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Texas Capital Bancshares, Inc. Announces Operating Results for Q3 2020

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·29 min read
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DALLAS, Oct. 21, 2020 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the third quarter of 2020.

"We are pleased to report significantly improved operating results for the third quarter," said Larry Helm, Executive Chairman and CEO. "As we continue to navigate these unprecedented times I would like to thank our employees for their dedication to serving our clients and communities. We believe the actions we took during the second quarter have resulted in improvements to core operating results that will continue to serve us well as we plan for the future, and we remain committed to managing credit and taking care of our employees and clients, while continuing to recruit and develop top frontline talent and build shareholder value."

  • Net income of $57.1 million ($1.08 per share) reported for the third quarter of 2020, an increase of $91.4 million on a linked quarter basis and a decrease of $31.0 million from the third quarter of 2019.

  • Total mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans held for sale ("LHS"), increased 6% on a linked quarter basis (increasing 6% on an average basis) and decreased 6% from the third quarter of 2019 (decreasing 10% on an average basis).

  • Demand deposits increased 14% and total deposits increased 6% on a linked quarter basis (increasing 12% and 4%, respectively, on an average basis), and increased 20% and 17%, respectively, from the third quarter of 2019 (increasing 22% and 21%, respectively, on an average basis).

  • Loans held for investment ("LHI"), excluding mortgage finance loans, decreased 5% on a linked quarter basis (decreasing 4% on an average basis) and decreased 6% from the third quarter of 2019 (decreasing 4% on an average basis).

FINANCIAL SUMMARY

(Dollars and shares in thousands)

Q3 2020

Q3 2019

% Change

QUARTERLY OPERATING RESULTS

Net income

$

57,116

$

88,082

(35

)%

Net income available to common stockholders

$

54,678

$

85,644

(36

)%

Diluted earnings per common share

$

1.08

$

1.70

(36

)%

Diluted common shares

50,573

50,416

%

ROA

0.59

%

1.06

%

ROE

8.24

%

13.21

%

BALANCE SHEET

LHS

$

648,009

$

2,674,225

(76

)%

LHI, mortgage finance

9,378,104

7,951,432

18

%

LHI

15,789,958

16,772,824

(6

)%

Total LHI

25,168,062

24,724,256

2

%

Total assets

38,432,872

33,526,437

15

%

Demand deposits

12,339,212

10,289,572

20

%

Total deposits

31,959,487

27,413,303

17

%

Stockholders’ equity

2,800,404

2,735,993

2

%


DETAILED FINANCIALS

For the third quarter of 2020, net income was $57.1 million, compared to a net loss of $34.3 million for the second quarter of 2020, and net income of $88.1 million for the third quarter of 2019. On a fully diluted basis, earnings per common share were $1.08 for the quarter ended September 30, 2020, compared to a loss per common share of $0.73 for the quarter ended June 30, 2020 and earnings per common share of $1.70 for the quarter ended September 30, 2019. The increase in net income for the third quarter of 2020 as compared to the second quarter of 2020 resulted primarily from a $70.0 million decrease in the provision for credit losses, as well as a $56.6 million decrease in non-interest expense, driven by significant non-recurring expenses incurred in the second quarter of 2020, as described below.

We recorded a $30.0 million provision for credit losses for the third quarter of 2020 utilizing the Current Expected Credit Loss ("CECL") methodology adopted in the first quarter of 2020, compared to $100.0 million for the second quarter of 2020 and $11.0 million for the third quarter of 2019. The linked quarter decrease in provision for credit losses resulted primarily from a decrease in charge-offs. We recorded $1.6 million in net charge-offs during the third quarter of 2020, compared to $74.1 million during the second quarter of 2020 and $36.9 million during the third quarter of 2019. Criticized loans totaled $1.1 billion at September 30, 2020, compared to $1.0 billion at June 30, 2020 and $536.4 million at September 30, 2019. Criticized loan levels remain elevated due to the downgrade of loans to borrowers 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 $161.9 million at September 30, 2020, a decrease of $12.1 million compared to the second quarter of 2020 and an increase of $41.3 million compared to the third quarter of 2019. Non-accrual energy loans totaled $73.8 million (46% of total NPAs) at September 30, 2020, compared to $103.9 million (60% of total NPAs) at June 30, 2020. Non-accrual leveraged lending loans totaled $31.3 million (19% of total NPAs) at September 30, 2020, compared to $39.1 million (22% of total NPAs) at June 30, 2020. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the third quarter of 2020 was 0.64%, compared to 0.68% for the second quarter of 2020 and 0.49% for the third quarter of 2019.

Net interest income was $207.6 million for the third quarter of 2020, compared to $209.9 million for the second quarter of 2020 and $252.2 million for the third quarter of 2019. Net interest margin for the third quarter of 2020 was 2.22%, a decrease of 8 basis points from the second quarter of 2020 and a decrease of 94 basis points from the third quarter of 2019. The shift in earning assets, primarily the increases in liquidity assets and investment securities, and decrease in LHI, excluding mortgage finance, contributed to the year-over-year decrease in net interest margin. LHI yields, excluding mortgage finance loans, decreased 20 basis points from the second quarter of 2020, and decreased 169 basis points compared to the third quarter of 2019. LHI, mortgage finance yields for the third quarter of 2020 decreased 9 basis points compared to the second quarter of 2020, and were unchanged compared to the third quarter of 2019. Additionally, total cost of deposits for the third quarter of 2020 decreased 8 basis points to 0.34% compared to 0.42% for the second quarter of 2020, and decreased 87 basis points from 1.21% for the third quarter of 2019.

Non-interest income decreased $10.2 million, or 14%, during the third quarter of 2020 compared to the second quarter of 2020, and increased $40.0 million, or 197%, compared to the third quarter of 2019. The linked quarter decrease was primarily related to a decrease in net gain/(loss) on sale of LHS, partially offset by an increase in brokered loans fees. The year-over-year increase was primarily related to an increase in net gain/(loss) on sale of LHS and an increase in brokered loan fees. The linked quarter and year-over-year increases in brokered loan fees were due to an increase in total mortgage finance volumes in the third quarter of 2020. The year-over-year increase in net gain/(loss) on sale of LHS was due to lower hedge costs in the third quarter of 2020 as a result of holding purchased loans for shorter durations than in prior periods, and is offset by the year-over-year decline in net interest income on LHS.

Non-interest expense for the third quarter of 2020 decreased $56.6 million, or 25%, compared to the second quarter of 2020, and increased $16.3 million, or 11%, compared to the third quarter of 2019. The linked quarter decrease was primarily related to decreases in salaries and employee benefits, communications and technology expense, servicing-related expenses and merger-related expenses. The year-over-year increase was primarily due to an increase in communications and technology expense, partially offset by a decrease in marketing expense. The linked quarter decrease in salaries and employee benefits and communication and technology expense was primarily due to non-recurring severance accruals and software expenses recorded in the second quarter of 2020. We wrote-off an additional $15.4 million in software assets during the third quarter of 2020, which contributed to the year-over-year increase in communications and technology expense. The full impact on salaries and employee benefits expense from the reduction in workforce and on software amortization expense from the software write-offs in the second and third quarters of 2020 is expected to be realized in non-interest expense in the first half of 2021, with meaningful reductions in run-rate occurring in the fourth quarter of 2020. Further software write-offs are not expected in the fourth quarter of 2020. The linked-quarter decrease in servicing-related expense was primarily due to a decrease in MSR impairment expense reflecting market conditions and our hedging program.

All regulatory ratios continue to be in excess of "well-capitalized" requirements as of September 30, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 9.1%, 9.9%, 11.8% and 7.6%, respectively, at September 30, 2020, compared to 8.8%, 9.7%, 11.6% and 7.5%, respectively, at June 30, 2020. At September 30, 2020, our ratio of tangible common equity to total tangible assets was 6.8% compared to 7.0% at June 30, 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)

3rd Quarter

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2020

2020

2020

2019

2019

CONSOLIDATED STATEMENTS OF INCOME

Interest income

$

243,731

$

252,010

$

306,008

$

337,757

$

355,101

Interest expense

36,162

42,082

77,689

89,372

102,933

Net interest income

207,569

209,928

228,319

248,385

252,168

Provision for credit losses

30,000

100,000

96,000

17,000

11,000

Net interest income after provision for credit losses

177,569

109,928

132,319

231,385

241,168

Non-interest income

60,348

70,502

11,780

17,761

20,301

Non-interest expense

165,741

222,352

165,417

168,187

149,429

Income/(loss) before income taxes

72,176

(41,922

)

(21,318

)

80,959

112,040

Income tax expense/(benefit)

15,060

(7,606

)

(4,631

)

16,539

23,958

Net income/(loss)

57,116

(34,316

)

(16,687

)

64,420

88,082

Preferred stock dividends

2,438

2,437

2,438

2,437

2,438

Net income/(loss) available to common stockholders

$

54,678

$

(36,753

)

$

(19,125

)

$

61,983

$

85,644

Diluted earnings/(loss) per common share

$

1.08

$

(0.73

)

$

(0.38

)

$

1.23

$

1.70

Diluted common shares

50,573,073

50,416,331

50,474,802

50,461,723

50,416,402

CONSOLIDATED BALANCE SHEET DATA

Total assets

$

38,432,872

$

36,613,127

$

35,879,416

$

32,548,069

$

33,526,437

LHI

15,789,958

16,552,203

16,857,579

16,476,413

16,772,824

LHI, mortgage finance

9,378,104

8,972,626

7,588,803

8,169,849

7,951,432

LHS

648,009

454,581

774,064

2,577,134

2,674,225

Liquidity assets(1)

10,461,544

9,540,044

9,498,189

4,263,766

4,993,185

Investment securities

1,367,313

234,969

228,784

239,871

238,022

Demand deposits

12,339,212

10,835,911

9,420,303

9,438,459

10,289,572

Total deposits

31,959,487

30,187,695

27,134,263

26,478,593

27,413,303

Other borrowings

2,908,183

2,895,790

5,195,267

2,541,766

2,639,967

Subordinated notes

282,400

282,309

282,219

282,129

282,038

Long-term debt

113,406

113,406

113,406

113,406

113,406

Stockholders’ equity

2,800,404

2,734,755

2,772,596

2,801,321

2,735,993

End of period shares outstanding

50,455,552

50,435,672

50,407,778

50,337,741

50,317,654

Book value

$

52.53

$

51.25

$

52.03

$

52.67

$

51.39

Tangible book value(2)

$

52.18

$

50.89

$

51.67

$

52.31

$

51.03

SELECTED FINANCIAL RATIOS

Net interest margin

2.22

%

2.30

%

2.78

%

2.95

%

3.16

%

Return on average assets

0.59

%

(0.36

)%

(0.20

)%

0.74

%

1.06

%

Return on average common equity

8.24

%

(5.48

)%

(2.85

)%

9.26

%

13.21

%

Non-interest income to average earning assets

0.64

%

0.77

%

0.14

%

0.21

%

0.25

%

Efficiency ratio(3)

61.9

%

79.3

%

68.9

%

63.2

%

54.8

%

Efficiency ratio, adjusted(4)

59.8

%

77.5

%

65.8

%

61.4

%

51.3

%

Non-interest expense to average earning assets

1.76

%

2.43

%

2.00

%

1.98

%

1.86

%

Tangible common equity to total tangible assets(5)

6.8

%

7.0

%

7.3

%

8.1

%

7.6

%

Common Equity Tier 1

9.1

%

8.8

%

9.3

%

8.9

%

8.6

%

Tier 1 capital

9.9

%

9.7

%

10.2

%

9.7

%

9.4

%

Total capital

11.8

%

11.6

%

12.0

%

11.4

%

11.0

%

Leverage

7.6

%

7.5

%

8.5

%

8.4

%

8.6

%

(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 $1.8 million, $1.7 million, $5.2 million, $9.4 million and $11.9 million for the third, second and first quarters of 2020, as well as the fourth and third 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)

September 30, 2020

September 30, 2019

%
Change

Assets

Cash and due from banks

$

185,242

$

216,085

(14

)%

Interest-bearing deposits

10,461,544

4,968,185

111

%

Federal funds sold and securities purchased under resale agreements

25,000

(100

)%

Securities, available-for-sale

1,367,313

238,022

474

%

LHS ($639.0 million and $2,667.2 million at September 30, 2020 and 2019, respectively, at fair value)

648,009

2,674,225

(76

)%

LHI, mortgage finance

9,378,104

7,951,432

18

%

LHI (net of unearned income)

15,789,958

16,772,824

(6

)%

Less: Allowance for credit losses on loans

290,165

190,138

53

%

LHI, net

24,877,897

24,534,118

1

%

Mortgage servicing rights, net

95,323

49,125

94

%

Premises and equipment, net

26,653

32,667

(18

)%

Accrued interest receivable and other assets

753,123

770,793

(2

)%

Goodwill and intangibles, net

17,768

18,217

(2

)%

Total assets

$

38,432,872

$

33,526,437

15

%

Liabilities and Stockholders’ Equity

Liabilities:

Deposits:

Non-interest bearing

$

12,339,212

$

10,289,572

20

%

Interest bearing

19,620,275

17,123,731

15

%

Total deposits

31,959,487

27,413,303

17

%

Accrued interest payable

14,674

34,336

(57

)%

Other liabilities

354,318

307,394

15

%

Federal funds purchased and repurchase agreements

208,183

139,967

49

%

Other borrowings

2,700,000

2,500,000

8

%

Subordinated notes, net

282,400

282,038

%

Trust preferred subordinated debentures

113,406

113,406

%

Total liabilities

35,632,468

30,790,444

16

%

Stockholders’ equity:

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

Authorized shares - 10,000,000

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

150,000

150,000

%

Common stock, $.01 par value:

Authorized shares - 100,000,000

Issued shares - 50,455,969 and 50,318,071 at September 30, 2020 and 2019, respectively

504

503

%

Additional paid-in capital

987,754

974,799

1

%

Retained earnings

1,655,317

1,601,688

3

%

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

(8

)

(8

)

%

Accumulated other comprehensive income, net of taxes

6,837

9,011

N/M

Total stockholders’ equity

2,800,404

2,735,993

2

%

Total liabilities and stockholders’ equity

$

38,432,872

$

33,526,437

15

%


TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Interest income

Interest and fees on loans

$

237,179

$

329,344

$

768,399

$

971,889

Investment securities

3,674

2,316

7,881

6,036

Federal funds sold and securities purchased under resale agreements

1

554

692

1,090

Interest-bearing deposits in other banks

2,877

22,887

24,777

48,540

Total interest income

243,731

355,101

801,749

1,027,555

Interest expense

Deposits

27,830

80,967

122,298

222,550

Federal funds purchased

128

1,835

973

10,553

Other borrowings

3,365

14,703

17,516

46,681

Subordinated notes

4,191

4,191

12,573

12,573

Trust preferred subordinated debentures

648

1,237

2,573

3,863

Total interest expense

36,162

102,933

155,933

296,220

Net interest income

207,569

252,168

645,816

731,335

Provision for credit losses

30,000

11,000

226,000

58,000

Net interest income after provision for credit losses

177,569

241,168

419,816

673,335

Non-interest income

Service charges on deposit accounts

2,864

2,707

8,616

8,535

Wealth management and trust fee income

2,502

2,330

7,317

6,468

Brokered loan fees

15,034

8,691

33,813

21,093

Servicing income

7,329

3,549

18,195

9,409

Swap fees

484

1,196

4,709

2,828

Net gain/(loss) on sale of LHS

25,242

(6,011

)

51,265

(12,502

)

Other

6,893

7,839

18,715

38,848

Total non-interest income

60,348

20,301

142,630

74,679

Non-interest expense

Salaries and employee benefits

84,096

80,722

262,080

238,235

Net occupancy expense

8,736

8,125

26,582

23,914

Marketing

3,636

14,753

20,146

40,548

Legal and professional

11,207

11,394

40,003

31,428

Communications and technology

31,098

10,805

87,649

31,025

FDIC insurance assessment

6,374

5,220

19,363

14,480

Servicing-related expenses

12,287

8,165

48,758

19,613

Merger-related expenses

17,756

Other

8,307

10,245

31,173

33,420

Total non-interest expense

165,741

149,429

553,510

432,663

Income before income taxes

72,176

112,040

8,936

315,351

Income tax expense

15,060

23,958

2,823

67,756

Net income

57,116

88,082

6,113

247,595

Preferred stock dividends

2,438

2,438

7,313

7,313

Net income/(loss) available to common stockholders

$

54,678

$

85,644

$

(1,200

)

$

240,282

Basic earnings/(loss) per common share

$

1.08

$

1.70

$

(0.02

)

$

4.78

Diluted earnings/(loss) per common share

$

1.08

$

1.70

$

(0.02

)

$

4.77


TEXAS CAPITAL BANCSHARES, INC.

SUMMARY OF CREDIT LOSS EXPERIENCE

(Dollars in thousands)

3rd Quarter

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2020

2020

2020

2019

2019

Allowance for credit losses on loans:

Beginning balance

$

264,722

$

240,958

$

195,047

$

190,138

$

214,572

Impact of CECL adoption

8,585

Loans charged-off:

Commercial

2,436

12,287

20,653

13,968

21,124

Energy

141

62,368

37,730

797

16,655

Total charge-offs

2,577

74,655

58,383

14,765

37,779

Recoveries:

Commercial

113

513

257

1,754

799

Energy

880

423

209

107

Total recoveries

993

513

680

1,963

906

Net charge-offs

1,584

74,142

57,703

12,802

36,873

Provision for credit losses on loans

27,027

97,906

95,029

17,711

12,439

Ending balance

$

290,165

$

264,722

$

240,958

$

195,047

$

190,138

Allowance for off-balance sheet credit losses:

Beginning balance

$

12,268

$

10,174

$

8,640

$

9,351

$

10,790

Impact of CECL adoption

563

Provision for off-balance sheet credit losses

2,973

2,094

971

(711

)

(1,439

)

Ending balance

$

15,241

$

12,268

$

10,174

$

8,640

$

9,351

Total allowance for credit losses

$

305,406

$

276,990

$

251,132

$

203,687

$

199,489

Total provision for credit losses

$

30,000

$

100,000

$

96,000

$

17,000

$

11,000

Allowance for credit losses on loans to LHI

1.15

%

1.04

%

0.99

%

0.79

%

0.77

%

Allowance for credit losses on loans to average LHI

1.14

%

1.03

%

1.02

%

0.79

%

0.76

%

Net charge-offs to average LHI(1)

0.02

%

1.16

%

0.98

%

0.21

%

0.58

%

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

0.59

%

0.73

%

0.53

%

0.31

%

0.41

%

Total provision for credit losses to average LHI(1)

0.47

%

1.57

%

1.63

%

0.27

%

0.17

%

Total allowance for credit losses to LHI

1.21

%

1.09

%

1.03

%

0.83

%

0.81

%

(1) Interim period ratios are annualized.

TEXAS CAPITAL BANCSHARES, INC.

SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS

(Dollars in thousands)

3rd Quarter

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2020

2020

2020

2019

2019

Non-performing assets (NPAs):

Non-accrual loans

$

161,946

$

174,031

$

219,165

$

225,384

$

120,686

Other real estate owned (OREO)

Total LHI NPAs

$

161,946

$

174,031

$

219,165

$

225,384

$

120,686

Non-accrual loans to LHI

0.64

%

0.68

%

0.90

%

0.91

%

0.49

%

Total LHI NPAs to LHI plus OREO

0.64

%

0.68

%

0.90

%

0.91

%

0.49

%

Total LHI NPAs to earning assets

0.43

%

0.49

%

0.63

%

0.71

%

0.37

%

Allowance for credit losses on loans to non-accrual loans

1.8x

1.5x

1.1x

.9x

1.6x

LHI past due 90 days and still accruing(1)

$

15,896

$

21,079

$

21,274

$

17,584

$

29,648

LHI past due 90 days to LHI

0.06

%

0.08

%

0.09

%

0.07

%

0.12

%

LHS past due 90 days and still accruing(2)

$

15,631

$

10,152

$

9,014

$

8,207

$

9,187

(1) At September 30, 2020, loans past due 90 days and still accruing includes premium finance loans of $11.9 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)

3rd Quarter

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2020

2020

2019

2019

2019

Interest income

Interest and fees on loans

$

237,179

$

247,595

$

283,625

$

312,147

$

329,344

Investment securities

3,674

2,024

2,183

2,618

2,316

Federal funds sold and securities purchased under resale agreements

1

77

614

439

554

Interest-bearing deposits in other banks

2,877

2,314

19,586

22,553

22,887

Total interest income

243,731

252,010

306,008

337,757

355,101

Interest expense

Deposits

27,830

32,294

62,174

70,987

80,967

Federal funds purchased

128

176

669

1,319

1,835

Other borrowings

3,365

4,569

9,582

11,712

14,703

Subordinated notes

4,191

4,191

4,191

4,191

4,191

Trust preferred subordinated debentures

648

852

1,073

1,163

1,237

Total interest expense

36,162

42,082

77,689

89,372

102,933

Net interest income

207,569

209,928

228,319

248,385

252,168

Provision for credit losses

30,000

100,000

96,000

17,000

11,000

Net interest income after provision for credit losses

177,569

109,928

132,319

231,385

241,168

Non-interest income

Service charges on deposit accounts

2,864

2,459

3,293

2,785

2,707

Wealth management and trust fee income

2,502

2,348

2,467

2,342

2,330

Brokered loan fees

15,034

10,764

8,015

8,645

8,691

Servicing income

7,329

6,120

4,746

4,030

3,549

Swap fees

484

1,468

2,757

1,559

1,196

Net gain/(loss) on sale of LHS

25,242

39,023

(13,000

)

(7,757

)

(6,011

)

Other

6,893

8,320

3,502

6,157

7,839

Total non-interest income

60,348

70,502

11,780

17,761

20,301

Non-interest expense

Salaries and employee benefits

84,096

100,791

77,193

90,248

80,722

Net occupancy expense

8,736

9,134

8,712

9,075

8,125

Marketing

3,636

7,988

8,522

12,807

14,753

Legal and professional

11,207

11,330

17,466

21,032

11,394

Communications and technology

31,098

42,760

13,791

13,801

10,805

FDIC insurance assessment

6,374

7,140

5,849

5,613

5,220

Servicing-related expenses

12,287

20,117

16,354

2,960

8,165

Merger-related expenses

10,486

7,270

1,370

Other

8,307

12,606

10,260

11,281

10,245

Total non-interest expense

165,741

222,352

165,417

168,187

149,429

Income/(loss) before income taxes

72,176

(41,922

)

(21,318

)

80,959

112,040

Income tax expense/(benefit)

15,060

(7,606

)

(4,631

)

16,539

23,958

Net income/(loss)

57,116

(34,316

)

(16,687

)

64,420

88,082

Preferred stock dividends

2,438

2,437

2,438

2,437

2,438

Net income/(loss) available to common shareholders

$

54,678

$

(36,753

)

$

(19,125

)

$

61,983

$

85,644


TEXAS CAPITAL BANCSHARES, INC.

QUARTERLY FINANCIAL SUMMARY - UNAUDITED

Consolidated Daily Average Balances, Average Yields and Rates

(Dollars in thousands)

3rd Quarter 2020

2nd Quarter 2020

1st Quarter 2020

4th Quarter 2019

3rd 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

$

525,149

$

1,905

1.44

%

$

38,829

$

185

1.92

%

$

42,799

$

274

2.57

%

$

40,904

$

693

6.72

%

$

39,744

$

357

3.56

%

Investment securities - Non-taxable(2)

190,797

2,239

4.67

%

195,806

2,327

4.78

%

195,578

2,417

4.97

%

197,591

2,437

4.89

%

200,090

2,480

4.92

%

Federal funds sold and securities purchased under resale agreements

12,051

1

0.04

%

245,434

77

0.13

%

199,727

614

1.24

%

102,320

439

1.70

%

100,657

554

2.18

%

Interest-bearing deposits in other banks

11,028,962

2,877

0.10

%

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

%

LHS, at fair value

543,606

3,867

2.83

%

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

%

LHI, mortgage finance loans

9,061,984

76,464

3.36

%

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

%

LHI(1)(2)

16,286,036

157,230

3.84

%

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

%

Less allowance for credit
losses on loans

264,769

236,823

201,837

189,353

212,898

LHI, net of allowance

25,083,251

233,694

3.71

%

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

%

Total earning assets

37,383,816

244,583

2.60

%

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

%

Cash and other assets

1,037,760

1,075,864

976,520

974,866

1,000,117

Total assets

$

38,421,576

$

37,912,536

$

34,228,573

$

34,619,311

$

32,886,612

Liabilities and Stockholders’ Equity

Transaction deposits

$

4,275,574

$

6,652

0.62

%

$

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

%

Savings deposits

12,786,719

12,808

0.40

%

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

%

Time deposits

2,844,083

8,370

1.17

%

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

%

Total interest bearing deposits

19,906,376

27,830

0.56

%

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

%

Other borrowings

2,811,435

3,493

0.49

%

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

%

Subordinated notes

282,343

4,191

5.91

%

282,252

4,191

5.97

%

282,165

4,191

5.97

%

282,074

4,191

5.89

%

281,979

4,191

5.90

%

Trust preferred subordinated debentures

113,406

648

2.28

%

113,406

852

3.02

%

113,406

1,073

3.80

%

113,406

1,163

4.07

%

113,406

1,237

4.33

%

Total interest bearing liabilities

23,113,560

36,162

0.62

%

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

%

Demand deposits

12,202,065

10,865,896

10,003,495

10,933,887

9,992,406

Other liabilities

314,500

293,698

270,868

278,964

264,506

Stockholders’ equity

2,791,451

2,849,200

2,853,353

2,806,240

2,722,421

Total liabilities and stockholders’ equity

$

38,421,576

$

37,912,536

$

34,228,573

$

34,619,311

$

32,886,612

Net interest income(2)

$

208,421

$

210,856

$

229,787

$

249,961

$

253,768

Net interest margin

2.22

%

2.30

%

2.78

%

2.95

%

3.16

%

(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, 214.932.6773 julie.anderson@texascapitalbank.com MEDIA CONTACT Shannon Wherry, 469.399.8527 shannon.wherry@texascapitalbank.com