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Texas Capital Bancshares, Inc. Announces Operating Results for Q2 2020

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·32 min read
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DALLAS, July 22, 2020 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the second quarter of 2020.

"As we navigate these unprecedented times with a focus on protecting our employees and our clients, we continue to position the Company for long-term, sustainable earnings growth," said Larry Helm, Executive Chairman and CEO. "Our significant investments in infrastructure and technology over the past few years enabled meaningful cost realignment during the second quarter. We remain vigilant in managing credit, while continuing to selectively recruit and acquire frontline talent."

  • In response to pressures of the current economic environment and a refinement of our strategy, we took actions during the second quarter of 2020 which are expected to decrease our non-interest expenses, including a workforce reduction and write-offs of certain software assets.

  • We reported a net loss of $34.3 million, or $0.73 per diluted share, for the second quarter of 2020, a $17.6 million decline from the first quarter of 2020, resulting from a $40.3 million increase in revenue, comprised of a $58.7 million increase in non-interest income and an $18.4 million decrease in net interest income, offset by a $56.9 million increase to non-interest expense. Significant transactions affecting our income statement during the second quarter of 2020 included:

    • $100.0 million ($1.55 per share) provision for credit losses; driven by an increase in charge-offs and reserve build related to higher criticized loan levels and continued economic uncertainty from the COVID-19 pandemic,

    • $26.6 million ($0.41 per share) in non-recurring software expenses; including $20.7 million in write-offs of certain software assets and $5.9 million in technology expense related to the roll-out of our Paycheck Protection Program capabilities,

    • $18.0 million ($0.28 per share) in severance accruals related to the workforce reduction referenced above,

    • $10.5 million ($0.16 per share) in final merger-related expenses, and

    • $9.1 million ($0.14 per share) in mortgage servicing rights ("MSR") impairment.

While these expenses had a significant impact on our second quarter operating results, we believe that we are better positioned to improve our core profitability going forward as the non-interest expense items are not expected to recur in future periods.

  • In response to the COVID-19 pandemic over 90% of employees have been working virtually since early March with limited impact on the execution of our business and client experience. Additionally, we funded $717.5 million in loans under the Paycheck Protection Program and implemented a short-term loan modification program that complies with the CARES act to provide temporary relief to certain borrowers who meet the program's qualifications.

FINANCIAL SUMMARY

(Dollars and shares in thousands)

Q2 2020

Q2 2019

% Change

QUARTERLY OPERATING RESULTS

Net income/(loss)

$

(34,316

)

$

77,812

(144

)%

Net income/(loss) available to common stockholders

$

(36,753

)

$

75,375

(149

)%

Diluted earnings/(loss) per common share

$

(0.73

)

$

1.50

(149

)%

Diluted common shares

50,416

50,384

%

ROA

(0.36

)%

1.05

%

ROE

(5.48

)%

12.20

%

BALANCE SHEET

Loans held for sale ("LHS")

$

454,581

$

1,057,586

(57

)%

Loans held for investment ("LHI"), mortgage finance

8,972,626

7,415,363

21

%

LHI

16,552,203

16,924,535

(2

)%

Total LHI

25,524,829

24,339,898

5

%

Total assets

36,613,127

29,970,384

22

%

Demand deposits

10,835,911

7,685,340

41

%

Total deposits

30,187,695

22,999,077

31

%

Stockholders’ equity

2,734,755

2,647,071

3

%

DETAILED FINANCIALS

During the second quarter of 2020, we have continued to face unprecedented challenges as our country grapples with the continuing impact of the COVID-19 pandemic. Actions by U.S. federal, state and foreign governments to address the pandemic, including travel bans, business and entertainment venue closures and rapid changes in business and consumer behavior, have resulted in continuing high levels of uncertainty. economic weakness and market volatility. Due to these events, on May 22, 2020, we and Independent Bank Group, Inc. ("IBTX"), agreed to mutually terminate our merger agreement. The termination was approved by each company's board of directors after careful consideration of the significant impact of the COVID-19 pandemic on global markets and on the companies' ability to fully realize the benefits expected to be achieved through the merger.

We continue to focus on balance sheet strength and while we intend to operate with above-average liquidity in response to this uncertain economic environment, we believe opportunities exist to improve core earnings by reducing or replacing higher-cost funding sources and improving the earning asset mix. In the first few weeks of July 2020, we began to utilize low-yielding liquidity assets to increase the balance of our securities portfolio in an effort to improve yields during the second half of 2020.

For the second quarter of 2020, we reported a net loss of $34.3 million and net loss available to common stockholders of $36.8 million, compared to net income of $77.8 million and net income available to common stockholders of $75.4 million for the same period in 2019. On a fully diluted basis, earnings/(loss) per common share were $(0.73) for the quarter ended June 30, 2020 compared to $1.50 for the same period of 2019. The decline in net income for the second quarter of 2020 as compared to the same period in 2019 resulted primarily from a $73.0 million increase in the provision for credit losses, as well as an $80.6 million increase in non-interest expense, driven by the significant second quarter 2020 expenses described below, offset by a $46.1 million increase in non-interest income resulting primarily from a $45.0 million increase in net gain/(loss) on sale of loans held for sale.

We recorded a $100.0 million provision for credit losses for the second quarter of 2020 utilizing the Current Expected Credit Loss ("CECL") methodology adopted in the first quarter of 2020, compared to $96.0 million for the first quarter of 2020 and $27.0 million for the second quarter of 2019. The increase in provision for credit losses resulted primarily from an increase in charge-offs and reserve build related to higher criticized loan levels and continued economic uncertainty from the COVID-19 pandemic. We recorded $74.1 million in net charge-offs during the second quarter of 2020, including $62.4 million in energy net charge-offs and $8.1 million in leveraged lending net charge-offs, all of which were loans that had been previously identified as problem loans, compared to $57.7 million during the first quarter of 2020 and $20.0 million during the second quarter of 2019. Criticized loans totaled $1.0 billion at June 30, 2020, compared to $675.9 million at March 31, 2020 and $629.1 million at June 30, 2019. The increase in criticized loans was predominantly in special mention and was primarily due to the continued downgrade of loans that have been impacted by the COVID-19 pandemic or that are in categories that are expected to be more significantly impacted by COVID-19.

Non-performing assets ("NPAs") totaled $174.0 million at June 30, 2020, a decrease of $45.1 million compared to the first quarter of 2020 and an increase of $59.9 million compared to the second quarter of 2019. The linked quarter decrease is primarily related to charge-offs of energy and leveraged lending loans in the second quarter of 2020. Non-accrual energy loans totaled $103.9 million (60% of total NPAs) at June 30, 2020, $39.8 million of which relates to two loans that have been charged down to final resolution value and are expected to close in the third quarter of 2020, compared to $151.9 million at March 31, 2020. Non-accrual leveraged lending loans totaled $24.8 million (14% of total NPAs) at June 30, 2020, compared to $50.0 million at March 31, 2020. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the second quarter of 2020 was 0.68 percent, compared to 0.90 percent for the first quarter of 2020 and 0.47 percent for the second quarter of 2019.

In response to the COVID-19 pandemic, we implemented a short-term loan modification program in late March 2020 to provide temporary payment relief to borrowers who meet the program's qualifications. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of June 30, 2020, we have granted temporary modifications on 482 loans (336 during the second quarter of 2020) with a total outstanding loan balance of $1.2 billion, resulting in the deferral of $10.8 million ($7.1 million in the second quarter of 2020) in interest payments.

Net interest income was $209.9 million for the second quarter of 2020, compared to $228.3 million for the first quarter of 2020 and $243.6 million for the second quarter of 2019. The linked quarter decrease in net interest income was due primarily to a decrease in average LHS, as a result of holding purchased loans for shorter durations, as well as decreases in yields on LHI, excluding mortgage finance, and liquidity assets offset by an increase in yields on LHI, mortgage finance, and a decrease in funding costs. The decline in net interest income on LHS resulting from shorter hold times was offset by an increase in non-interest income as noted below. Net interest margin for the second quarter of 2020 was 2.30 percent, a decrease of 48 basis points from the first quarter of 2020 and a decrease of 111 basis points from the second quarter of 2019. The shift in earning assets, primarily the increase in liquidity assets and decrease in loans held for sale, significantly contributed to the decrease in net interest margin. LHI yields, excluding mortgage finance loans, decreased 85 basis points from the first quarter of 2020, and decreased 169 basis points compared to the second quarter of 2019. LHI, mortgage finance yields for the second quarter of 2020 increased 30 basis points compared to the first quarter of 2020 as a result of decreases in incentive pricing in the second quarter of 2020, and decreased 17 basis points compared to the second quarter of 2019. Additionally, total cost of deposits for the second quarter of 2020 decreased 48 basis points to 0.42 percent compared to 0.90 percent for the first quarter of 2020, and decreased 87 basis points from 1.29 percent for the second quarter of 2019.

Non-interest income increased $58.7 million during the second quarter of 2020 compared to the first quarter of 2020, and increased $46.1 million compared to the second quarter of 2019. The linked quarter increase was primarily related to an increase in net gain/(loss) on sale of LHS, as well as increases in brokered loans fees and other non-interest income. The year-over-year increase was primarily related to an increase in net gain/(loss) on sale of LHS, as well as increases in brokered loan fees and servicing income, partially offset by a decrease in other non-interest income. The linked quarter and year-over-year increase in net gain/(loss) on sale of LHS was due to lower hedge costs in the second quarter of 2020 as a result of holding purchased loans for shorter durations than in prior periods, and is offset by the decline in net interest income on LHS noted above.

Non-interest expense for the second quarter of 2020 increased $56.9 million, or 34 percent, compared to the first quarter of 2020, and increased $80.6 million, or 57 percent, compared to the second quarter of 2019. The linked quarter increase was primarily related to increases in salaries and employee benefits and communications and technology expense. The year-over-year increase was primarily due to increases in salaries and employee benefits, communications and technology expense, servicing-related expenses and merger-related expenses. The year-over-year and linked quarter increases in salaries and employee benefits and communication and technology expense were primarily due to the severance accruals and non-recurring software expenses, respectively, discussed above. The year-over-year increase in servicing-related expenses was primarily due to an increase in MSR amortization, resulting primarily from an increase in the cost basis of our MSR asset as well as from higher mortgage prepayment rates, and an increase in impairment expense.

Texas Capital Bank is well capitalized under regulatory guidelines as of June 30, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 8.9%, 9.8%, 11.6% and 7.5%, respectively, at June 30, 2020, compared to 9.3%, 10.2%, 12.0% and 8.5%, respectively, at March 31, 2020. At June 30, 2020, our ratio of tangible common equity to total tangible assets was 7.0% percent compared to 7.3% at March 31, 2020.

About Texas Capital Bancshares, Inc.

Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 2000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.

Forward Looking Statements

This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding our financial condition, results of operations, business plans and future performance. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and credit losses, volatility in the mortgage industry, our business strategies, our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for credit losses and provision for credit losses, our ability to identify, employ and retain a successor chief executive officer, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

TEXAS CAPITAL BANCSHARES, INC.

SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)

(Dollars in thousands except per share data)

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2020

2020

2019

2019

2019

CONSOLIDATED STATEMENTS OF INCOME

Interest income

$

252,010

$

306,008

$

337,757

$

355,101

$

346,893

Interest expense

42,082

77,689

89,372

102,933

103,340

Net interest income

209,928

228,319

248,385

252,168

243,553

Provision for credit losses

100,000

96,000

17,000

11,000

27,000

Net interest income after provision for credit losses

109,928

132,319

231,385

241,168

216,553

Non-interest income

70,502

11,780

17,761

20,301

24,364

Non-interest expense

222,352

165,417

168,187

149,429

141,718

Income/(loss) before income taxes

(41,922

)

(21,318

)

80,959

112,040

99,199

Income tax expense/(benefit)

(7,606

)

(4,631

)

16,539

23,958

21,387

Net income/(loss)

(34,316

)

(16,687

)

64,420

88,082

77,812

Preferred stock dividends

2,437

2,438

2,437

2,438

2,437

Net income/(loss) available to common stockholders

$

(36,753

)

$

(19,125

)

$

61,983

$

85,644

$

75,375

Diluted earnings/(loss) per common share

$

(0.73

)

$

(0.38

)

$

1.23

$

1.70

$

1.50

Diluted common shares

50,416,331

50,474,802

50,461,723

50,416,402

50,383,870

CONSOLIDATED BALANCE SHEET DATA

Total assets

$

36,613,127

$

35,879,416

$

32,548,069

$

33,526,437

$

29,970,384

LHI

16,552,203

16,857,579

16,476,413

16,772,824

16,924,535

LHI, mortgage finance

8,972,626

7,588,803

8,169,849

7,951,432

7,415,363

LHS

454,581

774,064

2,577,134

2,674,225

1,057,586

Liquidity assets(1)

9,540,044

9,498,189

4,263,766

4,993,185

3,480,902

Investment securities

234,969

228,784

239,871

238,022

240,851

Demand deposits

10,835,911

9,420,303

9,438,459

10,289,572

7,685,340

Total deposits

30,187,695

27,134,263

26,478,593

27,413,303

22,999,077

Other borrowings

2,895,790

5,195,267

2,541,766

2,639,967

3,607,234

Subordinated notes

282,309

282,219

282,129

282,038

281,948

Long-term debt

113,406

113,406

113,406

113,406

113,406

Stockholders’ equity

2,734,755

2,803,533

2,801,321

2,735,993

2,647,071

End of period shares outstanding

50,435,672

50,407,778

50,337,741

50,317,654

50,297,552

Book value

$

51.25

$

52.64

$

52.67

$

51.39

$

49.65

Tangible book value(2)

$

50.89

$

52.28

$

52.31

$

51.03

$

49.28

SELECTED FINANCIAL RATIOS

Net interest margin

2.30

%

2.78

%

2.95

%

3.16

%

3.41

%

Return on average assets

(0.36

)%

(0.20

)%

0.85

%

1.06

%

1.05

%

Return on average common equity

(5.48

)%

(2.85

)%

10.68

%

13.22

%

12.20

%

Non-interest income to average earning assets

0.77

%

0.14

%

0.21

%

0.25

%

0.34

%

Efficiency ratio(3)

79.3

%

68.9

%

63.2

%

54.8

%

52.9

%

Efficiency ratio, adjusted(4)

77.5

%

65.8

%

61.4

%

51.3

%

49.6

%

Non-interest expense to average earning assets

2.43

%

2.00

%

1.98

%

1.86

%

1.98

%

Tangible common equity to total tangible assets(5)

7.0

%

7.3

%

8.1

%

7.6

%

8.3

%

Common Equity Tier 1

8.9

%

9.3

%

8.9

%

8.6

%

8.7

%

Tier 1 capital

9.8

%

10.2

%

9.7

%

9.4

%

9.6

%

Total capital

11.6

%

12.0

%

11.4

%

11.0

%

11.3

%

Leverage

7.5

%

8.5

%

8.4

%

8.6

%

9.2

%


(1)

Liquidity assets include Federal funds sold and interest-bearing deposits in other banks.

(2)

Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end.

(3)

Non-interest expense divided by the sum of net interest income and non-interest income.

(4)

Non-interest expense, excluding deposit-related marketing fees and servicing related expenses, divided by the sum of net interest income and non-interest income, net of deposit-related marketing fees and servicing related expenses. Deposit-related marketing fees totaled $1.7 million, $5.2 million, $9.4 million, $11.9 million and $11.6 million for the second and first quarters of 2020, as well as the fourth, third and second quarters of 2019, respectively.

(5)

Stockholders’ equity excluding preferred stock and accumulated other comprehensive income, less goodwill and intangibles, divided by total assets, less accumulated other comprehensive income and goodwill and intangibles.


TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

June 30, 2020

June 30, 2019

%
Change

Assets

Cash and due from banks

$

176,540

$

163,675

8

%

Interest-bearing deposits

9,490,044

3,446,902

175

%

Federal funds sold and securities purchased under resale agreements

50,000

34,000

47

%

Securities, available-for-sale

234,969

240,851

(2

)%

LHS, at fair value ($454.6 million at June 30, 2020 and $1,056.5 million at June 30, 2019)

454,581

1,057,586

(57

)%

LHI, mortgage finance

8,972,626

7,415,363

21

%

LHI (net of unearned income)

16,552,203

16,924,535

(2

)%

Less: Allowance for credit losses on loans

264,722

214,572

23

%

LHI, net

25,260,107

24,125,326

5

%

Mortgage servicing rights, net

75,451

47,785

58

%

Premises and equipment, net

28,603

28,197

1

%

Accrued interest receivable and other assets

824,963

807,728

2

%

Goodwill and intangibles, net

17,869

18,334

(3

)%

Total assets

$

36,613,127

$

29,970,384

22

%

Liabilities and Stockholders’ Equity

Liabilities:

Deposits:

Non-interest bearing

$

10,835,911

$

7,685,340

41

%

Interest bearing

19,351,784

15,313,737

26

%

Total deposits

30,187,695

22,999,077

31

%

Accrued interest payable

20,314

23,115

(12

)%

Other liabilities

372,145

276,432

35

%

Federal funds purchased and repurchase agreements

195,790

507,234

(61

)%

Other borrowings

2,700,000

3,100,000

(13

)%

Subordinated notes, net

282,309

281,948

%

Trust preferred subordinated debentures

113,406

113,406

%

Total liabilities

33,871,659

27,301,212

24

%

Redeemable non-controlling interest

6,713

22,101

(70

)%

Stockholders’ equity:

Preferred stock, $.01 par value, $1,000 liquidation value:

Authorized shares - 10,000,000

Issued shares - 6,000,000 shares issued at June 30, 2020 and 2019

150,000

150,000

%

Common stock, $.01 par value:

Authorized shares - 100,000,000

Issued shares - 50,436,089 and 50,297,969 at June 30, 2020 and 2019, respectively

504

503

%

Additional paid-in capital

983,144

972,219

1

%

Retained earnings

1,600,639

1,516,044

6

%

Treasury stock (shares at cost: 417 at June 30, 2020 and 2019)

(8

)

(8

)

%

Accumulated other comprehensive income, net of taxes

476

8,313

N/M

Total stockholders’ equity

2,734,755

2,647,071

3

%

Total liabilities and stockholders’ equity

$

36,613,127

$

29,970,384

22

%


TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Interest income

Interest and fees on loans

$

247,595

$

329,842

$

531,220

$

642,545

Investment securities

2,024

2,260

4,207

3,720

Federal funds sold and securities purchased under resale agreements

77

157

691

536

Interest-bearing deposits in other banks

2,314

14,634

21,900

25,653

Total interest income

252,010

346,893

558,018

672,454

Interest expense

Deposits

32,294

72,529

94,468

141,583

Federal funds purchased

176

5,202

845

8,718

Other borrowings

4,569

20,124

14,151

31,978

Subordinated notes

4,191

4,191

8,382

8,382

Trust preferred subordinated debentures

852

1,294

1,925

2,626

Total interest expense

42,082

103,340

119,771

193,287

Net interest income

209,928

243,553

438,247

479,167

Provision for credit losses

100,000

27,000

196,000

47,000

Net interest income after provision for credit losses

109,928

216,553

242,247

432,167

Non-interest income

Service charges on deposit accounts

2,459

2,849

5,752

5,828

Wealth management and trust fee income

2,348

2,129

4,815

4,138

Brokered loan fees

10,764

7,336

18,779

12,402

Servicing income

6,120

3,126

10,866

5,860

Swap fees

1,468

601

4,225

1,632

Net gain/(loss) on sale of LHS

39,023

(5,986

)

26,023

(6,491

)

Other

8,320

14,309

11,822

31,009

Total non-interest income

70,502

24,364

82,282

54,378

Non-interest expense

Salaries and employee benefits

100,255

76,889

176,922

154,712

Net occupancy expense

9,134

7,910

17,846

15,789

Marketing

7,988

14,087

16,510

25,795

Legal and professional

11,330

10,004

28,796

20,034

Communications and technology

42,760

11,022

56,551

20,220

FDIC insurance assessment

7,140

4,138

12,989

9,260

Servicing-related expenses

20,117

6,066

36,471

11,448

Merger-related expenses

10,486

17,756

Other

13,142

11,602

23,928

25,976

Total non-interest expense

222,352

141,718

387,769

283,234

Income/(loss) before income taxes

(41,922

)

99,199

(63,240

)

203,311

Income tax expense/(benefit)

(7,606

)

21,387

(12,237

)

43,798

Net income/(loss)

(34,316

)

77,812

(51,003

)

159,513

Preferred stock dividends

2,437

2,437

4,875

4,875

Net income/(loss) available to common stockholders

$

(36,753

)

$

75,375

$

(55,878

)

$

154,638

Basic earnings/(loss) per common share

$

(0.73

)

$

1.50

$

(1.11

)

$

3.07

Diluted earnings/(loss) per common share

$

(0.73

)

$

1.50

$

(1.11

)

$

3.07


TEXAS CAPITAL BANCSHARES, INC.

SUMMARY OF CREDIT LOSS EXPERIENCE

(Dollars in thousands)

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2020

2020

2019

2019

2019

Allowance for credit losses on loans:

Beginning balance

$

240,958

$

195,047

$

190,138

$

214,572

$

208,573

Impact of CECL adoption

8,585

Loans charged-off:

Commercial

12,287

20,653

13,968

21,124

4,880

Energy

62,368

37,730

797

16,655

15,173

Real estate

177

Total charge-offs

74,655

58,383

14,765

37,779

20,230

Recoveries:

Commercial

513

257

1,754

799

224

Energy

423

209

107

Total recoveries

513

680

1,963

906

224

Net charge-offs

74,142

57,703

12,802

36,873

20,006

Provision for credit losses on loans

97,906

95,029

17,711

12,439

26,005

Ending balance

$

264,722

$

240,958

$

195,047

$

190,138

$

214,572

Allowance for off-balance sheet credit losses:

Beginning balance

$

10,174

$

8,640

$

9,351

$

10,790

$

9,795

Impact of CECL adoption

563

Provision for off-balance sheet credit losses

2,094

971

(711

)

(1,439

)

995

Ending balance

$

12,268

$

10,174

$

8,640

$

9,351

$

10,790

Total allowance for credit losses

$

276,990

$

251,132

$

203,687

$

199,489

$

225,362

Total provision for credit losses

$

100,000

$

96,000

$

17,000

$

11,000

$

27,000

Allowance for credit losses on loans to LHI

1.04

%

0.99

%

0.79

%

0.77

%

0.88

%

Allowance for credit losses on loans to average LHI

1.03

%

1.02

%

0.79

%

0.76

%

0.90

%

Net charge-offs to average LHI(1)

1.16

%

0.98

%

0.21

%

0.58

%

0.34

%

Net charge-offs to average LHI for last twelve months(1)

0.73

%

0.53

%

0.31

%

0.41

%

0.27

%

Total provision for credit losses to average LHI(1)

1.57

%

1.63

%

0.27

%

0.17

%

0.45

%

Total allowance for credit losses to LHI

1.09

%

1.03

%

0.83

%

0.81

%

0.93

%


(1)

Interim period ratios are annualized.


TEXAS CAPITAL BANCSHARES, INC.

SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS

(Dollars in thousands)

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2020

2020

2019

2019

2019

Non-performing assets (NPAs):

Non-accrual loans

$

174,031

$

219,165

$

225,384

$

120,686

$

114,084

Other real estate owned (OREO)

Total LHI NPAs

$

174,031

$

219,165

$

225,384

$

120,686

$

114,084

Non-accrual loans to LHI

0.68

%

0.90

%

0.91

%

0.49

%

0.47

%

Total LHI NPAs to LHI plus OREO

0.68

%

0.90

%

0.91

%

0.49

%

0.47

%

Total LHI NPAs to earning assets

0.49

%

0.63

%

0.71

%

0.37

%

0.39

%

Allowance for credit losses on loans to non-accrual loans

1.5x

1.1x

.9x

1.6x

1.9x

LHI past due 90 days and still accruing(1)

$

21,079

$

21,274

$

17,584

$

29,648

$

15,212

LHI past due 90 days to LHI

0.08

%

0.09

%

0.07

%

0.12

%

0.06

%

LHS past due 90 days and still accruing(2)

$

10,152

$

9,014

$

8,207

$

9,187

$

11,665


(1)

At June 30, 2020, loans past due 90 days and still accruing includes premium finance loans of $14.8 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.

(2)

Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as LHS and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not obligation, to repurchase and thus must record as LHS on our balance sheet regardless of whether the repurchase option has been exercised.


TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands)

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2020

2020

2019

2019

2019

Interest income

Interest and fees on loans

$

247,595

$

283,625

$

312,147

$

329,344

$

329,842

Investment securities

2,024

2,183

2,618

2,316

2,260

Federal funds sold and securities purchased under resale agreements

77

614

439

554

157

Interest-bearing deposits in other banks

2,314

19,586

22,553

22,887

14,634

Total interest income

252,010

306,008

337,757

355,101

346,893

Interest expense

Deposits

32,294

62,174

70,987

80,967

72,529

Federal funds purchased

176

669

1,319

1,835

5,202

Other borrowings

4,569

9,582

11,712

14,703

20,124

Subordinated notes

4,191

4,191

4,191

4,191

4,191

Trust preferred subordinated debentures

852

1,073

1,163

1,237

1,294

Total interest expense

42,082

77,689

89,372

102,933

103,340

Net interest income

209,928

228,319

248,385

252,168

243,553

Provision for credit losses

100,000

96,000

17,000

11,000

27,000

Net interest income after provision for credit losses

109,928

132,319

231,385

241,168

216,553

Non-interest income

Service charges on deposit accounts

2,459

3,293

2,785

2,707

2,849

Wealth management and trust fee income

2,348

2,467

2,342

2,330

2,129

Brokered loan fees

10,764

8,015

8,645

8,691

7,336

Servicing income

6,120

4,746

4,030

3,549

3,126

Swap fees

1,468

2,757

1,559

1,196

601

Net gain/(loss) on sale of LHS

39,023

(13,000

)

(7,757

)

(6,011

)

(5,986

)

Other

8,320

3,502

6,157

7,839

14,309

Total non-interest income

70,502

11,780

17,761

20,301

24,364

Non-interest expense

Salaries and employee benefits

100,255

76,667

80,262

80,106

76,889

Net occupancy expense

9,134

8,712

9,075

8,125

7,910

Marketing

7,988

8,522

12,807

14,753

14,087

Legal and professional

11,330

17,466

21,032

11,394

10,004

Communications and technology

42,760

13,791

13,801

10,805

11,022

FDIC insurance assessment

7,140

5,849

5,613

5,220

4,138

Servicing-related expenses

20,117

16,354

2,960

8,165

6,066

Merger-related expenses

10,486

7,270

1,370

Other

13,142

10,786

21,267

10,861

11,602

Total non-interest expense

222,352

165,417

168,187

149,429

141,718

Income/(loss) before income taxes

(41,922

)

(21,318

)

80,959

112,040

99,199

Income tax expense/(benefit)

(7,606

)

(4,631

)

16,539

23,958

21,387

Net income/(loss)

(34,316

)

(16,687

)

64,420

88,082

77,812

Preferred stock dividends

2,437

2,438

2,437

2,438

2,437

Net income/(loss) available to common shareholders

$

(36,753

)

$

(19,125

)

$

61,983

$

85,644

$

75,375


TEXAS CAPITAL BANCSHARES, INC.

QUARTERLY FINANCIAL SUMMARY - UNAUDITED

Consolidated Daily Average Balances, Average Yields and Rates

(Dollars in thousands)

2nd Quarter 2020

1st Quarter 2020

4th Quarter 2019

3rd Quarter 2019

2nd Quarter 2019

Average
Balance

Revenue/
Expense

Yield/
Rate

Average
Balance

Revenue/
Expense

Yield/
Rate

Average
Balance

Revenue/
Expense

Yield/
Rate

Average
Balance

Revenue/
Expense

Yield/
Rate

Average
Balance

Revenue/
Expense

Yield/
Rate

Assets

Investment securities - Taxable

$

38,829

$

185

1.92

%

$

42,799

$

274

2.57

%

$

40,904

$

693

6.72

%

$

39,744

$

357

3.56

%

$

38,887

$

287

2.96

%

Investment securities - Non-taxable(2)

195,806

2,327

4.78

%

195,578

2,417

4.97

%

197,591

2,437

4.89

%

200,090

2,480

4.92

%

192,115

2,498

5.21

%

Federal funds sold and securities purchased under resale agreements

245,434

77

0.13

%

199,727

614

1.24

%

102,320

439

1.70

%

100,657

554

2.18

%

28,436

157

2.22

%

Interest-bearing deposits in other banks

10,521,240

2,314

0.09

%

6,225,948

19,586

1.27

%

5,387,000

22,553

1.66

%

4,184,217

22,887

2.17

%

2,491,827

14,634

2.36

%

LHS, at fair value

380,624

2,547

2.69

%

3,136,381

27,480

3.52

%

3,567,836

33,411

3.72

%

2,555,269

26,206

4.07

%

2,494,883

27,607

4.44

%

LHI, mortgage finance loans

8,676,521

74,518

3.45

%

7,054,682

55,324

3.15

%

7,870,888

63,114

3.18

%

8,118,025

68,660

3.36

%

7,032,963

63,523

3.62

%

LHI(1)(2)

17,015,041

170,970

4.04

%

16,598,775

201,781

4.89

%

16,667,259

216,686

5.16

%

16,901,391

235,557

5.53

%

16,781,733

239,829

5.73

%

Less allowance for credit losses on loans

236,823

201,837

189,353

212,898

206,654

LHI, net of allowance

25,454,739

245,488

3.88

%

23,451,620

257,105

4.41

%

24,348,794

279,800

4.56

%

24,806,518

304,217

4.87

%

23,608,042

303,352

5.15

%

Total earning assets

36,836,672

252,938

2.76

%

33,252,053

307,476

3.72

%

33,644,445

339,333

4.00

%

31,886,495

356,701

4.44

%

28,854,190

348,535

4.84

%

Cash and other assets

1,075,864

976,520

974,866

1,000,117

940,793

Total assets

$

37,912,536

$

34,228,573

$

34,619,311

$

32,886,612

$

29,794,983

Liabilities and Stockholders’ Equity

Transaction deposits

$

3,923,966

$

5,998

0.61

%

$

3,773,067

$

13,582

1.45

%

$

3,817,294

$

16,428

1.71

%

$

3,577,905

$

18,442

2.04

%

$

3,475,404

$

18,037

2.08

%

Savings deposits

12,537,467

13,510

0.43

%

11,069,429

35,961

1.31

%

11,111,326

40,603

1.45

%

10,331,078

45,586

1.75

%

8,896,537

40,994

1.85

%

Time deposits

3,434,388

12,786

1.50

%

2,842,535

12,631

1.79

%

2,453,655

13,956

2.26

%

2,706,434

16,939

2.48

%

2,227,460

13,498

2.43

%

Total interest bearing deposits

19,895,821

32,294

0.65

%

17,685,031

62,174

1.41

%

17,382,275

70,987

1.62

%

16,615,417

80,967

1.93

%

14,599,401

72,529

1.99

%

Other borrowings

3,612,263

4,745

0.53

%

3,020,255

10,251

1.37

%

2,822,465

13,031

1.83

%

2,896,477

16,538

2.27

%

4,018,231

25,326

2.53

%

Subordinated notes

282,252

4,191

5.97

%

282,165

4,191

5.97

%

282,074

4,191

5.89

%

281,979

4,191

5.90

%

281,889

4,191

5.96

%

Trust preferred subordinated debentures

113,406

852

3.02

%

113,406

1,073

3.80

%

113,406

1,163

4.07

%

113,406

1,237

4.33

%

113,406

1,294

4.58

%

Total interest bearing liabilities

23,903,742

42,082

0.71

%

21,100,857

77,689

1.48

%

20,600,220

89,372

1.72

%

19,907,279

102,933

2.05

%

19,012,927

103,340

2.18

%

Demand deposits

10,865,896

10,003,495

10,933,887

9,992,406

7,929,266

Other liabilities

293,698

270,868

278,964

264,506

220,305

Stockholders’ equity

2,849,200

2,853,353

2,806,240

2,722,421

2,632,485

Total liabilities and stockholders’ equity

$

37,912,536

$

34,228,573

$

34,619,311

$

32,886,612

$

29,794,983

Net interest income(2)

$

210,856

$

229,787

$

249,961

$

253,768

$

245,195

Net interest margin

2.30

%

2.78

%

2.95

%

3.16

%

3.41

%


(1)

The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income.

(2)

Taxable equivalent rates used where applicable.

CONTACT: INVESTOR CONTACT Julie Anderson, 214.932.6673 julie.anderson@texascapitalbank.com MEDIA CONTACT Shannon Wherry, 469.399.8527 shannon.wherry@texascapitalbank.com