing deposit accounts at the Bank. These deposits, included in total non-interest-bearing deposits on the consolidated balance sheets, were $153.8 million at March 31, 2021 and $152.6 million at December 31, 2020.
At March 31, 2021, the estimated fair value of MSRs were positively impacted by decreased prepayment speeds as compared to December 31, 2020, which resulted in a $16.4 million release of impairment being recorded for the three months ended March 31, 2021, compared to a $10.0 million impairment charge for the first three months of 2020. To mitigate exposure to potential impairment charges from adverse changes in the fair value of our residential MSR portfolio, we enter into certain derivative contracts, as is further discussed in Note 11 - Derivative Financial Instruments. The following summarizes the assumptions used by management to determine the fair value of MSRs:
March 31, 2021 December 31, 2020
Average discount rates 9.08  % 9.09  %
Expected prepayment speeds 12.10  % 16.37  %
Weighted-average life, in years 6.3 4.9
A sensitivity analysis of changes in the fair value of our MSR portfolio resulting from certain key assumptions is presented in the following table:
(in thousands) March 31, 2021 December 31, 2020
50 bp adverse change in prepayment speed $ (15,593) $ (12,203)
100 bp adverse change in prepayment speed (27,503) (16,062)
These sensitivities are hypothetical and actual results may differ materially due to a number of factors. The effect on fair value of a 10% variation in assumptions generally cannot be determined with confidence because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may be correlated with changes in other factors, which could impact the sensitivity analysis as presented.
In conjunction with the sale and securitization of loans held for sale, we may be exposed to liability resulting from repurchase, indemnification and make-whole agreements. Our estimated exposure related to those agreements totaled $648,000 and $621,000 at March 31, 2021 and December 31, 2020, respectively, and is recorded in other liabilities on the consolidated balance sheets. $30,000 in make-whole obligation payments were made during the three months ended March 31, 2021 compared to $2.1 million during the three months ended March 31, 2020.
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(6) Long-term Debt
From November 2002 to September 2006 various Texas Capital Statutory Trusts were created and subsequently issued floating rate trust preferred securities in various private offerings totaling $113.4 million. For the three months ended March 31, 2021, the combined weighted-average interest rate on the trust preferred subordinated debentures was 2.19% compared to 3.80% for the same period in 2020. As of December 31, 2020, the details of the trust preferred subordinated debentures are summarized below:
(dollar amounts in thousands) Texas Capital
Bancshares
Statutory Trust I
Texas Capital
Statutory
Trust II
Texas Capital
Statutory
Trust III
Texas Capital
Statutory
Trust IV
Texas Capital
Statutory Trust V
Date issued November 19, 2002 April 10, 2003 October 6, 2005 April 28, 2006 September 29, 2006
Trust preferred securities issued $10,310 $10,310 $25,774 $25,774 $41,238
Floating or fixed rate securities Floating Floating Floating Floating Floating
Interest rate on subordinated debentures
3 month LIBOR
 + 3.35%
3 month LIBOR
 + 3.25%
3 month LIBOR
 + 1.51%
3 month LIBOR
 + 1.60%
3 month LIBOR
 + 1.71%
Maturity date November 2032 April 2033 December 2035 June 2036 December 2036
On September 21, 2012, the Company issued $111.0 million of subordinated notes. The notes mature in September 2042 and bear interest at a rate of 6.50% per annum, payable quarterly. The indenture governing the notes contains customary covenants and restrictions.
On January 31, 2014, the Bank issued $175.0 million of subordinated notes in an offering to institutional investors exempt from registration under Section 3(a)(2) of the Securities Act of 1933 and 12 C.F.R. Part 16. The notes mature in January 2026 and bear interest at a rate of 5.25% per annum, payable semi-annually. The notes are unsecured and are subordinate to the Bank’s obligations to its depositors, its obligations under banker’s acceptances and letters of credit, certain obligations to Federal Reserve Banks and the FDIC and the Bank’s obligations to its other creditors, except any obligations which expressly rank on a parity with or junior to the notes. The notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations. At the beginning of each of the last five years of the life of the notes, the amount that is eligible to be included in Tier 2 capital is reduced by 20% of the original amount of the notes (net of redemptions). In 2021, the amount of the notes that qualify as Tier 2 capital has been reduced by 20%.
On March 9, 2021, the Bank issued and sold $275 million of senior unsecured credit-linked notes. The notes mature on September 30, 2024, and accrue interest at a rate equal to the higher of LIBOR plus 4.50% or 4.25%, payable quarterly on each of March 31, June 30, September 30 and December 31. For the three months ended March 31, 2021, the weighted-average interest rate on the notes was 5.54%. The notes effectively transfer the risk of first losses on a $2.2 billion reference pool of the Bank’s mortgage warehouse loans to the purchasers of the notes in an amount up to $275.0 million. In the event of a failure to pay by the relevant mortgage originator, insolvency of the relevant mortgage originator, or restructuring of such loans that results in a loss on a loan included in the reference pool, the principal balance of the notes will be reduced to the extent of such loss and recognized as a debt extinguishment gain within non-interest income on our consolidated statements of income and other comprehensive income. The purchasers of the notes have the option to acquire the underlying mortgage loan collateralizing the reference warehouse line of credit in lieu of a principal reduction on the notes. Losses on our warehouse lines of credit have not generally been significant. The notes are recorded in long-term debt on our consolidated balance sheets and accounted for at amortized cost. The fair value of the credit-linked note is based on observable inputs, when available, and as such are categorized as Level 2 liabilities. Because the notes are variable rate debt, the fair value approximates carrying value.
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(7) Financial Instruments with Off-Balance Sheet Risk
The table below presents our financial instruments with off-balance sheet risk, as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments. This allowance is recorded in other liabilities on the consolidated balance sheets.
Three months ended March 31,
(in thousands) 2021 2020
Beginning balance of allowance for off-balance sheet credit losses
$ 17,434  $ 8,640 
Impact of CECL adoption
—  563 
Provision for off-balance sheet credit losses
(287) 971 
Ending balance of allowance for off-balance sheet credit losses
$ 17,147  $ 10,174 
(in thousands) March 31, 2021 December 31, 2020
Commitments to extend credit - period end balance $ 8,115,679  $ 8,530,453 
Standby letters of credit - period end balance $ 321,428  $ 268,894 
(8) Regulatory Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Basel III regulatory capital framework (the "Basel III Capital Rules") adopted by U.S. federal regulatory authorities, among other things, (i) establishes the capital measure called "Common Equity Tier 1" ("CET1"), (ii) specifies that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital" instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.
Additionally, the Basel III Capital Rules require that we maintain a 2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. 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.
In February 2019, the federal bank regulatory agencies issued a final rule (the "2019 CECL Rule") that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit losses on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option). We adopted CECL on January 1, 2020 and have elected to utilize the five-year transition option.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of March 31, 2021, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of March 31, 2021 and December 31, 2020. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such change could reduce one or more capital ratios below well-capitalized status. In addition, a change may result in
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imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our condition and results of operations.
Because our Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, we are allowed to continue to classify our trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
The table below summarizes our actual and required capital ratios under the Basel III Capital Rules. The ratios presented below include the effects of our election to utilize the five-year CECL transition described above.
Actual Minimum Capital Required - Basel III Fully Phased-In Required to be Considered Well Capitalized
(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio
March 31, 2021
CET1
Company $ 2,765,597  10.19  % $ 1,900,393  7.00  % N/A N/A
Bank 2,818,155  10.39  % 1,899,299  7.00  % 1,763,635  6.50  %
Total capital (to risk-weighted assets)
Company 3,811,962  14.04  % 2,850,590  10.50  % N/A N/A
Bank 3,405,679  12.55  % 2,848,948  10.50  % 2,713,284  10.00  %
Tier 1 capital (to risk-weighted assets)
Company 3,325,597  12.25  % 2,307,621  8.50  % N/A N/A
Bank 2,978,155  10.98  % 2,306,291  8.50  % 2,170,627  8.00  %
Tier 1 capital (to average assets)(1)
Company 3,325,597  8.32  % 1,598,426  4.00  % N/A N/A
Bank 2,978,155  7.46  % 1,597,924  4.00  % 1,997,405  5.00  %
December 31, 2020
CET1
Company $ 2,708,150  9.35  % $ 2,026,400  7.00  % N/A N/A
Bank 2,744,211  9.48  % 2,025,417  7.00  % 1,880,745  6.50  %
Total capital (to risk-weighted assets)
Company 3,498,737  12.08  % 3,039,600  10.50  % N/A N/A
Bank 3,375,983  11.67  % 3,038,126  10.50  % 2,893,453  10.00  %
Tier 1 capital (to risk-weighted assets)
Company 2,968,150  10.25  % 2,460,628  8.50  % N/A N/A
Bank 2,904,211  10.04  % 2,459,435  8.50  % 2,314,763  8.00  %
Tier 1 capital (to average assets)(1)
Company 2,968,150  7.52  % 1,578,651  4.00  % N/A N/A
Bank 2,904,211  7.36  % 1,578,207  4.00  % 1,972,758  5.00  %
(1)    The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules; however, the Federal Reserve Board and the FDIC may require the Company and the Bank, respectively, to maintain a Tier 1 capital ratio (to average assets) above the required minimum.
Our mortgage finance loan volumes can increase significantly at month-end, causing a meaningful difference between ending balance and average balance for any period. As CET1, Tier 1 and total capital ratios are calculated using quarter-end risk-weighted assets and our mortgage finance loans are 100% risk-weighted (excluding MCA mortgage loans held for sale, which receive lower risk weights), the period-end fluctuation in these balances can significantly impact our reported ratios. Due to the actual risk profile and liquidity of this asset class, we do not believe that the period-end balance is representative of risk characteristics that would justify higher allocations, and while we manage capital allocated to mortgage finance loans based on changing trends in average balances, we do monitor our capital allocation to confirm that all capital levels remain above well-capitalized levels. To better align the actual risk profile of this asset class to its required capital allocation, the Bank issued and sold senior unsecured credit-linked notes in the first quarter of 2021 that effectively transfer the risk of first losses on a $2.2 billion reference pool of the Bank's mortgage warehouse loans to the purchasers of the notes in an amount up to $275.0 million. The issuance of these notes decreases the required risk-weight on the $2.2 billion reference pool, which significantly improves our reported ratios.
Dividends that may be paid by banks are routinely restricted by various regulatory authorities. The amount that can be paid in any calendar year without prior approval of our Bank’s regulatory agencies cannot exceed the lesser of the net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings. The Basel III Capital Rules further limit the amount of dividends that may be paid by our Bank. No dividends were declared or paid on our common stock during the three months ended March 31, 2021, or 2020.
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(9) Stock-based Compensation
We have long-term incentive plans under which stock-based compensation awards are granted to employees and directors by the board of directors, or its designated committee. Grants are subject to vesting requirements and may include, among other things, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock units ("RSUs"), restricted stock and performance units, or any combination thereof. There are 2,550,000 total shares authorized for grant under the plans.
The table below summarizes our stock-based compensation expense:
  Three months ended March 31,
(in thousands) 2021 2020
Stock-settled awards:
RSUs $ 5,460  $ 3,219 
Restricted stock
Cash-settled units 907  142 
Total $ 6,368  $ 3,369 
 
(in thousands except period data)