UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	Annual Report pursuant to Section 13 or 15(d) of the Securities
	Exchange Act of 1934. For the fiscal year ended December 31, 2012
¨	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, Texas, U.S.A.	75201
(Address of principal executive officers)	(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 under Section 12(b) of the Exchange Act:

Common stock, par value $0.01 per share

(Title of class)

The Nasdaq Stock Market LLC

(Name of Exchange on Which Registered)

Securities registered under Section 12(g) of the Exchange Act: NONE

Indicate by check mark if the issuer is a well-known seasoned issuer pursuant to Section 13 or Section 15(d) of the Securities Act.    Yes  ¨        No  x

Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.    Yes  ¨        No  x

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  x        No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x        ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x	Accelerated Filer ¨	Non-Accelerated Filer ¨	Non-Accelerated Filer ¨
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨        No  x

As of June 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of common stock held by non-affiliates, based on the closing price per share of the registrant’s common stock as reported on The Nasdaq Global Select Market, was approximately $1,491,142,000. There were 40,758,089 shares of the registrant’s common stock outstanding on February 19, 2013.

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement relating to the 2013 Annual Meeting of Stockholders, which will be filed no later than April 4, 2013, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	[Removed and Reserved]	21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Consolidated Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	54
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	101
Item 9A.	Controls and Procedures	101
Item 9B.	Other Information	103
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	103
Item 11.	Executive Compensation	103
Item 12.	Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters	103
Item 13.	Certain Relationships and Related Transactions, and Director Independence	103
Item 14.	Principal Accounting Fees and Services	103
PART IV
Item 15.	Exhibits, Financial Statement Schedules	103

ITEM 1. BUSINESS

Background

Texas Capital Bancshares, Inc. (“the Company”), a Delaware financial holding company, is the parent of Texas Capital Bank, National Association (“the Bank”), a Texas-based bank headquartered in Dallas, with our primary banking offices in Austin, Dallas, Fort Worth, Houston, and San Antonio, the state’s five largest metropolitan areas. All of our business activities are conducted through our bank subsidiary. Our market focus is commercial businesses and successful professionals and entrepreneurs, and we offer a variety of banking products and services to our customers. We have focused on organic growth, maintenance of credit quality and bankers with strong personal and professional relationships in their communities.

We focus on serving the needs of commercial businesses and successful professionals and entrepreneurs, the core of our model since our organization in March 1998. We do not incur the costs of competing in an over-branched and over-crowded consumer market. We are primarily a secured lender in Texas, and, as a result, we have experienced a low percentage of charge-offs relative to both total loans and non-performing loans since inception. Our loan portfolio is diversified by industry, collateral and geography in Texas.

Growth History

We have grown substantially in both size and profitability since our formation. The table below sets forth data regarding the growth of key areas of our business from December 2008 through December 2012 (in thousands):

	December 31
	2012		2011		2010		2009		2008
Loans held for investment	$	6,785,535	$	5,572,371	$	4,711,330	$	4,457,293	$	4,027,871
Total loans(1)		9,960,807		7,652,452		5,905,539		5,150,797		4,524,222
Assets(1)		10,540,542		8,137,225		6,445,679		5,698,318		5,141,034
Demand deposits		2,535,375		1,751,944		1,451,307		899,492		587,161
Total deposits		7,440,804		5,556,257		5,455,401		4,120,725		3,333,187
Stockholders’ equity		836,242		616,331		528,319		481,360		387,073

(1) From continuing operations.

The following table provides information about the growth of our loan portfolio by type of loan from December 2008 to December 2012 (in thousands):

	December 31
	2012		2011		2010		2009		2008
Commercial loans	$	4,106,419	$	3,275,150	$	2,592,924	$	2,457,533	$	2,276,054
Total real estate loans		2,630,088		2,241,277		2,029,766		1,903,127		1,656,221
Construction loans		737,637		422,026		270,008		669,426		667,437
Real estate term loans		1,892,451		1,819,251		1,759,758		1,233,701		988,784
Loans held for sale		3,175,272		2,080,081		1,194,209		693,504		496,351
Loans held for sale from discontinued operations		302		393		490		586		648
Equipment leases		69,470		61,792		95,607		99,129		86,937
Consumer loans		19,493		24,822		21,470		25,065		32,671

The Texas Market

The Texas market for banking services is highly competitive. Texas’ largest banking organizations are headquartered outside of Texas and are controlled by out-of-state organizations. We also compete with other providers of financial services, such as savings and loan associations, credit unions, consumer finance

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companies, securities firms, insurance companies, commercial finance and leasing companies, full service brokerage firms and discount brokerage firms. We believe that many middle market companies and successful professionals and entrepreneurs are interested in banking with a company 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 the customer with regard to its banking needs. Our banking centers in our target markets are served by experienced bankers with lending expertise in the specific industries found in their market areas and established community ties. We believe our bank can offer customers more responsive and personalized service. We believe that, if we service these customers properly, we will be able to establish long-term relationships and provide multiple products to our customers, thereby enhancing our profitability.

Business Strategy

Utilizing the business and community ties of our management and their banking experience, our strategy is maintaining a primary focus on middle market business customers and successful professionals and entrepreneurs in each of the five major metropolitan markets of Texas. In addition, we have specialty lending businesses that have a national presence that also focus on middle market customer relationships. To achieve this, we seek to implement the following strategies:

• target middle market businesses and successful professionals and entrepreneurs;

• grow our loan and deposit base in our existing markets by hiring additional experienced Texas bankers;

• continue the emphasis on credit policy to provide for credit quality consistent with long-term objectives;

• improve our financial performance through the efficient management of our infrastructure and capital base, which includes:

• leveraging our existing infrastructure to support a larger volume of business;

• maintaining stringent internal approval processes for capital and operating expenses;

• extensive use of outsourcing to provide cost-effective operational support with service levels consistent with large-bank operations; and

• extend our reach within our target markets of Austin, Dallas, Fort Worth, Houston and San Antonio through service innovation and service excellence.

Products and Services

We offer a variety of loan, deposit account and other financial products and services to our customers.

Business Customers.    We offer a full range of products and services oriented to the needs of our business customers, including:

• commercial loans for general corporate purposes including financing for working capital, internal growth, acquisitions and financing for business insurance premiums;

• real estate term and construction loans;

• mortgage warehouse lending;

• equipment leasing;

• treasury management services;

• trust and wealth management services; and

• letters of credit.

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Individual Customers.    We also provide complete banking services for our individual customers, including:

• personal trust and wealth management services;

• certificates of deposit;

• interest bearing and non-interest bearing checking accounts with optional features such as Visa^® debit/ATM cards and overdraft protection;

• traditional money market and savings accounts;

• loans, both secured and unsecured; and

• internet banking.

Lending Activities

We target our lending to middle market businesses and successful professionals and entrepreneurs that meet our credit standards. The credit standards are set by our standing Credit Policy Committee with the assistance of our Bank’s Chief Credit and Risk Officer, who is charged with ensuring that credit standards are met by loans in our portfolio. Our Credit Policy Committee is comprised of senior Bank officers including our Bank’s Chief Executive Officer, our Bank’s President/Chief Lending Officer and our Bank’s Chief Credit and Risk Officer. We believe we have maintained a diversified loan portfolio. Credit policies and underwriting guidelines are tailored to address the unique risks associated with each industry represented in the portfolio. Our credit standards for commercial borrowers reference numerous criteria with respect to the borrower, including historical and projected financial information, strength of management, acceptable collateral and associated advance rates, and market conditions and trends in the borrower’s industry. In addition, prospective loans are also analyzed based on current industry concentrations in our loan portfolio to prevent an unacceptable concentration of loans in any particular industry. We believe our credit standards are consistent with achieving business objectives in the markets we serve and will generally mitigate risks. We believe that we differentiate our bank from its competitors by focusing on and aggressively marketing to our core customers and accommodating, to the extent permitted by our credit standards, their individual needs.

We generally extend variable rate loans in which the interest rate fluctuates with a predetermined indicator such as the United States prime rate or the London Interbank Offered Rate (LIBOR). Our use of variable rate loans is designed to protect us from risks associated with interest rate fluctuations since the rates of interest earned will automatically reflect such fluctuations.

Deposit Products

We offer a variety of deposit products to our core customers at interest rates that are competitive with other banks. Our business deposit products include commercial checking accounts, lockbox accounts, cash concentration accounts, and other treasury management services, including an on-line system. Our treasury management on-line system offers information services, wire transfer initiation, ACH initiation, account transfer, and service integration. Our consumer deposit products include checking accounts, savings accounts, money market accounts and certificates of deposit. We also allow our consumer deposit customers to access their accounts, transfer funds, pay bills and perform other account functions over the Internet and through ATM machines.

Trust and Wealth Management

Our trust and wealth management services include investment management, personal trust and estate services, custodial services, retirement accounts and related services. Our investment management professionals work with our clients to define objectives, goals and strategies for their investment portfolios. We assist the customer with the selection of an investment manager and work with the client to tailor the investment program accordingly. We also offer retirement products such as individual retirement accounts and administrative services for retirement vehicles such as pension and profit sharing plans.

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Cayman Islands Branch

In June 2003, we received authorization from the Cayman Islands Monetary Authority to establish a branch of our bank in the Cayman Islands. We believe that a Cayman Islands branch of our bank enables us to offer more competitive cash management and deposit products to our core customers. Our Cayman Islands branch consists of an agented office to facilitate our offering of these products. We opened our Cayman Islands branch in September 2003. All deposits in the Cayman Branch come from U.S. based customers of our Bank. Deposits do not originate from foreign sources, and funds transfers neither come from nor go to facilities outside of the U.S. All deposits are in U.S. dollars. As of December 31, 2012, our Cayman Islands deposits totaled $329.3 million.

Employees

As of December 31, 2012, we had 881 full-time employees relating to our continuing operations. None of our employees is represented by a collective bargaining agreement and we consider our relations with our employees to be good.

Regulation and Supervision

Current banking laws contain numerous provisions affecting various aspects of our business. Our bank is subject to federal banking laws and regulations that impose specific requirements on and provide regulatory oversight of virtually all aspects of our operations. These laws and regulations are generally intended for the protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation, or the FDIC, and the banking system as a whole, rather than for the protection of our stockholders. Banking regulators have broad enforcement powers over financial holding companies and banks and their affiliates, including the power to establish regulatory requirements, impose large fines and other penalties for violations of laws and regulations. The following is a brief summary of laws and regulations to which we are subject.

National banks such as our bank are subject to examination by the Office of the Comptroller of the Currency, or the OCC. The OCC and the FDIC regulate or monitor all areas of a national bank’s operations, including security devices and procedures, adequacy of capitalization and loss reserves, accounting treatment and impact on capital determinations, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The OCC requires national banks to maintain capital ratios and imposes limitations on its aggregate investment in real estate, bank premises and furniture and fixtures. National banks are currently required by the OCC to prepare quarterly reports on their financial condition and to conduct an annual audit of their financial affairs in compliance with minimum standards and procedures prescribed by the OCC.

Restrictions on Dividends and Repurchases.    Our source of funding to pay dividends is our bank. Our bank is subject to statutory dividend restrictions. Under such restrictions, national banks may not, without the prior approval of the OCC, declare dividends in excess of the sum of the current year’s net profits plus the retained net profits from the prior two years, less any required transfers to surplus. In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991, our bank may not pay any dividend if payment would cause it to become undercapitalized or in the event it is undercapitalized.

It is the policy of the Federal Reserve, which regulates financial holding companies such as ours, that financial holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that financial holding companies should not maintain a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries.

If, in the opinion of the applicable federal bank regulatory authority, a depository institution or holding company is engaged in or is about to engage in an unsound practice (which could include the payment of

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dividends), such authority may require, generally after notice and hearing, that such institution or holding company cease and desist such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s or holding company’s capital base to an inadequate level would be such an unsafe banking practice. Moreover, the Federal Reserve and the FDIC have issued policy statements providing that financial holding companies and insured depository institutions generally should only pay dividends out of current operating earnings.

Supervision by the Federal Reserve.    We operate as a financial holding company registered under the Bank Holding Company Act, and, as such, we are subject to supervision, regulation and examination by the Federal Reserve. The Bank Holding Company Act and other Federal laws subject financial holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Because we are a legal entity separate and distinct from our bank, our right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors. In the event of a liquidation or other resolution of a subsidiary, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to its stockholders, including any financial holding company (such as ours) or any stockholder or creditor thereof.

Support of Subsidiary Banks.    Under Federal Reserve policy, a financial holding company is expected to act as a source of financial and managerial strength to each of its banking subsidiaries and commit resources to their support. Such support may be required at times when, absent this Federal Reserve policy, a holding company may not be inclined to provide it. As discussed below, a financial holding company in certain circumstances could be required to guarantee the capital plan of an undercapitalized banking subsidiary in order for it to be accepted by the regulators.

In the event of a financial holding company’s bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the bankruptcy trustee will be deemed to have assumed and is required to cure immediately any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.

Capital Adequacy Requirements.    The bank regulators have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banking organizations. Under the guidelines, specific categories of assets and off-balance sheet activities such as letters of credit are assigned different risk weights, based generally on the perceived credit or other risks associated with the asset. These risk weights are multiplied by corresponding asset balances to determine a “risk weighted” asset base. The guidelines require a minimum total risk-based capital ratio of 8% (of which at least 4% is required to consist of Tier 1 capital elements).

In addition to the risk-based capital guidelines, the OCC and the Federal Reserve use a leverage ratio as an additional tool to evaluate the capital adequacy of banking organizations. The leverage ratio is a company’s Tier 1 capital divided by its average total consolidated assets. Banking organizations must maintain a minimum leverage ratio of at least 4%, although most organizations are expected to maintain leverage ratios that are at least 100 to 200 basis points above this minimum ratio.

The federal banking agencies’ risk-based and leverage capital ratios are minimum supervisory ratios generally applicable to banking organizations that meet specified criteria, assuming that they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant and the agencies can change interpretations of existing guidelines, which changes could result in decreases in our capital ratios. Federal Reserve and OCC guidelines also provide that banking organizations experiencing significant internal growth or making acquisitions will be expected to

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maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. In addition, the regulations of the bank regulators provide that concentration of credit risks arising from non-traditional activities, as well as an institution’s ability to manage these risks, are important factors to be taken into account by regulatory agencies in assessing an organization’s overall capital adequacy. Regulators can, from time to time, change their policies or interpretations of practices in such a way that could require a change in risk weight, which could ultimately require the bank to provide additional capital to support future growth or reduce asset balances to maintain minimum and well-capitalized levels.

Transactions with Affiliates and Insiders.    Our bank is subject to Section 23A of the Federal Reserve Act which places limits on, among other covered transactions, the amount of loans or extensions of credit to affiliates that it may make. In addition, extensions of credit must be collateralized by Treasury securities or other collateral in prescribed amounts. It also limits the amount of advances to third parties which are collateralized by our securities or obligations or the securities or obligations of any of our non-banking subsidiaries.

Our bank also is subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliates.

We are subject to restrictions on extensions of credit to executive officers, directors, principal stockholders and their related interests. These restrictions contained in the Federal Reserve Act and Federal Reserve Regulation O apply to all insured institutions and their subsidiaries and holding companies. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions. See additional restrictions on transactions with affiliates and insiders discussed in the Dodd-Frank Act section.

Corrective Measures for Capital Deficiencies.    The Federal Deposit Insurance Corporation Improvement Act imposes a regulatory matrix which requires the federal banking agencies, which include the FDIC, the OCC and the Federal Reserve, to take “prompt corrective action” with respect to capital deficient institutions. The prompt corrective action provisions subject undercapitalized institutions to an increasingly stringent array of restrictions, requirements and prohibitions as their capital levels deteriorate. Should these corrective measures prove unsuccessful in recapitalizing the institution and correcting its problems, the Federal Deposit Insurance Corporation Improvement Act mandates that the institution be placed in receivership.

Pursuant to regulations promulgated under the Federal Deposit Insurance Corporation Improvement Act, the corrective actions that the banking agencies either must or may take are tied primarily to an institution’s capital levels. In accordance with the framework adopted by the Federal Deposit Insurance Corporation Improvement Act, the banking agencies have developed a classification system, pursuant to which all banks and thrifts are placed into one of five categories. Agency regulations define, for each capital category, the levels at which institutions are “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized.” A well capitalized bank has a total risk-based capital ratio (total capital to risk-weighted assets) of 10% or higher; a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted assets) of 6% or higher; a leverage ratio (Tier 1 capital to total adjusted assets) of 5% or higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. An institution is critically undercapitalized if it has a tangible equity to total assets ratio that is equal to or less than 2%. Our bank’s total risk-based capital ratio was 10.34% at December 31, 2012 and, as a result, it is currently classified as “well capitalized” for purposes of the OCC’s prompt corrective action regulations. The bank’s capital category of “well capitalized” is determined solely for the purposes of applying prompt corrective action

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and that the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects. The OCC, Federal Reserve and FDIC may, pursuant to changes in their regulatory or statutory interpretations, change risk weights applicable to different assets and determine that additional capital may be required to support future growth.

In addition to requiring undercapitalized institutions to submit a capital restoration plan which must be guaranteed by its holding company (up to specified limits) in order to be accepted by the bank regulators, agency regulations contain broad restrictions on activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business. With some exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.

As an institution’s capital decreases, the OCC’s enforcement powers become more severe. A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management and other restrictions. The OCC has only very limited discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver or conservator (the FDIC) if the capital deficiency is not corrected promptly.

Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.

BASEL III.    On December 15, 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation, known as Basel III. When fully phased in on January 1, 2019, Basel III requires banks to maintain the following new standards and introduces a new capital measure “Common Equity Tier 1”, or “CET1”. Basel III increases the CET1 to risk-weighted assets to 4.5%, and introduces a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets, raising the target CET1 to risk-weighted assets ratio to 7%. It requires banks to maintain a minimum ratio of Tier 1 capital to risk weighted assets of at least 6.0%, plus the capital conservation buffer effectively resulting in Tier 1 capital ratio of 8.5%. Basel III increases the minimum total capital ratio to 8.0% plus the capital conservation buffer, increasing the minimum total capital ratio to 10.5%. Basel III also introduces a non-risk adjusted tier 1 leverage ratio of 3%, based on a measure of total exposure rather than total assets, and new liquidity standards. The Basel III capital and liquidity standards will be phased in over a multi-year period, but the implementation of the new framework will commence January 1, 2013. On that date, banks will be required to meet the following minimum capital ratios: 3.5% CET1 to risk-weighted assets, 4.5% Tier 1 capital to risk-weighted assets and 8.0% total capital to risk-weighted assets. Basel III also requires the phase-out from Tier 1 Capital of trust preferred securities over a 10-year time period beginning on January 1, 2013. It requires the phase-out of these instruments for bank holding companies having under $15 billion in total consolidated assets as of December 31, 2009, albeit on Basel III’s longer 10-year phase-out, permitting the inclusion of 90% of the carrying value of such instruments in 2013, with annual 10% decreases in the includible amount through 2021, until the instruments are fully phased-out on January 1, 2022.

Although the Basel III framework is not directly binding on the U.S. bank regulatory agencies, the regulatory agencies will likely implement changes to the capital adequacy standards applicable to the insured depository institutions and their holding companies in light of Basel III. In June 2012, the U.S. bank regulatory agencies issued three proposals to implement the capital, liquidity and other requirements under BASEL III, as well as certain other regulatory capital requirements under the Dodd-Frank Act. In November 2012, the Federal Reserve and FDIC released notice that the Basel III Notices of Proposed Rulemaking they issued in June will not be finalized and effective by January 1, 2013. They have not clarified an intended target date for implementation, but have stated that they will take “operational and other considerations” into account when they finalize implementation dates/transition periods.

Sarbanes-Oxley Act of 2002.    The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) contains important requirements for public companies in the area of financial disclosure and corporate governance. In

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accordance with Section 302(a) of Sarbanes-Oxley, written certifications by our chief executive officer and chief financial officer are required. These certifications attest that our quarterly and annual reports do not contain any untrue statement of a material fact.

Financial Modernization Act of 1999.    The Gramm-Leach-Bliley Financial Modernization Act of 1999 (“the Modernization Act”):

• allows bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than was permissible prior to enactment, including insurance underwriting and making merchant banking investments in commercial and financial companies;

• allows insurers and other financial services companies to acquire banks; and

• removes various restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies;

• and establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.

The Modernization Act also modifies other current financial laws, including laws related to financial privacy. The financial privacy provisions generally prohibit financial institutions, including us, from disclosing non-public personal financial information to non-affiliated third parties unless customers have the opportunity to “opt out” of the disclosure.

Community Reinvestment Act.    The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In order for a financial holding company to commence new activity permitted by the Bank Holding Company Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.

The USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act and the Bank Secrecy Act.    A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act of 2001 and the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 substantially broadened the scope of United States anti-money laundering laws and penalties, specifically related to the Bank Secrecy Act, and expanded the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued a number of implementing regulations which apply various requirements of the USA Patriot Act to financial institutions such as our bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with relevant laws or regulations, could have serious legal, reputational and financial consequences for the institution. Because of the significance of regulatory emphasis on these requirements, we will continue to expend significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing our compliance with the Bank Secrecy Act on an ongoing basis.

The Dodd-Frank Act.    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Act (“Dodd-Frank Act”) into law. The Dodd-Frank Act will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, including the designation of certain financial companies as systemically significant, the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.

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Additionally, the Dodd-Frank Act establishes a new framework of authority to conduct systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, or Council, the Federal Reserve, the OCC, and the FDIC.

The following items provide a brief description of certain provisions of the Dodd-Frank Act that may have an effect on us.

• The Dodd-Frank Act significantly reduces the ability of national banks to rely upon federal preemption of state consumer financial laws. Although the OCC, as the primary regulator of national banks, will have 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. This could, in turn, result in significant new regulatory requirements applicable to us and certain of our lending activities, with potentially significant changes in our operations and increases in our compliance costs. It could also result in uncertainty concerning compliance, with attendant regulatory and litigation risks.

• The Dodd-Frank Act makes permanent the general $250,000 deposit insurance limit for insured deposits. Amendments to the FDIC Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to DIF will be calculated. Under the amendments, the assessment base is no longer an institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. Several of these provisions could increase the FDIC deposit insurance premiums paid by us.

• The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.

• The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit exposure to one borrower. Federal banking law currently limits a national bank’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

• The Dodd-Frank Act authorizes the establishment of the Consumer Financial Protection Bureau (“the CFPB”), which has the power to issue rules governing all financial institutions that offer financial services and products to consumers. The CFPB has the authority to monitor markets for consumer financial products to ensure that consumers are protected from abusive practices. Financial institutions will be subject to increased compliance and enforcement costs associated with regulations established by the CFPB.

• The Dodd-Frank Act may create risks of “secondary actor liability” for lenders that provide financing to entities offering financial products to consumers. We may incur compliance and other costs in connection with administration of credit extended to entities engaged in activities covered by Dodd-Frank.

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• The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including ours. The Dodd-Frank Act (1) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for compensation committee members; (3) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers; (4) provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials; (5) prohibits uninstructed broker votes on election of directors, executive compensation matters (including say on pay advisory votes), and other significant matters, and (6) requires disclosure on board leadership structure.

Many requirements of the Dodd-Frank Act will be implemented over time and most will be subject to regulations implemented over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

Available Information

Under the Securities Exchange Act of 1934, we are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). You may read and copy any document filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. We file electronically with the SEC.

We make available, free of charge through our website, our reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Additionally, we have adopted and posted on our website a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer. The address for our website is www.texascapitalbank.com. We will provide a printed copy of any of the aforementioned documents to any requesting shareholder.

ITEM 1A.    RISK FACTORS

An investment in our common stock involves certain risks. You should consider carefully the following risks and other information in this report, including our financial information and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.

Risk Factors Associated With Our Business

We must effectively manage our credit risk.    There are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, including increased risks of

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fraud perpetrated by customers of the bank and risks resulting from uncertainties as to the future value of collateral. The risk of non-payment of loans is inherent in commercial banking. Although we attempt to minimize our credit risk by carefully monitoring the concentration of our loans within specific industries and through prudent loan approval practices in all categories of our lending, we cannot assure you that such monitoring and approval procedures will reduce these lending risks. We cannot assure you that our credit administration personnel, policies and procedures will adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio.

Our results of operations and financial condition would be adversely affected if our allowance for loan losses is not sufficient to absorb actual losses.    Experience in the banking industry indicates that a portion of our loans in all categories of our lending business will become delinquent, and some may only be partially repaid or may never be repaid at all. Our methodology for establishing the adequacy of the allowance for loan losses depends on subjective application of risk grades as indicators of borrowers’ ability to repay. Deterioration in general economic conditions and unforeseen risks affecting customers may have an adverse effect on borrowers’ capacity to repay timely their obligations before risk grades could reflect those changing conditions. In times of improving credit quality, with growth in our loan portfolio, the allowance for loan losses may decrease as a percent of total loans. Changes in economic and market conditions may increase the risk that the allowance would become inadequate if borrowers experience economic and other conditions adverse to their businesses. Maintaining the adequacy of our allowance for loan losses may require that we make significant and unanticipated increases in our provisions for loan losses, which would materially affect our results of operations and capital adequacy. Recognizing that many of our loans individually represent a significant percentage of our total allowance for loan losses, adverse collection experience in a relatively small number of loans could require an increase in our allowance. Federal regulators, as an integral part of their respective supervisory functions, periodically review our allowance for loan losses. The regulatory agencies may require us to change classifications or grades on loans, increase the allowance for loan losses with large provisions for loan losses and to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses required by these regulatory agencies could have a negative effect on our results of operations and financial condition. Additionally, the current proposal from the Financial Accounting Standards Board (“FASB”) for changes to the credit impairment model could require us to increase our allowance for loan losses, and that could have a negative effect on our results of operations and financial condition.

Our growth plans are dependent on the availability of capital and funding.    Our historical ability to raise capital through the sale of common stock and debt securities may become limited by market conditions beyond our control, as has been evidenced with the economic downturn and issues affecting the financial services industry. Due to changes in regulation, trust preferred is no longer viable as source of long-term debt capital, and treatment of trust preferred as capital may be changed by regulation prior to the maturity of the trust preferred. Change in capital treatment of trust preferred may require the Company to issue securities at times and with maturity, conditions, and rates that are disadvantageous. Pricing of capital, in terms of interest or dividend requirements or dilutive impact on earnings available to shareholders, has increased dramatically, and an increase in costs of capital can have a direct impact on operating performance and the ability to achieve growth objectives. Costs of funding could also increase dramatically and affect our growth objectives, as well as our financial performance. Additionally, the FDIC’s guarantee on non-interest bearing deposits was not extended past December 31, 2012; as a result, we could be adversely affected in our ability to attract and maintain non-interest bearing deposits as a source of cost-effective funding. Adverse changes in operating performance or financial condition or changes in statutory or regulatory requirements could make raising additional capital difficult or extremely expensive. Regulators may change capital requirements including previous interpretations of practices related to risk weights that could require us to raise additional capital or reduce asset balances to maintain minimum and well-capitalized levels of regulatory capital. One such change could relate to the assets generated by our mortgage warehouse division. Balances shown as “loans held for sale” are comprised of ownership interests in mortgage loans to which we currently assign a risk weight applicable under current regulation to mortgage loans (50% or 20% for loans guaranteed by the FHA or VA). The OCC is considering whether assets which do not qualify as “participating interests” under ASC 860, should be assigned to the 100% risk weight category associated

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with loans to mortgage companies that are secured by a pledge of mortgage loans as collateral. We believe we have applied the correct risk weights to the ownership interests in mortgage loans held by us and are prepared to defend that position. We cannot predict the likelihood of our success if the OCC chooses to contest risk weights currently applied. We believe our business practices could be changed to maintain the risk weights currently applied, but those changes would create operating and financial risks to which the Bank currently is not exposed. The outcome of a review by the OCC of our approach to the application of risk weights to the ownership interests in mortgage assets is uncertain. An increase in risk weights applied could require the Bank to obtain additional capital to support future growth or reduce our loans held for sale to the detriment of our operating results.

Our operations are significantly affected by interest rate levels.    Our profitability is dependent to a large extent on our net interest income, which is the difference between interest income we earn as a result of interest paid to us on loans and investments and interest we pay to third parties such as our depositors and those from whom we borrow funds. Like most financial institutions, we are affected by changes in general interest rate levels, which are currently at record low levels, and by other economic factors beyond our control. Prolonged periods of unusually low interest rates may have an adverse effect on earnings or returns by reducing yields on loans and other earning assets and by reducing the value of demand deposits, stockholders’ equity and fixed rate liabilities with rates higher than available earning assets. Interest rate risk can result from mismatches between the dollar amount of repricing or maturing assets and liabilities and from mismatches in the timing and rate at which our assets and liabilities reprice. Although we have implemented strategies which we believe reduce the potential effects of changes in interest rates on our results of operations, these strategies will not always be successful. In addition, any substantial and prolonged increase in market interest rates could reduce our customers’ desire to borrow money from us or adversely affect their ability to repay their outstanding loans by increasing their costs since most of our loans have adjustable interest rates that reset periodically. If our borrowers’ ability to repay is affected, our level of non-performing assets would increase and the amount of interest earned on loans would decrease, thereby having an adverse effect on operating results. Additionally, the level of interest rates may have a direct impact on the levels of mortgage origination and could affect the volumes and the profitability of our warehouse lending business. Any of these events could adversely affect our results of operations or financial condition.

Our business faces unpredictable economic and business conditions.    General economic conditions and specific business conditions impact the banking industry and our customers’ businesses. The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we conduct our business. Our continued financial success depends somewhat on factors beyond our control, including:

• national and local economic conditions, as well as general economic consequences of international conditions, such as weakness in European sovereign debt and the impact of that weakness on the US and global economies;

• incidence of customer fraud evident at times of severe economic weakness;

• the supply and demand for investable funds;

• interest rates; and

• federal, state and local laws affecting these matters.

Substantial deterioration in any of the foregoing conditions, as we have experienced with the past economic downturn and continuation of weakened economy and employment growth, can have a material adverse effect on our results of operations and financial condition, and we may not be able to sustain our historical rate of growth. Our bank’s customer base is primarily commercial in nature, and our bank does not have a significant branch network or retail deposit base. In periods of economic downturn, business and commercial deposits may tend to be more volatile than traditional retail consumer deposits and, therefore, during these periods our financial condition and results of operations could be adversely affected to a greater degree than our competitors that have a larger retail customer base. We rely on investors to purchase our loans held for sale in a timely manner. Due to industry and economic conditions, investors may slow their purchase or refuse to purchase the loans.

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We are dependent upon key personnel.    Our success depends to a significant extent upon the performance of certain key employees, the loss of whom could have an adverse effect on our business. Although we have entered into employment agreements with certain employees, we cannot assure you that we will be successful in retaining key employees.

Our business is concentrated in Texas and a downturn in the economy of Texas may adversely affect our business.    A substantial majority of our business is located in Texas. As a result, our financial condition and results of operations may be affected by changes in the Texas economy. A prolonged period of economic recession or other adverse economic conditions in Texas may result in an increase in non-payment of loans, a decrease in collateral value and higher incidence of fraud.

Our business strategy focuses on organic growth within our target markets and, if we fail to manage our growth effectively, it could negatively affect our operations.    We intend to develop our business principally through organic growth. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. In order to execute our growth strategy successfully, we must, among other things:

• identify and expand into suitable markets and lines of business;

• build our customer base;

• maintain credit quality;

• attract sufficient deposits to fund our anticipated loan growth;

• attract and retain qualified bank management in each of our targeted markets;

• identify and pursue suitable opportunities for opening new banking locations;

• maintain adequate regulatory capital; and

• maintain sufficient infrastructure to support growth, including meeting increasing regulatory requirements.

Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our business strategy.

Our business is susceptible to fraud.    As a financial institution, we may experience fraud risk with our loan customers and deposit customers, both directly and indirectly. As a lender we rely on financial data which could turn out to be fraudulent, both when we’re the originator of a loan or when we are purchasing ownership interests in loans originated by others. We believe we have the underwriting and operational controls in place to prevent or detect, but in some cases of collusion with multiple parties the fraud might not be readily detected and could result in losses that would affect our financial results. In addition, our lending customers could experience fraud in their business which would have an effect on their ability to repay us. Our deposit customers could be victims of fraud that may not result from ineffective controls on our part, but we could be expected to share in losses as a result of, and as a means to maintain, our relationship with the customer.

We compete with many larger financial institutions which have substantially greater financial resources than we have.    Competition among financial institutions in Texas is intense. We compete with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders and other financial institutions. Many of these competitors have substantially greater financial resources, lending limits and larger branch networks than we do, and are able to offer a broader range of products and services than we can, including systems and services that could protect customers from cyber threats. Failure to compete effectively for deposit, loan and other banking customers in our markets could cause us to lose market share, slow our growth rate and may have an adverse effect on our financial condition and results of operations.

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The risks involved in commercial lending may be material.    We generally invest a greater proportion of our assets in commercial loans than other banking institutions of our size, and our business plan calls for continued efforts to increase our assets invested in these loans. Commercial loans may involve a higher degree of credit risk than some other types of loans due, in part, to their larger average size, the effects of changing economic conditions on commercial loans, the dependency on the cash flow of the borrowers’ businesses to service debt, the sale of assets securing the loans, and disposition of collateral which may not be readily marketable. Losses incurred on a relatively small number of commercial loans could have a materially adverse impact on our results of operations and financial condition.

Real estate lending in our core Texas markets involves risks related to a decline in value of commercial and residential real estate.    Our real estate lending activities, and the exposure to fluctuations in real estate values, are significant and expected to increase. The market value of real estate can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for our loan portfolio were to decline materially, a significant part of our loan portfolio could become under-collateralized and we may not be able to realize the amount of security that we anticipated at the time of originating the loan. Conditions in certain segments of the real estate industry, including homebuilding, lot development and mortgage lending, may have an effect on values of real estate pledged as collateral in our markets. The inability of purchasers of real estate, including residential real estate, to obtain financing may weaken the financial condition of borrowers dependent on the sale or refinancing of property. Failure to sell some loans held for sale in accordance with contracted terms may result in mark to market charges to other operating income. In addition, after the mark to market, we may transfer the loans into the loans held for investment portfolio where they will then be subject to changes in grade, classification, accrual status, foreclosure, or loss which could have an effect on the adequacy of the allowance for loan losses. When conditions warrant, we may find it beneficial to restructure loans to improve prospects of collectability, and such actions may require loans to be treated as troubled debt restructurings (“TDR”) and/or non-performing loans.

We are subject to environmental liability risk associated with lending activities.    A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Our future profitability depends, to a significant extent, upon revenue we receive from our middle market business customers and their ability to meet their loan obligations.    Our future profitability depends, to a significant extent, upon revenue we receive from middle market business customers, and their ability to continue to meet existing loan obligations. As a result, adverse economic conditions or other factors adversely affecting this market segment may have a greater adverse effect on us than on other financial institutions that have a more diversified customer base.

System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.    The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event and our reliance on third party service providers who provide many of our technology services. Any damage or failure that causes an interruption in our operations could have an adverse effect on our customers. In addition, we must be able to protect the computer systems and network infrastructure utilized by us against physical damage, security breaches and service disruption caused by the Internet or other users. Such

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computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and deter potential customers. Although we, with the help of third-party service providers, will continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, the failure of our customers to maintain appropriate security for their systems may increase our risk of loss. We have and will continue to incur costs with the training of our customers about protection of their systems. However, we cannot be assured that this training will be adequate to avoid risk to our customers or, under unknown circumstances to us. Cyber threats and other fraud committed against our customers by third parties can result in financial losses to us and expose us to reputation risks that would limit our ability to retain customers.

We are subject to extensive government regulation and supervision.    We are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders or debtholders. Federal regulation is also designed to cause the banking system to support governmental policies that may not be beneficial to our bank. These regulations affect our lending practices, capital structure, investment practices, accounting, financial reporting, dividend policy, operations and growth, among other things. These regulations also impose obligations to maintain appropriate policies, procedures and controls, among other things, to detect, prevent and report money laundering and terrorist financing and to verify the identities of our customers. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. The changes in regulation and requirements imposed on financial institutions, such as the Dodd-Frank Act and Basel III accord, could subject us to additional costs, impose requirements for additional capital, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Over a year after the adoption of the Dodd-Frank Act, there are still many related regulations that have not been written, so the effects of those are unknown at this time. In addition, from time to time we receive inquiries from our regulators regarding, among other things, lending practices, reserve methodology, interest rate and operational risk management, regulatory and financial accounting practices and policies and related matters. Additionally, we will be subject to stress testing requirements, and the inability to know what conditions or risk factors will be imposed could subject us to criticism from regulators. 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, may have a material adverse effect on our business, results of operations, financial condition, credit quality or regulatory capital.

We expend substantial effort and incur costs to improve our systems, controls, accounting, operations, information security, compliance, audit capabilities, stress testing requirements, staffing and training in order to satisfy regulatory requirements, but the regulatory authorities may determine that such efforts are insufficient. Failure to comply with relevant laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. In addition, the FDIC has imposed higher general and special assessments on deposits based on general industry conditions and as a result of changes in specific programs, and there is no restriction on the amount by which the FDIC may increase deposit assessments in the future. Any increase in FDIC assessments could affect our earnings to a significant degree, and the industry may be subject to additional assessments, fees or taxes.

Furthermore, Sarbanes-Oxley, and the related rules and regulations promulgated by the SEC and Financial Industry Regulatory Authority (“FINRA”) that are applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. As reports from the Public Company Accounting Oversight Board’s (“PCAOB”) inspections of public accounting firms continue to outline findings and recommendations which could require these firms to perform additional work as part of their financial statement audits, our costs to respond to these added requirements and exposure to adverse findings by the

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PCAOB of the work performed may increase. As a result, we have experienced, and may continue to experience, greater compliance and audit costs, as well as additional staffing costs to comply with these changes.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.    Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Periodically, hurricanes have caused extensive flooding and destruction along the coastal areas of Texas, including communities where we conduct business, and our operations in Houston have been disrupted to a minor degree. While the impact of these hurricanes did not significantly affect us, other severe weather or natural disasters, acts of war or terrorism or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Our management maintains significant control over us.    Our current executive officers and directors beneficially own approximately 4% of the outstanding shares of our common stock. Accordingly, our current executive officers and directors are able to influence, to a significant extent, the outcome of all matters required to be submitted to our stockholders for approval (including decisions relating to the election of directors) and other significant corporate matters.

There are substantial regulatory limitations on changes of control.    With certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock.

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

We are subject to contract claims and litigation pertaining to lending activities, employment practices, fiduciary responsibility related to our wealth management services and other general business matters.    From time to time, customers make claims and take legal action pertaining to our performance of any of the above. Whether customer claims and legal action related to our performance are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us they may result in significant financial liability which could require us to increase capital and/or adversely affect the market perception of us and our products and services as well as impact customer demand for those products and services. In addition, employees can make claims related to our employment practices. If such claims or legal actions are not resolved in a manner favorable to us they may result in significant financial liability and/or adversely affect the market perception of us. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

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Our controls and procedures may fail or be circumvented.    Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

New lines of business or new products and services may subject us to additional risks.    From time to time, we may develop and grow new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition. All service offerings, including current offerings and those which may be provided in the future, may become more risky due to changes in economic, competitive and market conditions beyond our control.

Risks Associated With Our Common Stock

Our stock price can be volatile.    Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

• actual or anticipated variations in quarterly results of operations;

• recommendations by securities analysts;

• operating and stock price performance of other companies that investors deem comparable to us;

• news reports relating to trends, concerns and other issues in the financial services industry, including the failures of other financial institutions in the current economic downturn;

• perceptions in the marketplace regarding us and/or our competitors;

• new technology used, or services offered, by competitors;

• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

• changes in government regulations and interpretation of those regulations or changes in our practices requested or required by regulators; and

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

General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results as evidenced by the current volatility and disruption of capital and credit markets.

The trading volume in our common stock is less than that of other larger financial services companies.    Although our common stock is traded on the Nasdaq Global Select Market, the trading volume in our common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing

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buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall. In addition, a substantial majority of common stock outstanding is held by institutional shareholders, and trading activity involving large positions may increase volatility of the stock price. Concentration of ownership by institutional investors and inability to execute large trades covering large numbers of shares can increase volatility of stock price. Changes in outlook or view of the institutional investors, whether factual or speculative, can have a major impact on stock price.

An investment in our common stock is not an insured deposit.    Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.

The holders of our subordinated notes have rights that are senior to those of our shareholders.    As of December 31, 2012, we had $111.0 million in subordinated notes outstanding that were issued in a public offering. Our subordinated notes are senior to our shares of common stock. As a result, we must make payments on our subordinated notes before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to our shareholders.

The holders of our junior subordinated debentures have rights that are senior to those of our shareholders.    As of December 31, 2012 we had $113.4 million in junior subordinated debentures outstanding that were issued to our statutory trusts. The trusts purchased the junior subordinated debentures from us using the proceeds from the sale of trust preferred securities to third party investors. Payments of the principal and interest on the trust preferred securities are conditionally guaranteed by us to the extent not paid or made by each trust, provided the trust has funds available for such obligations.

Our junior subordinated debentures are senior to our shares of common stock. As a result, we must make payments on our junior subordinated debentures (and the related trust preferred securities) before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any distributions can be made to our shareholders. If certain conditions are met, we have the right to defer interest payments on the junior subordinated debentures (and the related trust preferred securities) at any time or from time to time for a period not to exceed 20 consecutive quarters in a deferral period, during which time no dividends may be paid to holders of our common stock.

We do not currently pay dividends.    Our ability to pay dividends is limited and we may be unable to pay future dividends. We do not currently pay dividends on our common stock. Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital. The ability of our bank subsidiary, Texas Capital Bank, to pay dividends to us is limited by its obligations to maintain sufficient capital and by other general restrictions on its dividends that are applicable to our regulated bank subsidiary. If these regulatory requirements are not met, our subsidiary bank will not be able to pay dividends to us, and we could be unable to pay dividends on our common stock or meet debt or other contractual obligations.

Risks Associated With Our Industry

The earnings of financial services companies are significantly affected by general business and economic conditions.    As a financial services company, our operations and profitability are impacted by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, economic conditions in foreign markets, political issues, legislative and regulatory changes, fluctuation in both debt and equity capital markets, broad trends in industry and finance and the strength of the U.S. economy and the local economies in which we operate, all of which are

18

beyond our control. Continued weakness or further deterioration in economic conditions could result in decreases in loan collateral values and increases in loan delinquencies, non-performing assets and losses on loans and other real estate acquired through foreclosure of loans. Industry conditions, competition and the performance of our bank could also result in a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our results of operations and financial condition.

There can be no assurance that recent and future legislation will not subject us to heightened regulation, and the impact of such legislation on us cannot be reliably determined at this time.    On July 21, 2010, President Obama signed into law the Dodd-Frank Act, which imposes significant regulatory and compliance changes. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with the new statutory and regulatory requirements. Failure to comply with the new requirements or with any future changes in laws, regulations or interpretations of policy may negatively impact our results of operations, financial condition, operating results and capital adequacy. We cannot predict what additional legislation may be enacted affecting banks and bank holding companies and their operations, or what regulations might be adopted by bank regulators or the effects thereof. In light of current economic conditions in the financial markets and the United States economy, Congress and regulators have increased their focus on the regulation of the banking industry. If enacted, any new legislative or regulatory initiatives could affect us in substantial and unpredictable ways, including increased compliance costs and additional operating restrictions on our business, and could result in an adverse effect on our business, financial condition and results of operations.

Financial services companies depend on the accuracy and completeness of information about customers and counterparties.    In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business and, in turn, our results of operations and financial condition.

We compete in an industry that continually experiences technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.    The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services which our customers may require. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Our growth and changes in regulation may cause services and applications provided by vendors to be obsolete and unable to meet our business requirements, competitive needs or requirements imposed upon us by regulatory authorities. Failure to meet business, competitive and regulatory requirements could cause us to suffer additional risks or costs necessary to address those risks.

Consumers and businesses may decide not to use banks to complete their financial transactions.    Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. The possibility of eliminating banks as intermediaries could result in the loss of interest and fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our results of operations and financial condition.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None

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ITEM 2. PROPERTIES

As of December 31, 2012, we conducted business at thirteen full service banking locations and one operations center. Our operations center houses our loan and deposit operations and the customer service call center. We lease the space in which our banking centers and the operations call center are located. These leases expire between March 2013 and May 2024, not including any renewal options that may be available.

The following table sets forth the location of our executive offices, operations center and each of our banking centers.

Type of Location	Address
Executive offices, banking location	2000 McKinney Avenue
	Banking Center — Suite 190 Executive Offices — Suite 700
	Dallas, Texas 75201
Operations center, banking location	2350 Lakeside Drive Banking Center — Suite 105
	Operations Center — Suite 800
	Richardson, Texas 75082
Banking location	14131 Midway Road
	Suite 100
	Addison, Texas 75001
Banking location	5910 North Central Expressway
	Suite 150
	Dallas, Texas 75206
Banking location	5800 Granite Parkway
	Suite 150
	Plano, Texas 75024
Executive offices	500 Throckmorton
	Suite 300
	Fort Worth, Texas 76102
Banking location	570 Throckmorton
	Fort Worth, Texas 76102
Executive offices, banking location	114 West 7th Street Banking center — Suite 100 Executive offices — Suite 300
	Austin, Texas 78701
Banking location	3818 Bee Caves Road
	Austin, Texas 78746
Banking location	One Chisholm Trail Suite 225
	Round Rock, Texas 78681
Executive offices, banking location	745 East Mulberry Street
	Banking center — Suite 150 Executive offices — Suite 350
	San Antonio, Texas 78212
Banking location	7373 Broadway
	Suite 100
	San Antonio, Texas 78209
Executive offices, banking location	One Riverway
	Banking center — Suite 150 Executive offices — Suite 2100
	Houston, Texas 77056
Banking location	Westway II
	4424 West Sam Houston Parkway N.
	Suite 170
	Houston, TX 77041

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ITEM 3. LEGAL PROCEEDINGS

In the fourth quarter of 2012, we recorded a $4.0 million pre-tax charge related to the settlement of a $65.4 million jury verdict that was rendered in August 2011, in rural southeastern Oklahoma. As noted in prior filings, we have attempted to overturn this verdict on post-trial motions and appeal. The case was filed in May 2010 by one of the guarantors of a defaulted loan to an auto dealership in Hugo, Oklahoma, after we already had filed suit in Texas against the debtor and the three co-guarantors to recover the debt, and despite a forum selection clause in the guaranty requiring that any lawsuits be brought in Texas. The guarantor conceded he had signed the guaranty and that the guaranty was valid, but complained that he later had been defrauded because we had failed to notify him about on-going fraud at the dealership. Although he lacked much arguable economic loss, if any, the guarantor repeatedly emphasized to the jury in the Oklahoma case that we were claiming about $6.7 million, plus accumulating interest, on the debt and guaranty in the Texas lawsuit, and that we were asking for those damages to be trebled because of RICO violations. The Oklahoma jury proceeded to award the guarantor a total of $21.8 million in money damages, which was almost exactly three times his estimated prospective liability on his guaranty, and went on to award twice that amount in punitive damages.

In addition to seeking to overturn the Oklahoma jury verdict, we continued to pursue the Texas lawsuit over the guaranty, and in April 2012, we received summary judgment ordering the guarantor to pay us approximately $7 million on the debt. In reaction to these post-trial developments, the guarantor re-asserted the same claims that were the basis for his Oklahoma judgment as counterclaims in the Texas action. We moved for summary judgment against the guarantor on these claims and the guarantor then dismissed those claims with prejudice. We obtained a final judgment on the guaranty and the counterclaims in Texas, and in the fourth quarter of 2012 we moved to dismiss the case and vacate the verdict in Oklahoma on the ground that the final Texas judgment had preclusive effect under the Full Faith and Credit Clause of the U.S. Constitution.

The Oklahoma court ordered a settlement conference, but in advance of that conference the parties conducted a private mediation in December 2012. We reached a confidential settlement under which all litigation against us in the Oklahoma courts and actions by us against the plaintiff in the Texas courts will be dismissed with prejudice. The settlement amount was within policy limits of insurance coverage maintained by the Company, and we are aggressively pursuing claims against the insurance company for more than the pre-tax charge.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The Nasdaq Global Select Market under the symbol “TCBI”. On February 19, 2013, there were approximately 257 holders of record of our common stock.

No cash dividends have ever been paid by us on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Our principal source of funds to pay cash dividends on our common stock would be cash dividends from our bank. The payment of dividends by our bank is subject to certain restrictions imposed by federal and state banking laws, regulations and authorities.

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The following table presents the range of high and low bid prices reported on The Nasdaq Global Select Market for each of the four quarters of 2011 and 2012.

	Price Per Share
Quarter Ended	High		Low
March 31, 2011		26.48		20.20
June 30, 2011		26.79		23.96
September 30, 2011		29.48		21.39
December 31, 2011		30.98		21.70
March 31, 2012		36.61		30.57
June 30, 2012		42.08		32.55
September 30, 2012		49.96		39.50
December 31, 2012		52.17		41.50

Equity Compensation Plan Information

The following table presents certain information regarding our equity compensation plans as of December 31, 2012.

Plan category	Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders		759,685	$	20.47		389,635
Equity compensation plans not approved by security holders		—		—		—
Total		759,685	$	20.47		389,635

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Stock Performance Graph

The following table and graph sets forth the cumulative total stockholder return for the Company’s common stock beginning on August 12, 2003, the date of the Company’s initial public offering, compared to an overall stock market index (Russell 2000 Index) and the Company’s peer group index (Nasdaq Bank Index). The Russell 2000 Index and Nasdaq Bank Index are based on total returns assuming reinvestment of dividends. The graph assumes an investment of $100 on August 12, 2003. The performance graph represents past performance and should not be considered to be an indication of future performance.

	12/31/04		12/31/05		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
Texas Capital
Bancshares, Inc.	$	21.62	$	22.38	$	19.88	$	18.25	$	13.36	$	13.96	$	21.34	$	30.61	$	44.82
Russell 2000
Index RTY		658.72		681.26		796.70		775.75		509.18		633.31		792.00		751.12		861.37
Nasdaq Bank
Index CBNK		3,288.71		3,154.28		3,498.55		2,746.89		2,098.35		1,693.34		1,882.37		1,654.00		1,918.84

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

You should read the selected financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Form 10-K.

	At or For the Year Ended December 31
	2012			2011			2010			2009			2008
	(In thousands, except per share, average share and percentage data)
Consolidated Operating Data (1)
Interest income	$	398,457		$	321,600		$	279,810		$	243,153		$	248,930
Interest expense		21,578			18,663			38,136			46,462			97,193
Net interest income		376,879			302,937			241,674			196,691			151,737
Provision for credit losses		11,500			28,500			53,500			43,500			26,750
Net interest income after provision for credit losses		365,379			274,437			188,174			153,191			124,987
Non-interest income		43,040			32,232			32,263			29,260			22,470
Non-interest expense		219,844			188,201			163,488			145,542			109,651
Income from continuing operations before income taxes		188,575			118,468			56,949			36,909			37,806
Income tax expense		67,866			42,366			19,626			12,522			12,924
Income from continuing operations		120,709			76,102			37,323			24,387			24,882
Loss from discontinued operations (after-tax)		(37	)		(126	)		(136	)		(235	)		(616	)
Net income		120,672			75,976			37,187			24,152			24,266
Preferred stock dividends		—			—			—			5,383			—
Net income available to common shareholders	$	120,672		$	75,976		$	37,187		$	18,769		$	24,266
Consolidated Balance Sheet Data (1)
Total assets (3)	$	10,540,542		$	8,137,225		$	6,445,679		$	5,698,318		$	5,141,034
Loans held for investment		6,785,535			5,572,371			4,711,330			4,457,293			4,027,871
Loans held for sale		3,175,272			2,080,081			1,194,209			693,504			496,351
Loans held for sale from discontinued operations		302			393			490			586			648
Securities available-for-sale		100,195			143,710			185,424			266,128			378,752
Demand deposits		2,535,375			1,751,944			1,451,307			899,492			587,161
Total deposits		7,440,804			5,556,257			5,455,401			4,120,725			3,333,187
Federal funds purchased		273,179			412,249			283,781			580,519			350,155
Other borrowings		1,673,982			1,355,867			14,106			376,510			930,452
Subordinated notes		111,000			—			—			—			—
Trust preferred subordinated debentures		113,406			113,406			113,406			113,406			113,406
Stockholders’ equity		836,242			616,331			528,319			481,360			387,073

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	At or For the Year Ended December 31
	2012			2011			2010			2009			2008
	(In thousands, except per share, average share and percentage data)
Other Financial Data
Income per share
Basic
Income from continuing operations	$	3.09		$	2.04		$	1.02		$	0.56		$	0.89
Net income		3.09			2.03			1.02			0.55			0.87
Diluted
Income from continuing operations	$	3.01		$	1.99		$	1.00		$	0.56		$	0.89
Net income		3.00			1.98			1.00			0.55			0.87
Tangible book value per share (4)		19.96			15.69			13.89			12.96			12.19
Book value per share (4)		20.45			16.24			14.15			13.23			12.44
Weighted average shares
Basic		39,046,340			37,334,743			36,627,329			34,113,285			27,952,973
Diluted		40,165,847			38,333,077			37,346,028			34,410,454			28,048,463
Selected Financial Ratios
Performance Ratios
From continuing operations:
Net interest margin		4.41	%		4.68	%		4.28	%		3.89	%		3.54	%
Return on average assets		1.35	%		1.12	%		0.63	%		0.46	%		0.55	%
Return on average equity		16.93	%		13.39	%		7.23	%		5.15	%		7.46	%
Efficiency ratio		52.35	%		56.15	%		59.68	%		64.41	%		62.94	%
Non-interest expense to average earning assets		2.57	%		2.90	%		2.88	%		2.87	%		2.54	%
From consolidated:
Net interest margin		4.41	%		4.68	%		4.28	%		3.89	%		3.54	%
Return on average assets		1.35	%		1.11	%		0.62	%		0.45	%		0.54	%
Return on average equity		16.92	%		13.37	%		7.21	%		5.10	%		7.28	%
Asset Quality Ratios
Net charge-offs (recoveries) to average loans (2)		0.10	%		0.58	%		1.14	%		0.46	%		0.35	%
Reserve for loan losses to loans held for investment (2)		1.10	%		1.26	%		1.52	%		1.52	%		1.13	%
Reserve for loan losses to non-accrual loans (2)		1.3x			1.3x			.6x			.7x			1.0x
Non-accrual loans to loans (2)		0.82	%		0.98	%		2.38	%		2.15	%		1.18	%
Total NPAs to loans plus OREO (2)		1.06	%		1.58	%		3.25	%		2.74	%		1.81	%
Capital and Liquidity Ratios
Total capital ratio		12.12	%		10.56	%		11.83	%		11.98	%		10.92	%
Tier 1 capital ratio		10.06	%		9.57	%		10.58	%		10.73	%		9.97	%
Tier 1 leverage ratio		9.41	%		8.78	%		9.36	%		10.54	%		10.21	%
Average equity/average assets		7.95	%		8.33	%		8.67	%		8.91	%		7.38	%
Tangible common equity/total tangible assets(4)		7.73	%		7.29	%		7.98	%		8.18	%		7.36	%
Average net loans/average deposits		129.97	%		115.68	%		105.50	%		128.43	%		120.03	%

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(1) The consolidated statement of operating data and consolidated balance sheet data presented above for the five most recent fiscal years ended December 31, have been derived from our audited consolidated financial statements. The historical results are not necessarily indicative of the results to be expected in any future period.

(2) Excludes loans held for sale.

(3) From continuing operations.

(4) Excludes unrealized gains/losses on securities.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements and financial analysis contained in this document that are not historical facts are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). In addition, certain statements may be contained in our future filings with SEC, in press releases, and in oral and written statements made by or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Forward looking statements describe our future plans, strategies and expectations and are based on certain assumptions. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties, many of which are beyond our control that may cause actual results to differ materially from those in such statements. The important factors that could cause actual results to differ materially from the forward looking statements include, but are not limited to, the following:

1) Changes in interest rates and the relationship between rate indices, including LIBOR and Fed Funds

2) Changes in the levels of loan prepayments, which could affect the value of our loans or investment securities

3) Changes in general economic and business conditions in areas or markets where we compete

4) Competition from banks and other financial institutions for loans and customer deposits

5) The failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses and differences in assumptions utilized by banking regulators which could have retroactive impact

6) The loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels

7) Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry. Many of the related regulations are still not written so the potential impact is still unknown

8) Claims and litigation, whether founded or unfounded, may result in significant financial liability if legal actions are not resolved in a manner favorable to us.

Forward-looking statements speak only as of the date on which such statements are made. We have no obligation to update or revise any forward looking statements as a result of new information or future events. In light of these assumptions, risks and uncertainties, the events discussed in any forward looking statements in this annual report might not occur.

Overview of Our Business Operations

We commenced our banking operations in December 1998. An important aspect of our growth strategy has been our ability to service and effectively manage a large number of loans and deposit accounts in multiple markets in Texas. Accordingly, we created an operations infrastructure sufficient to support state-wide lending and banking operations.

The following discussions and analyses present the significant factors affecting our financial condition as of December 31, 2012 and 2011 and results of operations for each of the three years in the period ended December 31, 2012. This discussion should be read in conjunction with our consolidated financial

27

statements and notes to the financial statements appearing later in this report. Please also note the below description about our discontinued operations and how it is reflected in the following discussions of our financial condition and results of operations.

On October 16, 2006, we completed the sale of our residential mortgage lending division (“RML”). The sale was effective as of September 30, 2006, and, accordingly, all operating results for this discontinued component of our operations were reclassified to discontinued operations. All prior periods were restated to reflect the change. Subsequent to the end of the first quarter of 2007, Texas Capital Bank and the purchaser of its residential mortgage loan division (RML) agreed to terminate and settle the contractual arrangements related to the sale of the division.

The loss from discontinued operations was $37,000 and $126,000, net of taxes, for the years ended December 31, 2012 and 2011, respectively. The 2012 and 2011 losses are primarily related to continuing legal expenses incurred in dealing with the remaining loans and requests from investors related to the repurchase of previously sold loans. We still have approximately $302,000 in loans held for sale from discontinued operations that are carried at the estimated market value at year-end, which is less than the original cost. We plan to sell these loans, but timing and price to be realized cannot be determined at this time due to market conditions. In addition, we will address any future requests from investors related to repurchasing loans previously sold. While the balances as of December 31, 2012 and 2011 include a liability for exposure to additional contingencies, including risk of having to repurchase loans previously sold, we recognize that market conditions may result in additional exposure to loss and the extension of time necessary to complete the discontinued mortgage operation. Our mortgage warehouse lending operations were not part of the sale, and are included in the results from continuing operations. Except as otherwise noted, all amounts and disclosures throughout this document reflect only the Company’s continuing operations.

Year ended December 31, 2012 compared to year ended December 31, 2011

We reported net income of $120.7 million, or $3.01 per diluted common share, for the year ended December 31, 2012, compared to $76.1 million, or $1.99 per diluted common share, for the same period in 2011. Return on average equity was 16.93% and return on average assets was 1.35% for the year ended December 31, 2012, compared to 13.39% and 1.12%, respectively, for the same period in 2011.

Net income increased $44.6 million, or 59%, for the year ended December 31, 2012 compared to the same period in 2011. The $44.6 million increase was primarily the result of a $73.9 million increase in net interest income, a $17.0 million decrease in the provision for credit losses and a $10.8 million increase in non-interest income, offset by a $31.6 million increase in non-interest expense, and a $25.5 million increase in income tax expense.

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

Year ended December 31, 2011 compared to year ended December 31, 2010

We reported net income of $76.1 million, or $1.99 per diluted common share, for the year ended December 31, 2011, compared to $37.3 million, or $1.00 per diluted common share, for the same period in 2010. Return on average equity was 13.39% and return on average assets was 1.12% for the year ended December 31, 2011, compared to 7.23% and .63%, respectively, for the same period in 2010.

Net income increased $38.8 million, or 104%, for the year ended December 31, 2011 compared to the same period in 2010. The $38.8 million increase was primarily the result of a $61.3 million increase in net interest income and a $25.0 million decrease in the provision for credit losses, offset by a $24.7 million increase in non-interest expense and a $22.7 million increase in income tax expense.

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

Net Interest Income

Net interest income was $376.8 million for the year ended December 31, 2012 compared to $302.9 million for the same period of 2011. The increase in net interest income was primarily due to an increase of $2.1

28

billion in average earning assets as compared to the same period of 2011. The increase in average earning assets from 2011 included a $2.2 billion increase in average net loans offset by a $39.7 million decrease in average securities. For the year ended December 31, 2012, average net loans and securities represented 98% and 1%, respectively, of average earning assets compared to 96% and 2%, respectively, in 2011.

Average interest bearing liabilities for the year ended December 31, 2012 increased $1.5 billion from the year ended December 31, 2011, which included a $613.4 million increase in interest bearing deposits, an $862.6 million increase in other borrowings and a $30.9 million increase in subordinated notes. For the same periods, the average balance of demand deposits increased to $2.0 billion from $1.5 billion. The average cost of interest bearing liabilities decreased from 0.40% for the year ended December 31, 2011 to 0.35% in 2012, reflecting the continued low market interest rates, and our focus on reducing deposit rates.

Net interest income was $302.9 million for the year ended December 31, 2011 compared to $241.7 million for the same period of 2010. The increase in net interest income was primarily due to an increase of $819.4 million in average earning assets and the increase in our net interest margin. The increase in average earning assets from 2010 included a $915.4 million increase in average net loans offset by a $65.6 million decrease in average securities. For the year ended December 31, 2011, average net loans and securities represented 96% and 2%, respectively, of average earning assets compared to 93% and 4%, respectively, in 2010.

Average interest bearing liabilities for the year ended December 31, 2011 increased $393.7 million from the year ended December 31, 2010, which included a $48.5 million decrease in interest bearing deposits and a $442.3 million increase in other borrowings. At the beginning of the year we actively turned away certain higher priced deposits. For the same periods, the average balance of demand deposits increased to $1.5 billion from $1.1 billion. The average cost of interest bearing liabilities decreased from 0.89% for the year ended December 31, 2010 to 0.40% in 2011, reflecting the continued low market interest rates, and our focus on reducing deposit rates.

Volume/Rate Analysis

	Years Ended December 31,
	2012/2011									2011/2010
	Net Change			Change Due To(1)						Net Change			Change Due To(1)
(in thousands)				Volume			Yield/Rate						Volume			Yield/Rate
Interest income:
Securities(2)	$	(1,912	)	$	(1,788	)	$	(124	)	$	(3,123	)	$	(2,942	)	$	(181	)
Loans held for sale		39,335			48,450			(9,115	)		12,132			15,526			(3,394	)
Loans held for investment		39,460			56,178			(16,718	)		32,618			29,748			2,870
Federal funds sold		(24	)		(18	)		(6	)		(173	)		(169	)		(4	)
Deposits in other banks		(144	)		(152	)		8			236			148			88
Total		76,715			102,670			(25,955	)		41,690			42,311			(621	)
Interest expense:
Transaction deposits		634			180			454			(779	)		(104	)		(675	)
Savings deposits		877			1,178			(301	)		(7,980	)		1,911			(9,891	)
Time deposits		(2,456	)		(296	)		(2,160	)		(6,476	)		(4,497	)		(1,979	)
Deposits in foreign branches		(361	)		(277	)		(84	)		(3,124	)		1,083			(4,207	)
Borrowed funds		4,221			1,360			2,861			(1,114	)		1,819			(2,933	)
Total		2,915			2,145			770			(19,473	)		212			(19,685	)
Net interest income	$	73,800		$	100,525		$	(26,725	)		$61,163		$	42,099		$	19,064

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(1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

(2) Taxable equivalent rates used where applicable assuming a 35% tax rate.

Net interest margin from continuing operations, the ratio of net interest income to average earning assets, decreased from 4.68% in 2011 to 4.41% in 2012. This 27 basis point decrease was a result of a decrease in interest income as a percent of earning assets offset by a reduction in funding costs. Total cost of funding decreased from .27% for 2011 to .24% for 2012.

Net interest margin from continuing operations, the ratio of net interest income to average earning assets, increased from 4.28% in 2010 to 4.68% in 2011. This 40 basis point increase was a result of a decline in the costs of interest bearing liabilities and growth in non-interest bearing deposits. Total cost of funding decreased from .64% for 2010 to .27% for 2011. Also contributing to the increase in net interest margin was a 2 basis point increase in the yield on earning assets from 2010.

Consolidated Daily Average Balances, Average Yields and Rates

	Year ended December 31
	2012								2011							2010
	Average Balance		Revenue / Expense(1)			Yield / Rate			Average Balance		Revenue / Expense(1)		Yield / Rate			Average Balance		Revenue / Expense(1)			Yield / Rate
Assets
Securities—Taxable	$90,796		$	3,681			4.05	%	$	123,124	$	5,186		4.21	%	$	183,363	$	8,023			4.38	%
Securities—Non-taxable(2)		26,579		1,550			5.83	%		33,996		1,957		5.76	%		39,360		2,243			5.70	%
Federal funds sold		11,497		13			0.11	%		21,897		37		0.17	%		112,716		210			0.19	%
Deposits in other banks		61,192		208			0.34	%		107,734		352		0.33	%		47,365		116			0.24	%
Loans held for sale		2,298,651		93,275			4.06	%		1,210,954		53,940		4.45	%		883,033		41,808			4.73	%
Loans held for investment		6,148,860		300,273			4.88	%		5,059,134		260,813		5.16	%		4,475,668		228,195			5.10	%
Less reserve for loan losses		72,087		—			—			67,888		—		—			71,942		—			—
Loans, net		8,375,424		393,548			4.70	%		6,202,200		314,753		5.07	%		5,286,759		270,003			5.11	%
Total earning assets		8,565,488		399,000			4.66	%		6,488,951		322,285		4.97	%		5,669,563		280,595			4.95	%
Cash and other assets		400,472								330,137							281,448
Total assets	$8,965,960								$6,819,088							$5,951,011
Liabilities and stockholders’ equity
Transaction deposits	$752,040		$	829			0.11	%	$	391,100	$	195		0.05	%	$	437,674	$	974			0.22	%
Savings deposits		2,765,089		8,674			0.31	%		2,401,997		7,797		0.32	%		2,142,541		15,777			0.74	%
Time deposits		530,816		2,775			0.52	%		562,654		5,231		0.93	%		913,616		11,707			1.28	%
Deposits in foreign branches		411,891		1,366			0.33	%		490,703		1,727		0.35	%		401,155		4,851			1.21	%
Total interest bearing deposits		4,459,836		13,644			0.31	%		3,846,454		14,950		0.39	%		3,894,986		33,309			0.86	%
Other borrowings		1,585,723		3,141			0.20	%		723,172		1,140		0.16	%		280,899		1,155			0.41	%
Subordinated notes		30,934		2,037			6.58	%		—		—		—			—		—			—
Trust preferred subordinated
debentures		113,406		2,756			2.43	%		113,406		2,573		2.27	%		113,406		3,672			3.24	%
Total interest bearing liabilities		6,189,899		21,578			0.35	%		4,683,032		18,663		0.40	%		4,289,291		38,136			0.89	%
Demand deposits		1,984,171								1,515,021							1,116,260
Other liabilities		78,700								52,888							29,492
Stockholders’ equity		713,190								568,147							515,968
Total liabilities and stockholders’ equity	$8,965,960								$6,819,088							$5,951,011
Net interest income			$377,422								$303,622							$242,459
Net interest margin							4.41	%						4.68	%							4.28	%
Net interest spread							4.31	%						4.57	%							4.06	%
Additional information from discontinued operations:
Loans held for sale from
discontinued operations	$367								$423							$564
Borrowed funds		367								423							564
Net interest income			$		24						$33							$		36
Net interest margin — consolidated							4.41	%						4.68	%							4.28	%

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(1) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. Loan interest income includes loan fees totaling $33.7 million, $27.5 million and $20.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.

(2) Taxable equivalent rates used where applicable assuming a 35% tax rate.

Non-interest income

	Year ended December 31
	2012		2011		2010
	(in thousands)
Service charges on deposit accounts	$6,605		$	6,480	$	6,392
Trust fee income		4,822		4,219		3,846
Bank owned life insurance (BOLI) income		2,168		2,095		1,889
Brokered loan fees		17,596		11,335		11,190
Swap fees		4,909		1,935		1,266
Other(1)		6,940		6,168		7,680
Total non-interest income	$43,040		$	32,232	$	32,263

(1) Other income includes such items as letter of credit fees and other general operating income, none of which account for 1% or more of total interest income and non-interest income.

Non-interest income increased by $10.8 million during the year ended December 31, 2012 to $43.0 million, compared to $32.2 million during the same period in 2011. The increase was primarily due to a $6.3 million increase in brokered loan fees due to an increase in our mortgage warehouse lending volume. Swap fee income increased $3.0 million during the year ended December 31, 2012 due to an increase in swap transactions during 2012. Swap fees are fees related to customer swap transactions and are received from the institution that is our counterparty on the transaction. See Note 20 – Derivative Financial Instruments for further discussion.

Non-interest income decreased slightly during the year ended December 31, 2011 to $32.2 million, compared to $32.3 million during the same period in 2010. The decrease was primarily due to a $2.2 million decrease in equipment rental income included in other non-interest income related to a decline in the leased equipment portfolio. Offsetting this decrease was a $669,000 increase in swap fee income during 2011. Swap fees are fees related to customer swap transactions and are received from the institution that is our counterparty on the transaction. See Note 20 – Derivative Financial Instruments for further discussion.

While management expects continued growth in non-interest income, the future rate of growth could be affected by increased competition from nationwide and regional financial institutions and by decreased demand in mortgage warehouse lending volume. In order to achieve continued growth in non-interest income, we may need to introduce new products or enter into new markets. Any new product introduction or new market entry could place additional demands on capital and managerial resources.

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Non-interest Expense

	Year ended December 31
	2012		2011		2010
		(in thousands)
Salaries and employee benefits	$121,456		$	100,535	$	85,298
Net occupancy expense		14,852		13,657		12,314
Marketing		13,449		11,109		5,419
Legal and professional		17,557		14,996		11,837
Communications and technology		11,158		9,608		8,511
FDIC insurance assessment		5,568		7,543		9,202
Allowance and other carrying costs for OREO		9,075		9,586		10,404
Litigation settlement expense		4,000		—		—
Other(1)		22,729		21,167		20,503
Total non-interest expense	$219,844		$	188,201	$	163,488

(1) Other expense includes such items as courier expenses, regulatory assessments other than FDIC insurance, due from bank charges and other general operating expenses, none of which account for 1% or more of total interest income and non-interest income.

Non-interest expense for the year ended December 31, 2012 increased $31.6 million compared to the same period of 2011 primarily related to increases in salaries and employee benefits, marketing expense, legal and professional expenses and litigation settlement expense.

Salaries and employee benefits expense increased $20.9 million to $121.5 million during the year ended December 31, 2012. This increase resulted primarily from general business growth and costs of performance-based incentives resulting from the increase in stock price.

Marketing expense for the year ended December 31, 2012 increased $2.3 million compared to the same period in 2011. Marketing expense for the year ended December 31, 2012 included $850,000 of direct marketing and advertising expense and $3.1 million in business development expense compared to $669,000 and $2.6 million, respectively, in 2011. Marketing expense for the year ended December 31, 2012 also included $9.5 million for the purchase of miles related to the American Airlines AAdvantage^® program and treasury management deposit programs compared to $7.8 million during 2011. Marketing expense may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.

Legal and professional expense increased $2.6 million, or 17%, for the year ended December 31, 2012 compared to the same period in 2011. Our legal and professional expense will continue to fluctuate from year to year and could increase in the future with growth and as we respond to continued regulatory changes and strategic initiatives, but we should see a decrease in the cost of resolving problem assets under improving economic conditions. See Note 23 – Legal Matters for further discussion.

During the fourth quarter of 2012 we recorded a pre-tax charge of $4.0 million for settlement of the judgment of $65.5 million against us in Oklahoma district court. In the settlement, all litigation against us in the Oklahoma courts and actions by us against the plaintiff in the Texas courts will be dismissed with prejudice. Because the settlement was within policy limits of insurance coverage maintained by us, we have claims against our insurance carrier for more than the charge, and we intend to pursue those claims aggressively.

Communications and technology expense increased $1.6 million to $11.2 million during the year ended December 31, 2012 as a result of general business and customer growth.

FDIC insurance assessment expense decreased by $1.9 million from $7.5 million in 2011 to $5.6 million as a result of changes to the FDIC assessment method.

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Non-interest expense for the year ended December 31, 2011 increased $24.7 million compared to the same period of 2010 primarily related to increases in salaries and employee benefits, marketing expense and legal and professional expenses.

Salaries and employee benefits expense increased $15.2 million to $100.5 million during the year ended December 31, 2011. This increase resulted primarily from general business growth.

Marketing expense for the year ended December 31, 2011 increased $5.7 million compared to the same period in 2010. Marketing expense for the year ended December 31, 2011 included $669,000 of direct marketing and advertising expense and $2.6 million in business development expense compared to $246,000 and $2.2 million, respectively, in 2010. Marketing expense for the year ended December 31, 2011 also included $7.8 million for the purchase of miles related to the American Airlines AAdvantage^® program and treasury management deposit programs compared to $3.0 million during 2010. Marketing expense may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.

Legal and professional expense increased $3.2 million, or 27%, for the year ended December 31, 2011 compared to the same period in 2010. Our legal and professional expense will continue to fluctuate from year to year and could increase in the future as we respond to continued regulatory changes and strategic initiatives, but we should see a decrease in the cost of resolving problem assets under improving economic conditions.

Communications and technology expense increased $1.1 million to $9.6 million during the year ended December 31, 2011 as a result of general business and customer growth.

FDIC insurance assessment expense decreased by $1.7 million from $9.2 million in 2010 to $7.5 million as a result of changes to the FDIC assessment method.

Analysis of Financial Condition

Loans

Our total loans have grown at an annual rate of 15%, 30% and 30% in 2010, 2011 and 2012, respectively, reflecting the build-up of our lending operations. Our business plan focuses primarily on lending to middle market businesses and successful professionals and entrepreneurs, and as such, commercial and real estate loans have comprised a majority of our loan portfolio since we commenced operations, comprising 60% of total loans at December 31, 2012. Construction loans have decreased from 15% of the portfolio at December 31, 2008 to 7% of the portfolio at December 31, 2012. Consumer loans generally have represented 1% or less of the portfolio from December 31, 2008 to December 31, 2012. Loans held for sale relates to our mortgage warehouse lending operations where we invest in mortgage loan ownership interests that are typically sold within 10 to 20 days. Volumes fluctuate based on the level of market demand in the product and the number of days between purchase and sale of the loans. If, due to market conditions, loans are not sold within the normal timeframe, they may be transferred to the loans held for investment portfolio at a lower of cost or fair value. The loans are then subject to normal loan review, grading and reserve allocation requirements.

We originate the substantial majority of the loans held for investment in our portfolio. We also participate in syndicated loan relationships, both as a participant and as an agent. As of December 31, 2012, we have $1.3 billion in syndicated loans, $339.6 million of which we acted as agent. All syndicated loans, whether we act as agent or participant, are underwritten to the same standards as all other loans originated by us. In addition, as of December 31, 2012, $17.2 million of our syndicated loans were on non-accrual, comprised of one loan earning on a cash basis.

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The following summarizes our loans on a gross basis by major category as of the dates indicated (in thousands):

	December 31
	2012		2011		2010		2009		2008
Commercial	$	4,106,419	$	3,275,150	$	2,592,924	$	2,457,533	$	2,276,054
Construction		737,637		422,026		270,008		669,426		667,437
Real estate		1,892,451		1,819,251		1,759,758		1,233,701		988,784
Consumer		19,493		24,822		21,470		25,065		32,671
Equipment leases		69,470		61,792		95,607		99,129		86,937
Loans held for sale		3,175,272		2,080,081		1,194,209		693,504		496,351
Total	$	10,000,742	$	7,683,122	$	5,933,976	$	5,178,358	$	4,548,234

Commercial Loans and Leases.    Our commercial loan portfolio is comprised of lines of credit for working capital and term loans and leases to finance equipment and other business assets. Our energy production loans are generally collateralized with proven reserves based on appropriate valuation standards. Our commercial loans and leases are underwritten after carefully evaluating and understanding the borrower’s ability to operate profitably. Our underwriting standards are designed to promote relationship banking rather than making loans on a transaction basis. Our lines of credit typically are limited to a percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually and are supported by accounts receivable, inventory, equipment and other assets of our clients’ businesses. At December 31, 2012, funded commercial loans and leases totaled approximately $4.2 billion, approximately 42% of our total funded loans.

Real Estate Loans.    Approximately 20% of our real estate loan portfolio (excluding construction loans) and 4% of the total portfolio is comprised of loans secured by properties other than market risk or investment-type real estate. Market risk loans are real estate loans where the primary source of repayment is expected to come from the sale or lease of the real property collateral. We generally provide temporary financing for commercial and residential property. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Our real estate loans generally have maximum terms of five to seven years, and we provide loans with both floating and fixed rates. We generally avoid long-term loans for commercial real estate held for investment. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Appraised values may be highly variable due to market conditions and impact of the inability of potential purchasers and lessees to obtain financing and lack of transactions at comparable values. At December 31, 2012, real estate term loans totaled approximately $1.9 billion, or 19% of our total funded loans; of this total, $1.6 billion were loans with floating rates and $252.8 million were loans with fixed rates.

Construction Loans.    Our construction loan portfolio consists primarily of single- and multi-family residential properties and commercial projects used in manufacturing, warehousing, service or retail businesses. Our construction loans generally have terms of one to three years. We typically make construction loans to developers, builders and contractors that have an established record of successful project completion and loan repayment and have a substantial investment in the borrowers’ equity. However, construction loans are generally based upon estimates of costs and value associated with the completed project. Sources of repayment for these types of loans may be pre-committed permanent loans from other lenders, sales of developed property, or an interim loan commitment from us until permanent financing is obtained. The nature of these loans makes ultimate repayment extremely sensitive to overall economic conditions. Borrowers may not be able to correct conditions of default in loans, increasing risk of exposure to classification, non-performing status, reserve allocation and actual credit loss and foreclosure. These loans typically have floating rates and commitment fees. At December 31, 2012, funded construction real estate loans totaled approximately $737.6 million, approximately 7% of our total funded loans.

Loans Held for Sale.    Our loans held for sale consist of ownership interests purchased in single-family residential mortgages funded through our warehouse lending group. These loans are typically on our

34

balance sheet for 10 to 20 days or less. We have agreements with mortgage lenders and purchase legal ownership interests in individual loans they originate. All loans are underwritten consistent with established programs for permanent financing with financially sound investors. Substantially all loans are conforming loans or loans eligible for sale to federal agencies or government sponsored entities. At December 31, 2012, loans held for sale totaled approximately $3.2 billion, approximately 32% of our total funded loans. Loans held for sale as of December 31, 2012 are net of $436.0 million of participations sold.

Letters of Credit.    We issue standby and commercial letters of credit, and can service the international needs of our clients through correspondent banks. At December 31, 2012, our commitments under letters of credit totaled approximately $84.6 million.

Portfolio Geographic and Industry Concentrations

We continue to lend primarily in Texas. As of December 31, 2012, a substantial majority of the principal amount of the loans held for investment in our portfolio was to businesses and individuals in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions in Texas. The table below summarizes the industry concentrations of our funded loans at December 31, 2012. The risks created by these concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses is appropriate to cover estimated losses on loans at each balance sheet date.

(in thousands)	Amount		Percent of Total Loans
Services	$	3,168,733		31.5	%
Loans held for sale		3,175,272		31.8	%
Investors and investment management companies		1,038,175		10.4	%
Petrochemical and mining		892,303		8.9	%
Contracting — construction and real estate development		808,888		8.1	%
Manufacturing		286,991		2.9	%
Personal/household		185,319		1.9	%
Wholesale		153,448		1.5	%
Retail		175,275		1.8	%
Contracting — trades		64,938		0.6	%
Government		35,509		0.4	%
Agriculture		15,891		0.2	%
Total	$	10,000,742		100.0	%

Our largest concentration in any single industry is in services. Loans extended to borrowers within the services industries include loans to finance working capital and equipment, as well as loans to finance investment and owner-occupied real estate. Significant trade categories represented within the services industries include, but are not limited to, real estate services, financial services, leasing companies, transportation and communication, and hospitality services. Borrowers represented within the real estate services category are largely owners and managers of both residential and non-residential commercial real estate properties. Personal/household loans include loans to certain successful professionals and entrepreneurs for commercial purposes, in addition to consumer loans. Loans held for sale are those loans originated by our mortgage warehouse lending group. Loans extended to borrowers within the contracting industry are comprised largely of loans to land developers and to both heavy construction and general commercial contractors. Many of these loans are secured by real estate properties, the development of which is or may be financed by our bank. Loans extended to borrowers within the petrochemical and mining industries are predominantly loans to finance the exploration and production of petroleum and natural gas. These loans are generally secured by proven petroleum and natural gas reserves.

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We make loans that are appropriately collateralized under our credit standards. Approximately 97% of our funded loans are secured by collateral. Over 90% of the real estate collateral is located in Texas. The table below sets forth information regarding the distribution of our funded loans among various types of collateral at December 31, 2012 (in thousands except percentage data):

	Amount		Percent of Total Loans
Collateral type:
Ownership interests in loans held for sale	$	3,175,272		31.8	%
Business assets		2,712,751		27.1	%
Real property		2,630,088		26.2	%
Energy		769,466		7.7	%
Unsecured		256,614		2.6	%
Highly liquid assets		195,480		2.0	%
Other assets		193,668		1.9	%
Rolling stock		41,736		0.4	%
U. S. Government guaranty		25,667		0.3	%
Total	$	10,000,742		100.0	%

As noted in the table above, 26% of our loans are secured by real estate. The table below summarizes our real estate loan portfolio as segregated by the type of property securing the credit. Property type concentrations are stated as a percentage of year-end total real estate loans as of December 31, 2012 (in thousands except percentage data):

	Amount		Percent of Total Real Estate Loans
Property type:
Market risk
Commercial buildings	$	714,647		27.2	%
Unimproved land		123,437		4.7	%
Apartment buildings		311,088		11.8	%
Shopping center/mall buildings		176,807		6.7	%
1-4 Family dwellings (other than condominium)		310,422		11.8	%
Residential lots		161,938		6.2	%
Hotel/motel buildings		134,358		5.1	%
Other		301,144		11.4	%
Other than market risk
Commercial buildings		207,417		7.9	%
1-4 Family dwellings (other than condominium)		71,683		2.7	%
Other		117,147		4.5	%
Total real estate loans	$	2,630,088		100.0	%

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The table below summarizes our market risk real estate portfolio as segregated by the geographic region in which the property is located (in thousands except percentage data):

	Amount		Percent of Total
Geographic region:
Dallas/Fort Worth	$	801,454		35.9	%
Houston		444,019		19.9	%
Austin		282,277		12.6	%
San Antonio		259,224		11.6	%
Other Texas cities		255,332		11.4	%
Other states		191,535		8.6	%
Total market risk real estate loans	$	2,233,841		100.0	%

We extend market risk real estate loans, including both construction/development financing and limited term financing, to professional real estate developers and owners/managers of commercial real estate projects and properties who have a demonstrated record of past success with similar properties. Collateral properties include office buildings, warehouse/distribution buildings, shopping centers, apartment buildings, residential and commercial tract development located primarily within our five major metropolitan markets in Texas. As such loans are generally repaid through the borrowers’ sale or lease of the properties, loan amounts are determined in part from an analysis of pro forma cash flows. Loans are also underwritten to comply with product-type specific advance rates against both cost and market value. We engage a variety of professional firms to supply appraisals, market study and feasibility reports, environmental assessments and project site inspections to complement our internal resources to best underwrite and monitor these credit exposures.

The determination of collateral value is critically important when financing real estate. As a result, obtaining current and objectively prepared appraisals is a major part of our underwriting and monitoring processes. Generally, our policy requires a new appraisal every three years. However, in the current economic downturn where real estate values have been fluctuating rapidly, more current appraisals are obtained when warranted by conditions such as a borrower’s deteriorating financial condition, their possible inability to perform on the loan, and the increased risks involved with reliance on the collateral value as sole repayment of the loan. Generally, loans graded substandard or worse where real estate is a material portion of the collateral value and/or the income from the real estate or sale of the real estate is the primary source of debt service, annual appraisals are obtained. In all cases, appraisals are reviewed by a third party to determine reasonableness of the appraised value. The third party reviewer will challenge whether or not the data used is appropriate and relevant, form an opinion as to the appropriateness of the appraisal methods and techniques used, and determine if overall the analysis and conclusions of the appraiser can be relied upon. Additionally, the third party reviewer provides a detailed report of that analysis. Further review is conducted by our credit officers, as well as by the Bank’s managed asset committee. These additional steps of review ensure that the underlying appraisal and the third party analysis can be relied upon. If we have differences, we will address those with the reviewer and determine the best method to resolve any differences. Both the appraisal process and the appraisal review process have been difficult in the current economic environment with the lack of comparable sales which is partially a result of the lack of available financing which has ultimately led to overall depressed real estate values.

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Large Credit Relationships

The market areas we serve primarily include the five major metropolitan markets of Texas, including Austin, Dallas, Fort Worth, Houston and San Antonio. As a result, we originate and maintain large credit relationships with numerous customers in the ordinary course of business. The legal limit of our bank is approximately $142 million and our house limit is generally $25 million or less. Larger hold positions will be accepted occasionally for exceptionally strong borrowers and otherwise where business opportunity and perceived credit risk warrant a somewhat larger investment. We consider large credit relationships to be those with commitments equal to or in excess of $10.0 million. The following table provides additional information on our large credit relationships outstanding at year-end (in thousands):

	2012						2011
			Period-End Balances						Period-End Balances
	Number of Relationships		Committed		Outstanding		Number of Relationships		Committed		Outstanding
$20.0 million and greater		86	$	2,123,328	$	1,339,070		39	$	943,137	$	683,371
$10.0 million to $19.9 million		178		2,467,089		1,715,180		159		2,212,434		1,593,248

Growth in period end outstanding balances related to large credit relationships primarily resulted from an increase in number of commitments. The following table summarizes the average per relationship committed and average outstanding loan balance related to our large credit relationships at year-end (in thousands):

	2012 Average Balance				2011 Average Balance
	Committed		Outstanding		Committed		Outstanding
$20.0 million and greater	$	24,690	$	15,571	$	24,183	$	17,522
$10.0 million to $19.9 million		13,860		9,636		13,915		10,020

Loan Maturity and Interest Rate Sensitivity on December 31, 2012

	Remaining Maturities of Selected Loans
(in thousands)	Total		Within 1 Year		1-5 Years		After 5 Years
Loan maturity:
Commercial	$	4,106,419	$	1,639,530	$	2,334,916	$	131,973
Construction		737,637		204,766		452,734		80,137
Real estate		1,892,451		401,730		1,026,589		464,132
Consumer		19,493		10,616		4,824		4,053
Equipment leases		69,470		9,220		59,866		384
Total loans held for investment	$	6,825,470	$	2,265,862	$	3,878,929	$	680,679
Interest rate sensitivity for selected loans with:
Predetermined interest rates	$	1,170,845	$	787,464	$	284,165	$	99,216
Floating or adjustable interest rates		5,654,625		1,478,398		3,594,764		581,463
Total loans held for investment	$	6,825,470	$	2,265,862	$	3,878,929	$	680,679

Interest Reserve Loans

As of December 31, 2012, we had $243.7 million in loans with interest reserves, which represents approximately 33% of our construction loans. Loans with interest reserves are common when originating construction loans, but the use of interest reserves is carefully controlled by our underwriting standards.

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The use of interest reserves is based on the feasibility of the project, the creditworthiness of the borrower and guarantors, and the loan to value coverage of the collateral. The interest reserve account allows the borrower, when financial condition precedents are met to draw loan funds to pay interest charges on the outstanding balance of the loan. When drawn, the interest is capitalized and added to the loan balance, subject to conditions specified at the time the credit is approved and during the initial underwriting. We have effective and ongoing controls for monitoring compliance with loan covenants for advancing funds and determination of default conditions. When lending relationships involve financing of land on which improvements will be constructed, construction funds are not advanced until the borrower has received lease or purchase commitments which will meet cash flow coverage requirements, and/or our analysis of market conditions and project feasibility indicate to management’s satisfaction that such lease or purchase commitments are forthcoming and/or other sources of repayment have been identified to repay the loan. We maintain current financial statements on the borrowing entity and guarantors, as well as periodic inspections of the project and analysis of whether the project is on schedule or delayed. Updated appraisals are ordered when necessary to validate the collateral values to support all advances, including reserve interest. Advances of interest reserves are discontinued if collateral values do not support the advances or if the borrower does not comply with other terms and conditions in the loan agreements. In addition, most of our construction lending is performed in Texas and our lenders are very familiar with trends in local real estate. At a point where we believe that our collateral position is jeopardized, we retain the right to stop the use of the interest reserves. As of December 31, 2012, $15.3 million of our loans with interest reserves were on nonaccrual.

Non-performing Assets

Non-performing assets include non-accrual loans and leases and repossessed assets. The table below summarizes our non-accrual loans by type (in thousands):

	As of December 31
	2012		2011		2010
Non-accrual loans(1)
Commercial	$15,373		$	12,913	$	42,543
Construction		17,217		21,119		21
Real estate		23,066		19,803		62,497
Consumer		57		313		706
Leases		120		432		6,323
Total non-accrual loans		55,833		54,580		112,090
Repossessed assets:
OREO(3)		15,991		34,077		42,261
Other repossessed assets		42		1,516		451
Total other repossessed assets		16,033		35,593		42,712
Total non-performing assets	$71,866		$	90,173	$	154,802
Restructured loans(4)	$	10,407	$	25,104	$	4,319
Loans past due 90 days and accruing(2)	$	3,674	$	5,467	$	6,706

(1) The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. If these loans had been current throughout their terms, interest and fees on loans would have increased by approximately $2.4 million, $5.9 million and $10.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

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(2) At December 31, 2012, 2011 and 2010, loans past due 90 days and still accruing includes premium finance loans of $2.8 million, $2.5 million and $3.3 million, respectively. These loans are generally secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

(3) At December 31, 2012, 2011 and 2010, OREO balance is net of $5.6 million, $10.7 million and $12.9 million valuation allowance, respectively.

(4) As of December 31, 2012, 2011 and 2010, non-accrual loans included $19.6 million, $13.8 million and 26.5 million, respectively, in loans that met the criteria for restructured.

Total nonperforming assets at December 31, 2012 decreased $18.3 million from December 31, 2011, compared to a $64.6 million increase from December 31, 2010 to December 31, 2011. We experienced a decrease in levels of nonperforming assets in 2012 and 2011 and an overall improvement in credit quality. As a result, our reserve for loan losses as a percent of loans, as well as provision for credit losses, decreased.

The table below summarizes the non-accrual loans as segregated by loan type and type of property securing the credit as of December 31, 2012 (in thousands):

Non-accrual loans:
Commercial
Lines of credit secured by the following:
Various single family residences and notes receivable	$	4,229
Assets of the borrowers		10,907
Other		237
Total commercial		15,373
Real estate
Secured by:
Commercial property		8,834
Unimproved land and/or developed residential lots		8,291
Single family residences		2,137
Other		3,804
Total real estate		23,066
Construction
Secured by:
Unimproved land and/or developed residential lots		17,217
Consumer		57
Leases (commercial leases primarily secured by assets of the lessor)		120
Total non-accrual loans	$	55,833

Reserves on impaired loans were $3.9 million at December 31, 2012, compared to $5.3 million at December 31, 2011 and $14.7 million at December 31, 2010. We recognized $2.6 million in interest income on non-accrual loans during 2012 compared to $2.2 million in 2011 and $566,000 in 2010. Additional interest income that would have been recorded if the loans had been current during the years ended December 31, 2012, 2011 and 2010 totaled $2.4 million, $5.9 million and $10.5 million, respectively. Average impaired loans outstanding during the years ended December 31, 2012, 2011 and 2010 totaled $66.4 million, $71.0 million and $120.6 million, respectively.

Generally, we place loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

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When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. As of December 31, 2012, $17.2 million of our non-accrual loans were earning on a cash basis. A loan is placed back on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the original loan agreement. Reserves on impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral.

At December 31, 2012, we had $3.7 million in loans past due 90 days and still accruing interest. Of this total, $454,000 are loans guaranteed as to both interest and principal by the USDA. In addition, $2.8 million are premium finance loans. These loans are primarily secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

Restructured loans are loans on which, due to the borrower’s financial difficulties, we have granted a concession that we would not otherwise consider for borrowers of similar credit. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, or a combination of the two. Modifications of terms that could potentially qualify as a restructuring include reduction of contractual interest rate, extension of the maturity date at a contractual interest rate lower than the current rate for new debt with similar risk, or a reduction of the face amount of debt, either forgiveness of principal or accrued interest. As of December 31, 2012 we have $10.4 million in loans considered restructured that are not on nonaccrual. These loans have $599,000 in unfunded commitments at December 31, 2012. Of the nonaccrual loans at December 31, 2012, $19.6 million met the criteria for restructured. A loan continues to qualify as restructured until a consistent payment history has been evidenced, generally no less than twelve months. Assuming that the restructuring agreement specifies an interest rate at the time of the restructuring that is greater than or equal to the rate that we are willing to accept for a new extension of credit with comparable risk, then the loan no longer has to be considered a restructuring if it is in compliance with modified terms in calendar years after the year of the restructuring.

Potential problem loans consist of loans that are performing in accordance with contractual terms, but for which we have concerns about the borrower’s ability to comply with repayment terms because of the borrower’s potential financial difficulties. We monitor these loans closely and review their performance on a regular basis. At December 31, 2012 and 2011, we had $10.9 million and $18.2 million, respectively, in loans of this type which were not included in either non-accrual or 90 days past due categories.

The table below presents a summary of the activity related to OREO (in thousands):

	Year ended December 31
	2012			2011			2010
Beginning balance	$	34,077		$	42,261		$	27,264
Additions		3,434			22,180			29,559
Sales		(14,637	)		(23,566	)		(6,058	)
Valuation allowance for OREO		(4,488	)		(3,922	)		(6,587	)
Direct write-downs		(2,395	)		(2,876	)		(1,917	)
Ending balance	$	15,991		$	34,077		$	42,261

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The following table summarizes the assets held in OREO at December 31, 2012 (in thousands):

OREO:
Unimproved commercial real estate lots and land	$	3,116
Undeveloped land and residential lots		8,820
Multifamily lots and land		501
Single-family residences		2,453
Other		1,101
Total OREO	$	15,991

When foreclosure occurs, fair value, which is generally based on appraised values, may result in partial charge-off of a loan upon taking property, and so long as the property is retained, reductions in appraised values will result in valuation adjustments taken as non-interest expense. In addition, if the decline in value is believed to be permanent and not just driven by market conditions, a direct write-down to the OREO balance may be taken. We generally pursue sales of OREO when conditions warrant, but we may choose to hold certain properties for a longer term, which can result in additional exposure related to the appraised values during that holding period. During the year ended December 31, 2012, we recorded $6.9 million in valuation expense. Of the $6.9 million, $4.5 million related to increases to the valuation allowance, and $2.4 million related to direct write-downs.

Summary of Loan Loss Experience

The provision for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent with management’s assessment of the collectability of the loan portfolio in light of current economic conditions and market trends. We recorded a provision for credit losses of $11.5 million for the year ended December 31, 2012, $28.5 million for the year ended December 31, 2011, and $53.5 million for the year ended December 31, 2010. The amount of reserves and provision required to support the reserve generally increased in 2010 as a result of credit deterioration in our loan portfolio driven by negative changes in national and regional economic conditions and the impact of those conditions on the financial condition of borrowers and the values of assets, including real estate assets, pledged as collateral. However, in 2012 and 2011 we experienced improvements in credit quality, which resulted in decreases in the levels of reserves and provision. We experienced improvements in all credit quality ratios during 2012, and we expect to see some continued improvement in credit quality in 2013.

The reserve for loan losses is comprised of specific reserves for impaired loans and an estimate of losses inherent in the portfolio at the balance sheet date, but not yet identified with specified loans. We regularly evaluate our reserve for loan losses to maintain an appropriate level to absorb estimated loan losses inherent in the loan portfolio. Factors contributing to the determination of reserves include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. All loan commitments rated substandard or worse and greater than $500,000 are specifically reviewed for loss potential. For loans deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those loans. For purposes of determining the general reserve, the portfolio is segregated by product types to recognize differing risk profiles among categories, and then further segregated by credit grades. Credit grades are assigned to all loans. Each credit grade is assigned a risk factor, or reserve allocation percentage. These risk factors are multiplied by the outstanding principal balance and risk-weighted by product type to calculate the required reserve. A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit. Even though portions of the allowance may be allocated to specific loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

The reserve allocation percentages assigned to each credit grade have been developed based primarily on an analysis of our historical loss rates. The allocations are adjusted for certain qualitative factors for such

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things as general economic conditions, changes in credit policies and lending standards. Changes in the trend and severity of problem loans can cause the estimation of losses to differ from past experience. In addition, the reserve considers the results of reviews performed by independent third party reviewers as reflected in their confirmations of assigned credit grades within the portfolio. The portion of the allowance that is not derived by the allowance allocation percentages compensates for the uncertainty and complexity in estimating loan and lease losses including factors and conditions that may not be fully reflected in the determination and application of the allowance allocation percentages. We evaluate many factors and conditions in determining the unallocated portion of the allowance, including the economic and business conditions affecting key lending areas, credit quality trends and general growth in the portfolio. The allowance is considered appropriate, given management’s assessment of potential losses within the portfolio as of the evaluation date, the significant growth in the loan and lease portfolio, current economic conditions in the Company’s market areas and other factors.

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality. The changes are reflected in the general reserve and in specific reserves as the collectability of larger classified loans is evaluated with new information. As our portfolio has matured, historical loss ratios have been closely monitored, and our reserve adequacy relies primarily on our loss history. The review of reserve adequacy is performed by executive management and presented to our board of directors for their review, consideration and ratification on a quarterly basis.

The reserve for credit losses, which includes a liability for losses on unfunded commitments, totaled $78.2 million at December 31, 2012, $72.8 million at December 31, 2011 and $73.4 million at December 31, 2010. The total reserve percentage decreased to 1.15% at year-end 2012 from 1.31% and 1.56% of loans held for investment at December 31, 2011 and 2010, respectively. The total reserve percentage had increased in 2010 as a result of the effects of national and regional economic conditions on borrowers and values of assets pledged as collateral. The combined reserve is starting to trend down as we recognize losses on loans for which there were specific or general allocations of reserves and see improvement in our overall credit quality. The overall reserve for loan losses continued to result from consistent application of the loan loss reserve methodology as described above. At December 31, 2012, we believe the reserve is sufficient to cover all expected losses in the portfolio and has been derived from consistent application of the methodology described above. Should any of the factors considered by management in evaluating the adequacy of the allowance for loan losses change, our estimate of expected losses in the portfolio could also change, which would affect the level of future provisions for loan losses.

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The table below presents a summary of our loan loss experience for the past five years (in thousands except percentage and multiple data):

	Year Ended December 31
	2012			2011			2010			2009			2008
Reserve for loan losses:
Beginning balance	$	70,295		$	71,510		$	67,931		$	45,365		$	31,686
Loans charged-off:
Commercial		6,708			8,518			27,723			4,000			7,395
Real estate — construction		—			—			12,438			6,508			1,866
Real estate — term		899			21,275			9,517			4,696			4,168
Consumer		49			317			216			502			193
Equipment leases		204			1,218			1,555			4,022			12
Total charge-offs		7,860			31,328			51,449			19,728			13,634
Recoveries:
Commercial		832			1,188			176			124			759
Real estate — construction		10			248			1			13			—
Real estate — term		812			350			138			53			47
Consumer		33			9			4			28			13
Equipment leases		108			383			158			54			79
Total recoveries		1,795			2,178			477			272			898
Net charge-offs		6,065			29,150			50,972			19,456			12,736
Provision for loan losses		10,107			27,935			54,551			42,022			26,415
Ending balance	$74,337			$	70,295		$	71,510		$	67,931		$	45,365
Reserve for off-balance sheet credit losses:
Beginning balance	$2,462			$	1,897		$	2,948		$	1,470		$	1,135
Provision (benefit) for off-balance sheet credit losses		1,393			565			(1,051	)		1,478			335
Ending balance	$3,855			$	2,462		$	1,897		$	2,948		$	1,470
Total reserve for credit losses	$78,192			$	72,757		$	73,407		$	70,879		$	46,835
Total provision for credit losses	$11,500			$	28,500		$	53,500		$	43,500		$	26,750
Reserve for loan losses to loans held for investment(2)		1.10	%		1.26	%		1.52	%		1.52	%		1.16	%
Net charge-offs to average loans(2)		0.10	%		0.58	%		1.14	%		0.46	%		0.35	%
Total provision for credit losses to average loans(2)		0.19	%		0.56	%		1.20	%		1.04	%		0.73	%
Recoveries to total charge-offs		22.84	%		6.95	%		0.93	%		1.38	%		6.59	%
Reserve for off-balance sheet credit losses to off- balance sheet credit commitments		0.14	%		0.14	%		0.14	%		0.24	%		0.10	%
Combined reserves for credit losses to loans held for investment(2)		1.15	%		1.31	%		1.56	%		1.59	%		1.16	%
Non-performing assets:
Non-accrual loans(1) (5)	$55,833			$	54,580		$	112,090		$	95,625		$	47,499
OREO(4)		15,991			34,077			42,261			27,264			25,904
Other repossessed assets		42			1,516			451			162			25
Total	$71,866			$	90,173		$	154,802		$	123,051		$	73,428
Restructured loans	$10,407			$	25,104		$	4,319		$	—		$	—
Loans past due 90 days and still accruing(3)	$3,674			$	5,467		$	6,706		$	6,081		$	4,115
Reserve as a percent of non-performing loans		1.3	x		1.3	x		.6	x		.7	x		1.0	x

1) The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid

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interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. If these loans had been current throughout their terms, interest and fees on loans would have increased by approximately $2.4 million, $5.9 million and $10.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

2) Excludes loans held for sale.

3) At December 31, 2012, 2011 and 2010, loans past due 90 days and still accruing includes premium finance loans of $2.8 million, $2.5 million and $3.3 million, respectively. These loans are generally secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

4) At December 31, 2012, 2011 and 2010, OREO balance is net of $5.6 million, $10.7 million and $12.9 million valuation allowance, respectively.

5) As of December 31, 2012, 2011 and 2010, non-accrual loans included $19.6 million, $13.8 million and $26.5 million, respectively, in loans that met the criteria for restructured.

Loan Loss Reserve Allocation

	December 31
	2012					2011					2010					2009					2008
(in thousands except percentage data)	Reserve		% of Loans(1)			Reserve		% of Loans(1)			Reserve		% of Loans(1)			Reserve		% of Loans(1)			Reserve		% of Loans(1)
Loan category:
Commercial	$	21,547		60	%	$	17,337		59	%	$15,918			55	%	$33,269			55	%	$23,348			56	%
Construction		12,097		11	%		7,845		8	%		7,336		6	%		10,974		15	%		7,563		17	%
Real estate		30,893		28	%		33,721		32	%		38,049		37	%		14,874		28	%		10,518		24	%
Consumer		226		0	%		223		—			306		—			1,258		—			1,095		1	%
Equipment leases		2,460		1	%		2,356		1	%		5,405		2	%		2,960		2	%		1,790		2	%
Unallocated		7,114		—			8,813		—			4,496		—			4,596		—			1,051		—
Total	$	74,337		100	%	$	70,295		100	%	$	71,510		100	%	$	67,931		100	%	$	45,365		100	%

(1) Excludes loans held for sale.

As our credit quality has improved during 2012, increases in the reserve allocated to loan categories are due primarily to growth in the overall loan portfolio. We have traditionally maintained an unallocated reserve component to allow for uncertainty in economic and other conditions affecting the quality of the loan portfolio. The unallocated portion of our loan loss reserve has decreased since December 31, 2011. We believe the level of unallocated reserves at December 31, 2012 continues to be warranted due to the ongoing weak economic environment which has produced more frequent losses, including those resulting from fraud by borrowers. Our methodology used to calculate the allowance considers historical losses, however, the historical loss rates for specific product types or credit risk grades may not fully incorporate the effects of continued weakness in the economy. In addition, a substantial portion of losses realized over the past several years related to commercial real estate loans. Continuing uncertainty and illiquidity in the commercial real estate market has produced and continues to cause material changes in appraised values that can influence our impairment calculations on currently impaired loans and on pass-rated loans that may experience weakness if economic conditions and valuations do not stabilize.

Securities Portfolio

Securities are identified as either held-to-maturity or available-for-sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Available-for-sale securities are securities that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available-for-sale are carried at fair

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value. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income (loss) in stockholders’ equity, net of taxes. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments.

During the year ended December 31, 2012, we maintained an average securities portfolio of $117.4 million compared to an average portfolio of $157.1 million for the same period in 2011 and $222.7 million for the same period in 2010. At December 31, 2012 and 2011, the portfolios were primarily comprised of mortgage-backed securities. Of the mortgage-backed securities, substantially all are guaranteed by U.S. government agencies. Our portfolio included no impaired securities during 2012 and 2011.

Our net unrealized gain on the securities portfolio value decreased due to the reduction in balances held from a net gain of $7.3 million, which represented 5.32% of the amortized cost, at December 31, 2011, to a net gain of $5.0 million, which represented 5.29% of the amortized cost, at December 31, 2012. During 2011, the unrealized gain on the securities portfolio value decreased, also as a result of the reduced balances held, from a net gain of $8.2 million, which represented 4.65% of the amortized cost, at December 31, 2010, to a net gain of $7.3 million, which represented 4.65% of the amortized cost, at December 31, 2011. Changes in value reflect changes in market interest rates and the total balance of securities.

The average expected life of the mortgage-backed securities was 1.6 years at December 31, 2012 and 1.7 years at December 31, 2011. The effect of possible changes in interest rates on our earnings and equity is discussed under “Interest Rate Risk Management.”

The following presents the amortized cost and fair values of the securities portfolio at December 31, 2012, 2011 and 2010 (in thousands):

	At December 31
	2012				2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale:
Mortgage-backed securities	$57,342		$	61,581	$	84,363	$	90,083	$	126,838	$	133,724
Corporate securities		5,000		5,080		5,000		5,225		5,000		5,000
Municipals		25,300		25,894		29,577		30,742		37,841		39,085
Equity securities(1)		7,519		7,640		7,506		7,660		7,506		7,615
Other		—		—		10,000		10,000		—		—
Total available-for-sale securities	$95,161		$	100,195	$	136,446	$	143,710	$	177,185	$	185,424

(1) Equity securities consist of Community Reinvestment Act funds.

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The amortized cost and estimated fair value of securities are presented below by contractual maturity (in thousands except percentage data):

	At December 31, 2012
	Less Than One Year			After One Through Five Years			After Five Through Ten Years			After Ten Years			Total
Available-for-sale:
Mortgage-backed securities:(1)
Amortized cost	$656			$	5,698		$	23,111		$	27,877		$	57,342
Estimated fair value		690			6,113			24,948			29,830			61,581
Weighted average yield(3)		4.20	%		5.29	%		4.86	%		3.41	%		4.19	%
Corporate securities:
Amortized cost		—			5,000			—			—			5,000
Estimated fair value		—			5,080			—			—			5,080
Weighted average yield(3)		—			7.38	%		—			—			7.38	%
Municipals:(2)
Amortized cost		6,575			16,448			2,277			—			25,300
Estimated fair value		6,646			16,895			2,353			—			25,894
Weighted average yield(3)		5.75	%		5.66	%		6.01	%		—			5.72	%
Equity securities:
Amortized cost		7,519			—			—			—			7,519
Estimated fair value		7,640			—			—			—			7,640
Total available-for-sale securities:
Amortized cost													$95,161
Estimated fair value													$100,195
Available-for-sale:
Mortgage-backed securities:(1)
Amortized cost	$	13		$	10,420		$	31,502		$	42,428		$	84,363
Estimated fair value		13			11,095			33,745			45,230			90,083
Weighted average yield(3)		6.50	%		4.85	%		4.71	%		3.79	%		4.26	%
Corporate securities:
Amortized cost		—			5,000			—			—			5,000
Estimated fair value		—			5,225			—			—			5,225
Weighted average yield(3)		—			7.38	%		—			—			7.38	%
Municipals:(2)
Amortized cost		4,184			18,980			6,413			—			29,577
Estimated fair value		4,213			19,784			6,745			—			30,742
Weighted average yield(3)		5.36	%		5.51	%		5.86	%		—			5.57	%
Equity securities:(4)
Amortized cost		7,506			—			—			—			7,506
Estimated fair value		7,660			—			—			—			7,660
Other securities:
Amortized cost		10,000			—			—			—			10,000
Estimated fair value		10,000			—			—			—			10,000
Weighted average yield(3)		0.10	%		—			—			—			0.10	%
Total available-for-sale securities:
Amortized cost													$	136,446
Estimated fair value													$	143,710

47

(1) Actual maturities may differ significantly from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. The average expected life of the mortgage-backed securities was 1.6 years at December 31, 2012.

(2) Yields have been adjusted to a tax equivalent basis assuming a 35% federal tax rate.

(3) Yields are calculated based on amortized cost.

(4) These equity securities do not have a stated maturity.

The fair value of investment securities is based on prices obtained from independent pricing services which are based on quoted market prices for the same or similar securities. We have obtained documentation from the primary pricing service we use about their processes and controls over pricing. In addition, on a quarterly basis we independently verify the prices that we receive from the service provider using two additional independent pricing sources. Any significant differences are investigated and resolved.

At December 31, 2012 and 2011, we did not have any investment securities in an unrealized loss position.

Deposits

We compete for deposits by offering a broad range of products and services to our customers. While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to our customers. However, our strategy to provide service and convenience to customers does not include a large branch network. Our bank offers thirteen banking centers, courier services and online banking. BankDirect, the Internet division of our bank, serves its customers on a 24 hours-a-day/7 days-a-week basis solely through Internet banking.

Average deposits for the year ended December 31, 2012 increased $1.1 billion compared to the same period of 2011. Average demand deposits, interest bearing transaction deposits and savings deposits increased by $469.2 million, $360.9 million and $363.1 million, respectively, while time deposits (including deposits in foreign branches) decreased $110.7 million during the year ended December 31, 2012 as compared to the same period of 2011. The average cost of deposits decreased in 2012 mainly due to our focused effort to reduce rates paid on deposits.

Average deposits for the year ended December 31, 2011 increased $350.2 million compared to the same period of 2010. Average demand deposits and savings deposits increased by $398.8 million and $259.5 million, respectively, while interest bearing transaction deposits and time deposits (including deposits in foreign branches) decreased $46.6 million and $261.4 million during the year ended December 31, 2011 as compared to the same period of 2010. The average cost of deposits decreased in 2011 mainly due to our focused effort to reduce rates paid on deposits.

The following table discloses our average deposits for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	Average Balances
	2012		2011		2010
Non-interest bearing	$	1,984,171	$	1,515,021	$	1,116,260
Interest bearing transaction		752,040		391,100		437,674
Savings		2,765,089		2,401,997		2,142,541
Time deposits		530,816		562,654		913,616
Deposits in foreign branches		411,891		490,703		401,155
Total average deposits	$	6,444,007	$	5,361,475	$	5,011,246

As with our loan portfolio, most of our deposits are from businesses and individuals in Texas, particularly the Dallas metropolitan area. As of December 31, 2012, approximately 82% of our deposits originated out of our Dallas metropolitan banking centers. Uninsured deposits at December 31, 2012 were 50% of total deposits, compared to 43% of total deposits at December 31, 2011 and 50% of total deposits at December 31, 2010. The presentation for 2012, 2011 and 2010 does reflect combined ownership, but does not reflect all of the account styling that would determine insurance based on FDIC regulations.

48

At December 31, 2012, we had $327.1 million in interest bearing time deposits of $100,000 or more in foreign branches related to our Cayman Islands branch. All deposits in the Cayman Branch come from U.S. based customers of our Bank. Deposits do not originate from foreign sources, and funds transfers neither come from nor go to facilities outside of the U.S. All deposits are in U.S. dollars.

Maturity of Domestic CDs and Other Time Deposits in Amounts of $100,000 or More

	December 31
(In thousands)	2012		2011		2010
Months to maturity:
3 or less	$	147,840	$	302,319	$	406,616
Over 3 through 6		77,770		95,474		179,438
Over 6 through 12		96,219		118,649		153,173
Over 12		70,909		34,887		43,197
Total	$	392,738	$	551,329	$	782,424

Liquidity and Capital Resources

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or 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, which are formulated and monitored by our senior management and our Balance Sheet Management Committee (“BSMC”), and which take into account the marketability of assets, the sources and stability of 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. For the years ended December 31, 2012 and 2011, our principal source of funding has been our customer deposits, supplemented by short-term borrowings primarily from federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings.

Our liquidity needs have typically been fulfilled through growth in our core customer deposits and supplemented with brokered deposits and borrowings as needed. Our goal is to obtain as much of our funding for loans held for investment and other earnings assets as possible from deposits of these core customers. These deposits are generated principally through development of long-term relationships with customers and stockholders and our retail network, which is mainly through BankDirect. In addition to deposits from our core customers, we also have access to incremental deposits through brokered retail certificates of deposit, or CDs. These CDs are generally of short maturities, 30 to 90 days, and are used to supplement temporary differences in the growth in loans, including growth in specific categories of loans, compared to customer deposits. Due to the increase in loans held for sale during the fourth quarter of 2011, we issued brokered CDs with maturities of 30 days. The following tab summarizes our core customer deposits and brokered deposits (in millions):

	December 31
	2012			2011
Deposits from core customers	$	7,440.8		$	5,391.1
Deposits from core customers as a percent of total deposits		100.0	%		97.0	%
Brokered deposits	$	—		$	165.1
Brokered deposits as a percent of total deposits		0.0	%		3.0	%
Average deposits from core customers	$	6,336.0		$	5,344.2
Average deposits from core customers as a percent of average total deposits		98.3	%		99.7	%
Average brokered deposits	$	108.0		$	17.3
Average brokered deposits as a percent of average total deposits		1.7	%		0.3	%

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We have access to sources of brokered deposits of not less than an additional $3.5 billion. Customer deposits (total deposits minus brokered CDs) at December 31, 2012 increased $2.0 billion from December 31, 2011.

Additionally, we have borrowing sources available to supplement deposits and meet our funding needs. Such borrowings are generally used to fund our loans held for sale, 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, treasury, tax and loan notes, and advances from the FHLB and the Federal Reserve. The following table summarizes our borrowings (in thousands):

	2012						2011						2010
	Balance		Rate(4)			Maximum Outstanding at Any Month End	Balance		Rate(4)			Maximum Outstanding at Any Month End	Balance		Rate(4)			Maximum Outstanding at Any Month End
Federal funds purchased (5)	$273,179			0.26	%	$	$	412,249		0.27	%	$	$	283,781		0.32	%	$
Customer repurchase agreements (1)		23,936		0.04	%			23,801		0.06	%			10,920		0.05	%
Treasury, tax and loan notes (2)		—		—				—		—				3,100		0.00	%
FHLB borrowings (3)		1,650,046		0.09	%			1,200,066		0.14	%			86		2.21	%
Fed borrowings		—		—				132,000		0.75	%			—		—
Subordinated notes		111,000		6.50	%			—		—				—		—
Trust preferred subordinated debentures		113,406		2.24	%			113,406		2.48	%			113,406		2.23	%
Total borrowings	$2,171,567					$2,432,945	$	1,881,522				$1,986,324	$	411,293				$653