8-K
TEXAS CAPITAL BANCSHARES INC/TX (TCBI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 22, 2020
TEXAS CAPITAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-34657 | 75-2679109 |
|---|---|---|
| (State or other jurisdiction of<br><br>incorporation) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>Identification Number) |
2000 McKinney Avenue, Suite 700, Dallas, Texas, U.S.A.
(Address of principal executive offices)
75201
(Zip Code)
Registrant's telephone number, including area code: (214)
932-6600
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | TCBI | Nasdaq Stock Market |
| 6.50% Non-Cumulative Perpetual Preferred Stock Series A, par value $0.01 per share | TCBIP | Nasdaq Stock Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
|---|---|
| (a) | On July 22, 2020, Texas Capital Bancshares, Inc. issued a press release and made available presentation slides regarding its operating and financial results for its fiscal quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1. A copy of the presentation is attached hereto as Exhibit 99.2. |
| --- | --- |
The information in Item 2.02 of this report (including the exhibits hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
| Item 9.01. | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits |
| --- | --- |
| 99.1 | Press Release, dated July 22, 2020 announcing Texas Capital Bancshares, Inc.'s operating and financial results for its fiscal quarter ended June 30, 2020 |
| --- | --- |
| 99.2 | Presentation dated July 22, 2020 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal quarter ended June 30, 2020 |
| --- | --- |
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: | July 22, 2020 | TEXAS CAPITAL BANCSHARES, INC. | |
|---|---|---|---|
| By: | /s/ Julie Anderson | ||
| Julie Anderson<br>Chief Financial Officer |
Exhibit
Exhibit 99.1
| INVESTOR CONTACT | MEDIA CONTACT |
|---|---|
| Julie Anderson, 214.932.6673 | Shannon Wherry, 469.399.8527 |
| julie.anderson@texascapitalbank.com | shannon.wherry@texascapitalbank.com |
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR Q2 2020
DALLAS - July 22, 2020 - 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
2
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.
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| 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. | ||||||||||||||
| --- | --- |
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| TEXAS CAPITAL BANCSHARES, INC. | |||||||
|---|---|---|---|---|---|---|---|
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
| (Dollars in thousands) | |||||||
| June 30, 2019 | %<br><br>Change | ||||||
| Assets | |||||||
| Cash and due from banks | 176,540 | $ | 163,675 | 8 | % | ||
| Interest-bearing deposits | 3,446,902 | 175 | % | ||||
| Federal funds sold and securities purchased under resale agreements | 34,000 | 47 | % | ||||
| Securities, available-for-sale | 240,851 | (2 | )% | ||||
| LHS, at fair value (454.6 million at June 30, 2020 and 1,056.5 million at June 30, 2019) | 1,057,586 | (57 | )% | ||||
| LHI, mortgage finance | 7,415,363 | 21 | % | ||||
| LHI (net of unearned income) | 16,924,535 | (2 | )% | ||||
| Less: Allowance for credit losses on loans | 214,572 | 23 | % | ||||
| LHI, net | 24,125,326 | 5 | % | ||||
| Mortgage servicing rights, net | 47,785 | 58 | % | ||||
| Premises and equipment, net | 28,197 | 1 | % | ||||
| Accrued interest receivable and other assets | 807,728 | 2 | % | ||||
| Goodwill and intangibles, net | 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 | 15,313,737 | 26 | % | ||||
| Total deposits | 22,999,077 | 31 | % | ||||
| Accrued interest payable | 23,115 | (12 | )% | ||||
| Other liabilities | 276,432 | 35 | % | ||||
| Federal funds purchased and repurchase agreements | 507,234 | (61 | )% | ||||
| Other borrowings | 3,100,000 | (13 | )% | ||||
| Subordinated notes, net | 281,948 | — | % | ||||
| Trust preferred subordinated debentures | 113,406 | — | % | ||||
| Total liabilities | 27,301,212 | 24 | % | ||||
| Redeemable non-controlling interest | 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 | — | % | ||||
| 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 | 503 | — | % | ||||
| Additional paid-in capital | 972,219 | 1 | % | ||||
| Retained earnings | 1,516,044 | 6 | % | ||||
| Treasury stock (shares at cost: 417 at June 30, 2020 and 2019) | ) | (8 | ) | — | % | ||
| Accumulated other comprehensive income, net of taxes | 8,313 | N/M | |||||
| Total stockholders’ equity | 2,647,071 | 3 | % | ||||
| Total liabilities and stockholders’ equity | 36,613,127 | $ | 29,970,384 | 22 | % |
All values are in US Dollars.
5
| 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 |
6
| 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. | ||||||||||||||
| --- | --- |
7
| 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. | ||||||||||||||
| --- | --- |
8
| 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 |
9
| 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<br><br>Balance | Revenue/<br><br>Expense | Yield/<br><br>Rate | Average<br><br>Balance | Revenue/<br><br>Expense | Yield/<br><br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>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<br><br>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. | |||||||||||||||||||||||||||||
| --- | --- |
10
a7222020exhibit992
Q2-2020 Earnings July 22, 2020
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. 2
Positioned for Growth TCBI Overview Financial Positioning Unique branch-lite, commercially-focused, organic growth model built Capital 2007–2019 Annual Avg. Q1 2020 Q2 2020 over 20 years by hand-selecting top banking talent During a period (’16-’19) of favorable economic conditions and rising 12.0% 11.6% 11.1% interest rates, we invested aggressively in efficiency focused technology, 10.2% 9.8% 9.3% 9.5% a best-in-class digital platform, and complimentary C&I offerings 8.9% Successful completion of this multi-year infrastructure and capability 8.0% build has positioned the bank for a period without necessary outsized Common Equity Tier 1 Tier 1 Capital Total Capital investments and properly situated to harvest broad profitability gains Capitalizing on this foundation and focusing future expense on front-line Liquidity talent will continue to deepen middle-market commercial bank 28% 27% relationships, diversifying both revenue and funding composition 117% 90% Counter-cyclical, volume-driven Mortgage Finance provides flexibility 85% while generating strong risk-adjusted returns and fortifying already 9% meaningful capital and liquidity levels With these advantages in place, Texas Capital stands ready to serve our Cash + Securities / Assets Loans HFI / Deposits clients and gain market share as we have in prior downturns 1 Net loss of $34.3 million ($0.73 per share) driven by significant one-time items ($0.99 Revenue $280M per share) and provision for credit losses ($1.55 per share). Significant one-time items $268M 2Q-2020 primarily relate to deliberate actions taken to improve future core earnings outlook Earnings Revenue 1 grew $12.5 million, or 4.7%, Y-o-Y demonstrating earnings resilience despite $240M Summary interest rate declines Continued strong capital levels well in excess of regulatory thresholds and a highly liquid balance sheet provide flexibility in current environment Q2 2019 Q1 2020 Q2 2020 1 Net interest income and non-interest income 3
Second Quarter Actions and Impact Resetting the Cost Base Decisions in late Q2-2020 signify an acceleration of actions started pre- MOE to narrow the strategic focus and realize efficiencies in the operating $387.8M $39.4M model. Reduction to annual non-interest expense of ~$30 million, with $17.8M $11 million impacting 2H-2020 financials $19.2M $9.1M $302.3M Savings ($M) 2H 2020 Comments Salaries $10 Reduction in salaries and benefits expense immediately improves operating leverage while focusing future incremental spend on revenue production Cap Ex $1 $21MM write-off of certain software assets reduces capitalized expense. Opportunities for additional reductions in Q3-2020 Total Savings $11 1H 2020 Organizational Merger MSR PPP related Normalized 2H2020 NIE Guidance Low $290s Reported NIE changes expenses impairment & other 1H 2020 NIE 1X expense Additional non-FTE related G&A expense saves targeted for 2H-2020 and FY-2021 Credit Cycle Management MSR hedging program should limit volatility in dynamic rate environment Proactive problem identification and resolution Charge-off of previously identified Energy and Leveraged 2007–2019 Annual Avg. Q1 2020 Q2 2020 Lending credits contributed to ~20% decline in NPAs 1 $ of total loans in sectors most severely impacted by COVID-19 CRE2 – $0.4B Hospitality, $0.3B Retail 1.43% 1.60% C&I3 – $1.1B Energy, $0.5B Real Estate, $0.2B Accommodation 1.19% 1.08% & Food Service, $0.1B Retail Trade 0.93% 0.99% 1.04% 0.63% Additional build to the allowance for credit losses (“ACL”) could be 0.49% required in future quarters if impact of COVID-19 on the economy deviates from current economic forecast ACL on Loans / Loans HFI ACL on Loans / NPAs / Earning Assets Loans HFI excl MFLs 1 Q2-2020 NPAs include $40 million of Energy Loans that have been charged down to final resolution value and are pending close in Q3-2020 4 2 Detailed on slide 12 3 Includes Leveraged Lending, Energy, PPP Loans, and other Commercial Loans
Q2-2020 Financial Results
Loan Portfolio Growth Outlook Average LHI (excluding MFLs) increased $416 million (3%) from Q1-2020, while ending LHI (excluding MFLs) decreasing $305 million (2%) from Q1- 2020 due to the following factors: Continuation of deliberate multi-quarter reductions in Energy and Leverage Lending; down 14% and 5%, respectively, from Q1-2020 and 33% and 40%, respectively, from YE 2018 Return to more normalized utilization rates in the low 50’s down from the high 50’s at the end of Q1-2020 Participation in Cares Act – PPP, Deferrals, and Main Street Lending Program Period end PPP loans totaled $717 million, with $16 million in deferred fees remaining to be recognized in interest income in future periods. Deferrals granted to borrowers with loans totaling $1.2 billion, of which $0.9 billion (75%) reside in sectors most severely impacted by COVID- 19 Average total MFLs of $9.1 billion for Q2-2020 were down $1.1 billion (11%) from Q1-2020, as an increase in average MFLs, excluding MCA LHS, resulting from continued demand was more than offset by a reduction in average MCA LHS from market economics favoring shorter loan hold times The Q-o-Q decline in LHI (excluding MFLs) yields (85bps) and mix shift contributed to the decline in NIM, as total loan spread increased slightly to 3.43% from 3.35% in the prior quarter. Liquidity build drove a Q-o-Q margin decline, but core earnings generation remains stable Period-End Loan Composition 1 Average Loans & Total Loan Spread 2 3 2 $26.0B in balances LHI (excl. MFLs) Total MFLs Total Loan Spread Business Assets Energy 26% $10.7B $11.4B 4% $9.5B $10.2B $9.1B Highly Liquid Assets Unsecured 1% 3% $16.9B $17.0B Owner Occupied R/E $16.8B $16.7B $16.6B 5% Residential R/E 3.61% 3.48% Mkt. Risk Total Mortgage 3.38% 3.35% 3.43% 4% Finance 36% Comml R/E Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Mkt. Risk 15% Other Assets Total Loan 5.09% 4.79% 4.45% 4.30% 3.86% 6% Yield 1 Includes total LHI and LHS 2 Total Loan Spread = Yield on total loans (HFI & HFS) – Total cost of deposits and other borrowings 6 3 Total MFLs include LHI, mortgage finance, and MCA LHS
Deposits and Fundings Highlights Funding Costs Ending deposits increased $3.1 billion as clients built on-balance sheet cash amidst economic uncertainty, keeping low-earning liquidity balances at historical highs 1.40% Continued focus on cost-effective deposit growth within 1.25% verticals and core client relationships 1.03% 1.29% 0.92% Brokered deposit balances decreased modestly. Laddered 1.21% maturities will allow for ongoing reduction in costs, even as 0.99% balances expected to remain stable through the near-term 0.90% 0.45% Decrease in total funding costs of 47 bps resulting from full-quarter benefit of Fed moves Immediate repricing down of $10.4 billion in indexed 0.42% deposits helped offset yield declines to maintain spreads Initiatives already directed at other interest-bearing deposits Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 have achieved 59 bps in savings and more is expected Avg Cost of Deposits Total Funding Costs Period-End Deposits Balances Upcoming Maturities CD Maturity FHLB Maturity 7
Q2-2020 Earnings Overview Net Interest Income & Margin Commentary Net Interest Margin Detail (bps) A mix shift towards lower yielding assets weighed on NIM, but a $243.6M decline in funding costs and stable $228.3M $209.9M Warehouse yields offset impacts Average liquidity assets increased ~70% Q-o-Q, coupling with the full impact of the Fed moves to further 3.41% pressure NIM 2.78% 2.30% Meaningful decrease in funding costs. Opportunities to reduce concentrations as excess liquidity Net Net Interest Income reduced Q2 2019 Q1 2020 Q2 2020 Lower LHS interest income from Other Costs Loans Yields Yields Funding shorter hold times more than offset Q12020 Q22020 Balances (net PPP) (net PPP Loans by GOS in non-interest income Liquid Asset Liquid Asset Provision for Credit Losses Commentary Criticized Loans Economic fundamentals and higher $100.0M $1,014.0M $96.0M criticized loan levels driving Q2-2020 CECL provisioning higher ($1.55 per share) $676.0M Energy and Leveraged charge-offs $629.1M 3.97% ($62.4 million and $8.1 million, respectively) on previously identified 2.54% 2.77% $27.0M loans Increase in criticized loans predominantly in special mention Credit Expense Additional ACL build could be required Q2 2019 Q1 2020 Q2 2020 in future quarters if impact of COVID-19 Q2 2019 Q1 2020 Q2 2020 on the economy deviates from current Criticized Loans economic forecast Criticized Loans % Total LHI 8
Q2-2020 Earnings Overview Non-interest Income Commentary Fee Income Details Market continues to exhibit favorable economics for LHS sales. Continue to $8.5M $70.5M optimize portfolio between GOS and interest income $2.8M $6.3M Seasonal increase in already high $5.6M Warehouse volumes drove significant $0.6M $1.5M brokered loan fees ($2.7 million Q-o-Q) $2.5M $2.1M $24.4M Focus on diversifying non-interest $2.3M $11.8M income streams continues with steady $3.3M Q-o-Q results. 1H-2020 swap fees $2.6 $2.8M $2.5M million higher than in 1H-2019 Non - interestincome Q2 2019 Q1 2020 Q2 2020 Despite price volatility, Wealth Q2 2019 Q1 2020 Q2 2020 Management Fees in line with recent Swap Fees quarterly performance ($2.3 million) Wealth Management Fees Deposit Service Charges Non-interest Expense Commentary Salary and Employee Benefits As noted, Q2-2020 impacted by $222.4M significant one-time items (e.g., $100.3M headcount reduction costs, software $165.4M write-offs, merger costs) $76.9M $76.7M $141.7M Other expense categories remained at manageable levels, with Legal & Professional showing a decline of $6.1 million from Q1-2020 Disciplined core expense management, with modest investments focused on front-line Non - interestexpense Q2 2019 Q1 2020 Q2 2020 hires, will remain a key strategic Q2 2019 Q1 2020 Q2 2020 priority 9
LOB Detail
Loan Portfolio Detail – Mortgage Finance Commentary MWH + MCA Annualized Revenue Q2-2020 average MFLs (excluding MCA LHS) increased 23% Y-o-Y as the Bank optimized business mix to take advantage of industry volumes and GOS opportunities in MCA $174M When combined with MCA, annualized quarterly revenue increased +108.0% ~40% from Q2-2019. A favorable outlook suggests continued near- $84M term opportunity to provide substantial risk-adjusted returns acting +67.7% as a counter-cyclical hedge to the traditional LHI portfolio $50M Mortgage Finance’s relationship-driven pricing approach allowed for +19.3% $321M +34.3% $269M yield resilience despite the full-quarter impact of the declining rate $200M environment. Modest contraction anticipated in 2H-2020 Proven track-record of adjusting risk profile based on market Q2 2018 Q2 2019 Q2 2020 liquidity; underlying portfolio quality remains the priority Mortgage Warehouse Mortgage Correspondent Aggregation Average Mortgage Warehouse Loans and Yields $9.0B 6.0% $8.0B 5.0% $7.0B 4.0% $6.0B 3.0% $5.0B 2.0% $4.0B 1.0% $3.0B 0.0% Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Mortgage Warehouse Yield 10YR 1M LIBOR 11
Loan Portfolio Detail – CRE Commentary Moderating Late Cycle Growth Thru-cycle Credit Performance Track record of proactive portfolio management evidenced by 40% % Loan Growth * 4.5% NCO Rate * changes in growth rates thru-cycle and strong credit performance TCBI TCBI 35% 1 4.0% 1 during periods of stress Peer Average Peer Average 30% 3.5% 3.0% 25% CRE managed as a line of business facilitating achievement of 2.5% 20% concentration objectives by product and geography. Underwriting 2.0% 15% focus on strong sponsors and developers with significant upfront cash 1.5% 10% equity 1.0% 5% Construction in most markets where projects are being financed is 0.5% 0% considered essential, and related construction continues to progress 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 largely on schedule 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Q1 2020 Property Types 2 Statistics Commentary Criticized Avg LTV $2.1B Commit, $1.2B Bal Portfolio focus on newly developed, generally Class A properties yielding benefits $14.7M 46% Multi Family 31% Total CRE Rent collection rates remain high; virtual leasing could slow project lease up $0.8B Commit, $0.6B Bal Office occupancies expected to soften as tenants revisit their space needs; initial $0 Office 15% Total CRE borrower feedback remains positive for rent collection from anchor tenants 57% $0.6B Commit, $0.4B Bal Performance expected to remain consistent due to continued shift to e-commerce $2.5M Industrial 10% Total CRE Average loan-to-cost even lower than portfolio average of ~65% 47% $0.6B Commit, $0.4B Bal Primarily construction which is deemed “essential” and progressing as planned $27.9M 54% Senior Housing 9% Total CRE Occupancy / leasing slowing modestly as a result of COVID protocols in facilities $0.4B Commit, $0.4B Bal Most impacted portfolio to-date; proactively addressing issues through downgrades $149.1M 53% Hospitality 9% Total CRE Loss exposure limited by low loan-to-values $0.4B Commit, $0.3B Bal Strong performance during the Great Recession; anticipate similar results during this $0 Self Storage 9% Total CRE cycle 65% $0.3B Commit, $0.3B Bal Smallest exposure; performance as expected with quality of anchor/essential tenants $14.0M Retail 8% Total CRE (i.e., large grocery stores) in most properties a risk mitigating factor 54% * Source: S&P Market Intelligence as of Q1-2020. Based on regulatory definition of Total CRE Balances 1 Peers include: ASB, BXS, BKU, BOKF, CBSH, CFR, FHN, FINN, FULT, HWC, IBKC, ISBC, SNV, UMBF, WBS, WTFC 12 2 Other collateral types comprise ~10% of total outstanding balances
Loan Portfolio Detail – Energy Commentary Portfolio Management Continued loan balance contraction driven by resolution of ~70% of E&P production hedged in 2020, ~60% in 2021 1 previously disclosed outsized problem credits resulting in a more This compares favorably to the 2015-2016 downturn granular portfolio with lower inherent loss potential Spring borrowing base redeterminations (~87% complete) resulted Total Y-o-Y loan balances down ~$500 million, or 30%, in 18% reduction in borrowing bases from $1.6 billion to $1.1 billion Modest increase to ACL but no change to expectations for thru- Average loan sizes have also decreased, down from $17.5 cycle credit performance million at Q1-2020 to $15.3 million at Q2-2020 At Q2-2020 total ACL assigned to energy loans was 9.2%, which is Portfolio composition remains focused on privately held or private comparable to the total cumulative losses from 2014-2019 equity backed E&P clients $39.8 million of the $103.9 million in non-accrual energy loans Energy Banking President now reporting directly to CEO relates to two loans that have been charged down to final resolution value and are pending close in Q3-2020 Period-End Portfolio Composition ACL Build $1.1B in balances 2 Criticized Total ACL% $324M $248M $211M 8.8% 9.2% $151M $136M 4.3% 3.1% 3.0% Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 NPAs % 2 3.9% 4.1% 8.8% 11.4% 9.1% 1 Hedge % calculated based on production volumes 2 Ratios calculated as a % of total energy loans 13
Loan Portfolio Detail – Leveraged Lending Commentary Portfolio Management Diversified portfolio with some exposure to industries believed to be Senior leverage typically in the 3.0x-4.0x range; leverage trends most impacted by COVID-19; others may be affected depending on continue to be in line with previous quarters but proactively their varying degrees of either reliance on consumer spending or monitoring for signs of weakness supply chain risks Significant reductions in originations in the past 12 months, coupled with meaningful runoff, has reduced overall exposure by Due to requirements for sponsor-owned clients, this portfolio had over 30%; as expected, this contraction has slowed modestly in less PPP participation than originally anticipated. Additional clarity the current environment, a trend which could continue until should emerge in Q3-2020 on the potential impacts of Main Street economic activity begins to normalize Lending Program Allocated ACL is 6.2%; percentages can fluctuate as identified issues are resolved which may result in charge-offs Includes $83 million of ABL loans which generally have good Multi-period reduction in NPAs; no new inflows this quarter collateral coverage and are further governed by a borrowing base. Of the $82 million in outstanding loans to Mining, Quarrying, and Oil and Gas Extraction, $57 million benefit from the ABL structure Period-End Portfolio Composition ACL Build $0.7B in balances 1 Criticized Total ACL% $222M $204M $197M $188M $177M 8.1% 6.6% 6.3% 6.2% 6.2% Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 NPAs % 1 2.4% 2.8% 8.7% 6.4% 5.2% 1 Ratios calculated as a % of total leveraged lending loans 14
Conclusion
Summary & Outlook Diverse, well-established lines of business balanced between differentiated national verticals and core market offerings reflective of the relationship banking approach synonymous with TCBI since inception Organic growth model developed by hand selecting top talent fosters unique cultural alignment, innovation mindset, and Franchise client-centric focus. Bias towards action enables rapid transformation consistent with dynamic market Overview Branch-lite since formation, a limited physical footprint enables capital allocation for core treasury focus, scalable deposit verticals, and digital offerings - compatible with accelerating customer preferences Best-in-class Mortgage Finance business provides balance sheet optionality, strong risk-adjusted returns, and natural hedge to asset-sensitive commercially-oriented model Leverage momentum from Q2-2020 actions to further position the company for Sustainably Higher Core Earnings Harvest productivity gains after period of outsized investment in technology, products, and process Continue to invest in and acquire top front-line talent; deliver on improved middle-market capabilities Strategic Effective Credit Cycle Management Priorities Continue forward-looking, proactive approach to Energy and Leveraged Lending Sustain legacy of peer credit outperformance in the remainder of the loan portfolio Realizing structural profitability improvements positions TCBI for expanded strategic optionality when economic uncertainty subsides Actions taken this quarter set the foundation for improvements in profitability beginning in the 2H-2020 and into 2021. Completed infrastructure and technology build-out limits potential for necessary future outsized investment 2H-2020 Non-Interest Expense of low $290 millions, down from an adjusted $302 million in 1H-2020 Commitment to proactive problem identification and resolution remains; however, absent significant economic 2H-2020 deterioration, we believe we are adequately reserved for the losses inherent in our portfolio. Anticipate moderating Outlook provision expense in 2H-2020 Elevated contribution from Mortgage Warehouse will persist against the backdrop of favorable market conditions Improving earnings generation in excess of future credit needs should result in increased capital ratios. Liquidity position likely to remain elevated given deposit growth; multi-quarter remix of cash into securities will provide earnings benefit while retaining balance sheet flexibility 16