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

/EIN News/ --

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.

INVESTOR CONTACT
Julie Anderson, 214.932.6673
julie.anderson@texascapitalbank.com

MEDIA CONTACT
Shannon Wherry, 469.399.8527
shannon.wherry@texascapitalbank.com

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