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): October 20, 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 October 21, 2020, Texas Capital Bancshares, Inc. (the "Company") issued a press release and made available presentation slides regarding its operating and financial results for its fiscal quarter ended September 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 5.07. | Submission of Matters to a Vote of Security Holders. |
|---|
On October 20, 2020, the Company held its 2020 Annual Meeting of Stockholders (the "Annual Meeting"). The matters voted on at the Annual Meeting and final voting results are summarized below.
Proposal 1 - A Company proposal to elect nine directors for a term of one year or until their successors are elected and qualified:
| Number of Shares | |||
|---|---|---|---|
| Nominee | Voted For | Votes Withheld | Broker Non-Votes |
| Larry L. Helm | 35,285,836 | 2,874,546 | 3,023,099 |
| James H. Browning | 35,015,974 | 3,144,408 | 3,023,099 |
| Jonathan E. Baliff | 35,209,390 | 2,950,992 | 3,023,099 |
| David S. Huntley | 36,342,009 | 1,818,373 | 3,023,099 |
| Charles S. Hyle | 36,340,338 | 1,820,044 | 3,023,099 |
| Elysia Holt Ragusa | 33,992,949 | 4,167,433 | 3,023,099 |
| Steven P. Rosenberg | 34,592,719 | 3,567,663 | 3,023,099 |
| Robert W. Stallings | 35,057,181 | 3,103,201 | 3,023,099 |
| Dale W. Tremblay | 35,049,634 | 3,110,748 | 3,023,099 |
Each of the nine director nominees was elected for a one-year term to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Proposal 2 - A Company proposal to approve, on an advisory basis, the 2019 compensation of the Company's named executive officers, as described in the proxy statement:
| Number of Shares | |||
|---|---|---|---|
| Voted For | Voted Against | Abstentions | Broker Non-Votes |
| 36,465,739 | 1,652,809 | 41,834 | 3,023,099 |
The 2019 compensation of our named executive officers was approved on an advisory basis.
Proposal 3 - A Company proposal to ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2020:
| Number of Shares | |||
|---|---|---|---|
| Voted For | Voted Against | Abstentions | Broker Non-Votes |
| 40,383,840 | 782,464 | 17,177 | — |
The appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2020 was ratified.
Proposal 4, which requested stockholder ratification of the provisions of Section 2.3 of the Company's Amended and Restated Bylaws allowing the holders of 20% or more of the Company's outstanding common stock to call a special meeting of stockholders, was withdrawn by the board of directors on October 5, 2020, and no vote was taken on the proposal. The board of directors also unanimously voted on October 5, 2020, to amend Section 2.3 of the Amended and Restated Bylaws to allow the holders of 10% or more of the Company’s outstanding common stock to call a special meeting of stockholders.
| Item 9.01. | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits |
| --- | --- |
| 99.1 | Press Release, dated October 21, 2020 announcing Texas Capital Bancshares, Inc.'s operating and financial results for its fiscal quarter ended September 30, 2020 |
| --- | --- |
| 99.2 | Presentation dated October 21, 2020 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal quarter ended September 30, 2020 |
| --- | --- |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| --- | --- |
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: | October 21, 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, 214.932.6773 | Shannon Wherry, 469.399.8527 |
| julie.anderson@texascapitalbank.com | shannon.wherry@texascapitalbank.com |
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR Q3 2020
DALLAS - October 21, 2020 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the third quarter of 2020.
"We are pleased to report significantly improved operating results for the third quarter," said Larry Helm, Executive Chairman and CEO. "As we continue to navigate these unprecedented times I would like to thank our employees for their dedication to serving our clients and communities. We believe the actions we took during the second quarter have resulted in improvements to core operating results that will continue to serve us well as we plan for the future, and we remain committed to managing credit and taking care of our employees and clients, while continuing to recruit and develop top frontline talent and build shareholder value."
| • | Net income of $57.1 million ($1.08 per share) reported for the third quarter of 2020, an increase of $91.4 million on a linked quarter basis and a decrease of $31.0 million from the third quarter of 2019. |
|---|---|
| • | Total mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans held for sale ("LHS"), increased 6% on a linked quarter basis (increasing 6% on an average basis) and decreased 6% from the third quarter of 2019 (decreasing 10% on an average basis). |
| --- | --- |
| • | Demand deposits increased 14% and total deposits increased 6% on a linked quarter basis (increasing 12% and 4%, respectively, on an average basis), and increased 20% and 17%, respectively, from the third quarter of 2019 (increasing 22% and 21%, respectively, on an average basis). |
| --- | --- |
| • | Loans held for investment ("LHI"), excluding mortgage finance loans, decreased 5% on a linked quarter basis (decreasing 4% on an average basis) and decreased 6% from the third quarter of 2019 (decreasing 4% on an average basis). |
| --- | --- |
FINANCIAL SUMMARY
| (Dollars and shares in thousands) | Q3 2020 | Q3 2019 | % Change | |||||
|---|---|---|---|---|---|---|---|---|
| QUARTERLY OPERATING RESULTS | ||||||||
| Net income | $ | 57,116 | $ | 88,082 | (35 | )% | ||
| Net income available to common stockholders | $ | 54,678 | $ | 85,644 | (36 | )% | ||
| Diluted earnings per common share | $ | 1.08 | $ | 1.70 | (36 | )% | ||
| Diluted common shares | 50,573 | 50,416 | — | % | ||||
| ROA | 0.59 | % | 1.06 | % | ||||
| ROE | 8.24 | % | 13.21 | % | ||||
| BALANCE SHEET | ||||||||
| LHS | $ | 648,009 | $ | 2,674,225 | (76 | )% | ||
| LHI, mortgage finance | 9,378,104 | 7,951,432 | 18 | % | ||||
| LHI | 15,789,958 | 16,772,824 | (6 | )% | ||||
| Total LHI | 25,168,062 | 24,724,256 | 2 | % | ||||
| Total assets | 38,432,872 | 33,526,437 | 15 | % | ||||
| Demand deposits | 12,339,212 | 10,289,572 | 20 | % | ||||
| Total deposits | 31,959,487 | 27,413,303 | 17 | % | ||||
| Stockholders’ equity | 2,800,404 | 2,735,993 | 2 | % |
DETAILED FINANCIALS
For the third quarter of 2020, net income was $57.1 million, compared to a net loss of $34.3 million for the second quarter of 2020, and net income of $88.1 million for the third quarter of 2019. On a fully diluted basis, earnings per common share were $1.08 for the quarter ended September 30, 2020, compared to a loss per common share of $0.73 for the quarter ended June 30, 2020 and earnings per common share of $1.70 for the quarter ended September 30, 2019. The increase in net income for the third quarter of 2020 as compared to the second quarter of 2020 resulted primarily from a $70.0 million decrease in the provision for credit losses, as well as a $56.6 million decrease in non-interest expense, driven by significant non-recurring expenses incurred in the second quarter of 2020, as described below.
We recorded a $30.0 million provision for credit losses for the third quarter of 2020 utilizing the Current Expected Credit Loss ("CECL") methodology adopted in the first quarter of 2020, compared to $100.0 million for the second quarter of 2020 and $11.0 million for the third quarter of 2019. The linked quarter decrease in provision for credit losses resulted primarily from a decrease in charge-offs. We recorded $1.6 million in net charge-offs during the third quarter of 2020, compared to $74.1 million during the second quarter of 2020 and $36.9 million during the third quarter of 2019. Criticized loans totaled $1.1 billion at September 30, 2020, compared to $1.0 billion at June 30, 2020 and $536.4 million at September 30, 2019. Criticized loan levels remain elevated due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic or that are in categories that are expected to be more significantly impacted by COVID-19.
Non-performing assets ("NPAs") totaled $161.9 million at September 30, 2020, a decrease of $12.1 million compared to the second quarter of 2020 and an increase of $41.3 million compared to the third quarter of 2019. Non-accrual energy loans totaled $73.8 million (46% of total NPAs) at September 30, 2020, compared to $103.9 million (60% of total NPAs) at June 30, 2020. Non-accrual leveraged lending loans totaled $31.3 million (19% of total NPAs) at September 30, 2020, compared to $39.1 million (22% of total NPAs) at June 30, 2020. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the third quarter of 2020 was 0.64%, compared to 0.68% for the second quarter of 2020 and 0.49% for the third quarter of 2019.
Net interest income was $207.6 million for the third quarter of 2020, compared to $209.9 million for the second quarter of 2020 and $252.2 million for the third quarter of 2019. Net interest margin for the third quarter of 2020 was 2.22%, a decrease of 8 basis points from the second quarter of 2020 and a decrease of 94 basis points from the third quarter of 2019. The shift in earning assets, primarily the increases in liquidity assets and investment securities, and decrease in LHI, excluding mortgage finance, contributed to the year-over-year decrease in net interest margin. LHI yields, excluding mortgage finance loans, decreased 20 basis points from the second quarter of 2020, and decreased 169 basis points compared to the third quarter of 2019. LHI, mortgage finance yields for the third quarter of 2020 decreased 9 basis points compared to the second quarter of 2020, and were unchanged compared to the third quarter of 2019. Additionally, total cost of deposits for the third quarter of 2020 decreased 8 basis points to 0.34% compared to 0.42% for the second quarter of 2020, and decreased 87 basis points from 1.21% for the third quarter of 2019.
Non-interest income decreased $10.2 million, or 14%, during the third quarter of 2020 compared to the second quarter of 2020, and increased $40.0 million, or 197%, compared to the third quarter of 2019. The linked quarter decrease was primarily related to a decrease in net gain/(loss) on sale of LHS, partially offset by an increase in brokered loans fees. The year-over-year increase was primarily related to an increase in net gain/(loss) on sale of LHS and an increase in brokered loan fees. The linked quarter and year-over-year increases in brokered loan fees were due to an increase in total mortgage finance volumes in the third quarter of 2020. The year-over-year increase in net gain/(loss) on sale of LHS was due to lower hedge costs in the third quarter of 2020 as a result of holding purchased loans for shorter durations than in prior periods, and is offset by the year-over-year decline in net interest income on LHS.
Non-interest expense for the third quarter of 2020 decreased $56.6 million, or 25%, compared to the second quarter of 2020, and increased $16.3 million, or 11%, compared to the third quarter of 2019. The linked quarter decrease was primarily related to decreases in salaries and employee benefits, communications and technology expense, servicing-related expenses and merger-related expenses. The year-over-year increase was primarily due to an increase in communications and technology expense, partially offset by a decrease in marketing expense. The linked quarter decrease in salaries and employee benefits and communication and technology expense was primarily due to non-recurring severance accruals and software expenses recorded in the second quarter of 2020. We wrote-off an additional $15.4 million in software assets during the third quarter of 2020, which contributed to the year-over-year increase in communications and technology expense. The full impact on salaries and employee benefits expense from the reduction in workforce and on software amortization expense from the software write-offs in the second and third quarters of 2020 is expected to be realized in non-interest expense in the first half of 2021, with meaningful reductions in run-rate occurring in the fourth quarter of 2020. Further software write-offs are not expected in the fourth quarter of 2020. The linked-quarter decrease in servicing-related expense was primarily due to a decrease in MSR impairment expense reflecting market conditions and our hedging program.
2
All regulatory ratios continue to be in excess of "well-capitalized" requirements as of September 30, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 9.1%, 9.9%, 11.8% and 7.6%, respectively, at September 30, 2020, compared to 8.8%, 9.7%, 11.6% and 7.5%, respectively, at June 30, 2020. At September 30, 2020, our ratio of tangible common equity to total tangible assets was 6.8% compared to 7.0% at June 30, 2020.
About Texas Capital Bancshares, Inc.
Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 2000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.
Forward Looking Statements
This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding our financial condition, results of operations, business plans and future performance. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and credit losses, volatility in the mortgage industry, our business strategies, our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for credit losses and provision for credit losses, our ability to identify, employ and retain a successor chief executive officer, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
3
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| Interest income | $ | 243,731 | $ | 252,010 | $ | 306,008 | $ | 337,757 | $ | 355,101 | |||||
| Interest expense | 36,162 | 42,082 | 77,689 | 89,372 | 102,933 | ||||||||||
| Net interest income | 207,569 | 209,928 | 228,319 | 248,385 | 252,168 | ||||||||||
| Provision for credit losses | 30,000 | 100,000 | 96,000 | 17,000 | 11,000 | ||||||||||
| Net interest income after provision for credit losses | 177,569 | 109,928 | 132,319 | 231,385 | 241,168 | ||||||||||
| Non-interest income | 60,348 | 70,502 | 11,780 | 17,761 | 20,301 | ||||||||||
| Non-interest expense | 165,741 | 222,352 | 165,417 | 168,187 | 149,429 | ||||||||||
| Income/(loss) before income taxes | 72,176 | (41,922 | ) | (21,318 | ) | 80,959 | 112,040 | ||||||||
| Income tax expense/(benefit) | 15,060 | (7,606 | ) | (4,631 | ) | 16,539 | 23,958 | ||||||||
| Net income/(loss) | 57,116 | (34,316 | ) | (16,687 | ) | 64,420 | 88,082 | ||||||||
| Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | ||||||||||
| Net income/(loss) available to common stockholders | $ | 54,678 | $ | (36,753 | ) | $ | (19,125 | ) | $ | 61,983 | $ | 85,644 | |||
| Diluted earnings/(loss) per common share | $ | 1.08 | $ | (0.73 | ) | $ | (0.38 | ) | $ | 1.23 | $ | 1.70 | |||
| Diluted common shares | 50,573,073 | 50,416,331 | 50,474,802 | 50,461,723 | 50,416,402 | ||||||||||
| CONSOLIDATED BALANCE SHEET DATA | |||||||||||||||
| Total assets | $ | 38,432,872 | $ | 36,613,127 | $ | 35,879,416 | $ | 32,548,069 | $ | 33,526,437 | |||||
| LHI | 15,789,958 | 16,552,203 | 16,857,579 | 16,476,413 | 16,772,824 | ||||||||||
| LHI, mortgage finance | 9,378,104 | 8,972,626 | 7,588,803 | 8,169,849 | 7,951,432 | ||||||||||
| LHS | 648,009 | 454,581 | 774,064 | 2,577,134 | 2,674,225 | ||||||||||
| Liquidity assets^(1)^ | 10,461,544 | 9,540,044 | 9,498,189 | 4,263,766 | 4,993,185 | ||||||||||
| Investment securities | 1,367,313 | 234,969 | 228,784 | 239,871 | 238,022 | ||||||||||
| Demand deposits | 12,339,212 | 10,835,911 | 9,420,303 | 9,438,459 | 10,289,572 | ||||||||||
| Total deposits | 31,959,487 | 30,187,695 | 27,134,263 | 26,478,593 | 27,413,303 | ||||||||||
| Other borrowings | 2,908,183 | 2,895,790 | 5,195,267 | 2,541,766 | 2,639,967 | ||||||||||
| Subordinated notes | 282,400 | 282,309 | 282,219 | 282,129 | 282,038 | ||||||||||
| Long-term debt | 113,406 | 113,406 | 113,406 | 113,406 | 113,406 | ||||||||||
| Stockholders’ equity | 2,800,404 | 2,734,755 | 2,772,596 | 2,801,321 | 2,735,993 | ||||||||||
| End of period shares outstanding | 50,455,552 | 50,435,672 | 50,407,778 | 50,337,741 | 50,317,654 | ||||||||||
| Book value | $ | 52.53 | $ | 51.25 | $ | 52.03 | $ | 52.67 | $ | 51.39 | |||||
| Tangible book value^(2)^ | $ | 52.18 | $ | 50.89 | $ | 51.67 | $ | 52.31 | $ | 51.03 | |||||
| SELECTED FINANCIAL RATIOS | |||||||||||||||
| Net interest margin | 2.22 | % | 2.30 | % | 2.78 | % | 2.95 | % | 3.16 | % | |||||
| Return on average assets | 0.59 | % | (0.36 | )% | (0.20 | )% | 0.74 | % | 1.06 | % | |||||
| Return on average common equity | 8.24 | % | (5.48 | )% | (2.85 | )% | 9.26 | % | 13.21 | % | |||||
| Non-interest income to average earning assets | 0.64 | % | 0.77 | % | 0.14 | % | 0.21 | % | 0.25 | % | |||||
| Efficiency ratio^(3)^ | 61.9 | % | 79.3 | % | 68.9 | % | 63.2 | % | 54.8 | % | |||||
| Efficiency ratio, adjusted^(4)^ | 59.8 | % | 77.5 | % | 65.8 | % | 61.4 | % | 51.3 | % | |||||
| Non-interest expense to average earning assets | 1.76 | % | 2.43 | % | 2.00 | % | 1.98 | % | 1.86 | % | |||||
| Tangible common equity to total tangible assets^(5)^ | 6.8 | % | 7.0 | % | 7.3 | % | 8.1 | % | 7.6 | % | |||||
| Common Equity Tier 1 | 9.1 | % | 8.8 | % | 9.3 | % | 8.9 | % | 8.6 | % | |||||
| Tier 1 capital | 9.9 | % | 9.7 | % | 10.2 | % | 9.7 | % | 9.4 | % | |||||
| Total capital | 11.8 | % | 11.6 | % | 12.0 | % | 11.4 | % | 11.0 | % | |||||
| Leverage | 7.6 | % | 7.5 | % | 8.5 | % | 8.4 | % | 8.6 | % | |||||
| (1) | Liquidity assets include Federal funds sold and interest-bearing deposits in other banks. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end. | ||||||||||||||
| --- | --- | ||||||||||||||
| (3) | Non-interest expense divided by the sum of net interest income and non-interest income. | ||||||||||||||
| --- | --- | ||||||||||||||
| (4) | Non-interest expense, excluding deposit-related marketing fees and servicing related expenses, divided by the sum of net interest income and non-interest income, net of deposit-related marketing fees and servicing related expenses. Deposit-related marketing fees totaled $1.8 million, $1.7 million, $5.2 million, $9.4 million and $11.9 million for the third, second and first quarters of 2020, as well as the fourth and third quarters of 2019, respectively. | ||||||||||||||
| --- | --- | ||||||||||||||
| (5) | Stockholders’ equity excluding preferred stock and accumulated other comprehensive income, less goodwill and intangibles, divided by total assets, less accumulated other comprehensive income and goodwill and intangibles. | ||||||||||||||
| --- | --- |
4
| TEXAS CAPITAL BANCSHARES, INC. | |||||||
|---|---|---|---|---|---|---|---|
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
| (Dollars in thousands) | |||||||
| September 30, 2019 | %<br><br>Change | ||||||
| Assets | |||||||
| Cash and due from banks | 185,242 | $ | 216,085 | (14 | )% | ||
| Interest-bearing deposits | 4,968,185 | 111 | % | ||||
| Federal funds sold and securities purchased under resale agreements | 25,000 | (100 | )% | ||||
| Securities, available-for-sale | 238,022 | 474 | % | ||||
| LHS (639.0 million and 2,667.2 million at September 30, 2020 and 2019, respectively, at fair value) | 2,674,225 | (76 | )% | ||||
| LHI, mortgage finance | 7,951,432 | 18 | % | ||||
| LHI (net of unearned income) | 16,772,824 | (6 | )% | ||||
| Less: Allowance for credit losses on loans | 190,138 | 53 | % | ||||
| LHI, net | 24,534,118 | 1 | % | ||||
| Mortgage servicing rights, net | 49,125 | 94 | % | ||||
| Premises and equipment, net | 32,667 | (18 | )% | ||||
| Accrued interest receivable and other assets | 770,793 | (2 | )% | ||||
| Goodwill and intangibles, net | 18,217 | (2 | )% | ||||
| Total assets | 38,432,872 | $ | 33,526,437 | 15 | % | ||
| Liabilities and Stockholders’ Equity | |||||||
| Liabilities: | |||||||
| Deposits: | |||||||
| Non-interest bearing | 12,339,212 | $ | 10,289,572 | 20 | % | ||
| Interest bearing | 17,123,731 | 15 | % | ||||
| Total deposits | 27,413,303 | 17 | % | ||||
| Accrued interest payable | 34,336 | (57 | )% | ||||
| Other liabilities | 307,394 | 15 | % | ||||
| Federal funds purchased and repurchase agreements | 139,967 | 49 | % | ||||
| Other borrowings | 2,500,000 | 8 | % | ||||
| Subordinated notes, net | 282,038 | — | % | ||||
| Trust preferred subordinated debentures | 113,406 | — | % | ||||
| Total liabilities | 30,790,444 | 16 | % | ||||
| Stockholders’ equity: | |||||||
| Preferred stock, .01 par value, 1,000 liquidation value: | |||||||
| Authorized shares - 10,000,000 | |||||||
| Issued shares - 6,000,000 shares issued at September 30, 2020 and 2019 | 150,000 | — | % | ||||
| Common stock, .01 par value: | |||||||
| Authorized shares - 100,000,000 | |||||||
| Issued shares - 50,455,969 and 50,318,071 at September 30, 2020 and 2019, respectively | 503 | — | % | ||||
| Additional paid-in capital | 974,799 | 1 | % | ||||
| Retained earnings | 1,601,688 | 3 | % | ||||
| Treasury stock (shares at cost: 417 at September 30, 2020 and 2019) | ) | (8 | ) | — | % | ||
| Accumulated other comprehensive income, net of taxes | 9,011 | N/M | |||||
| Total stockholders’ equity | 2,735,993 | 2 | % | ||||
| Total liabilities and stockholders’ equity | 38,432,872 | $ | 33,526,437 | 15 | % |
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 September 30, | Nine Months Ended September 30, | ||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||
| Interest income | |||||||||||
| Interest and fees on loans | $ | 237,179 | $ | 329,344 | $ | 768,399 | $ | 971,889 | |||
| Investment securities | 3,674 | 2,316 | 7,881 | 6,036 | |||||||
| Federal funds sold and securities purchased under resale agreements | 1 | 554 | 692 | 1,090 | |||||||
| Interest-bearing deposits in other banks | 2,877 | 22,887 | 24,777 | 48,540 | |||||||
| Total interest income | 243,731 | 355,101 | 801,749 | 1,027,555 | |||||||
| Interest expense | |||||||||||
| Deposits | 27,830 | 80,967 | 122,298 | 222,550 | |||||||
| Federal funds purchased | 128 | 1,835 | 973 | 10,553 | |||||||
| Other borrowings | 3,365 | 14,703 | 17,516 | 46,681 | |||||||
| Subordinated notes | 4,191 | 4,191 | 12,573 | 12,573 | |||||||
| Trust preferred subordinated debentures | 648 | 1,237 | 2,573 | 3,863 | |||||||
| Total interest expense | 36,162 | 102,933 | 155,933 | 296,220 | |||||||
| Net interest income | 207,569 | 252,168 | 645,816 | 731,335 | |||||||
| Provision for credit losses | 30,000 | 11,000 | 226,000 | 58,000 | |||||||
| Net interest income after provision for credit losses | 177,569 | 241,168 | 419,816 | 673,335 | |||||||
| Non-interest income | |||||||||||
| Service charges on deposit accounts | 2,864 | 2,707 | 8,616 | 8,535 | |||||||
| Wealth management and trust fee income | 2,502 | 2,330 | 7,317 | 6,468 | |||||||
| Brokered loan fees | 15,034 | 8,691 | 33,813 | 21,093 | |||||||
| Servicing income | 7,329 | 3,549 | 18,195 | 9,409 | |||||||
| Swap fees | 484 | 1,196 | 4,709 | 2,828 | |||||||
| Net gain/(loss) on sale of LHS | 25,242 | (6,011 | ) | 51,265 | (12,502 | ) | |||||
| Other | 6,893 | 7,839 | 18,715 | 38,848 | |||||||
| Total non-interest income | 60,348 | 20,301 | 142,630 | 74,679 | |||||||
| Non-interest expense | |||||||||||
| Salaries and employee benefits | 84,096 | 80,722 | 262,080 | 238,235 | |||||||
| Net occupancy expense | 8,736 | 8,125 | 26,582 | 23,914 | |||||||
| Marketing | 3,636 | 14,753 | 20,146 | 40,548 | |||||||
| Legal and professional | 11,207 | 11,394 | 40,003 | 31,428 | |||||||
| Communications and technology | 31,098 | 10,805 | 87,649 | 31,025 | |||||||
| FDIC insurance assessment | 6,374 | 5,220 | 19,363 | 14,480 | |||||||
| Servicing-related expenses | 12,287 | 8,165 | 48,758 | 19,613 | |||||||
| Merger-related expenses | — | — | 17,756 | — | |||||||
| Other | 8,307 | 10,245 | 31,173 | 33,420 | |||||||
| Total non-interest expense | 165,741 | 149,429 | 553,510 | 432,663 | |||||||
| Income before income taxes | 72,176 | 112,040 | 8,936 | 315,351 | |||||||
| Income tax expense | 15,060 | 23,958 | 2,823 | 67,756 | |||||||
| Net income | 57,116 | 88,082 | 6,113 | 247,595 | |||||||
| Preferred stock dividends | 2,438 | 2,438 | 7,313 | 7,313 | |||||||
| Net income/(loss) available to common stockholders | $ | 54,678 | $ | 85,644 | $ | (1,200 | ) | $ | 240,282 | ||
| Basic earnings/(loss) per common share | $ | 1.08 | $ | 1.70 | $ | (0.02 | ) | $ | 4.78 | ||
| Diluted earnings/(loss) per common share | $ | 1.08 | $ | 1.70 | $ | (0.02 | ) | $ | 4.77 |
6
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF CREDIT LOSS EXPERIENCE | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||
| Allowance for credit losses on loans: | |||||||||||||||
| Beginning balance | $ | 264,722 | $ | 240,958 | $ | 195,047 | $ | 190,138 | $ | 214,572 | |||||
| Impact of CECL adoption | — | — | 8,585 | — | — | ||||||||||
| Loans charged-off: | |||||||||||||||
| Commercial | 2,436 | 12,287 | 20,653 | 13,968 | 21,124 | ||||||||||
| Energy | 141 | 62,368 | 37,730 | 797 | 16,655 | ||||||||||
| Total charge-offs | 2,577 | 74,655 | 58,383 | 14,765 | 37,779 | ||||||||||
| Recoveries: | |||||||||||||||
| Commercial | 113 | 513 | 257 | 1,754 | 799 | ||||||||||
| Energy | 880 | — | 423 | 209 | 107 | ||||||||||
| Total recoveries | 993 | 513 | 680 | 1,963 | 906 | ||||||||||
| Net charge-offs | 1,584 | 74,142 | 57,703 | 12,802 | 36,873 | ||||||||||
| Provision for credit losses on loans | 27,027 | 97,906 | 95,029 | 17,711 | 12,439 | ||||||||||
| Ending balance | $ | 290,165 | $ | 264,722 | $ | 240,958 | $ | 195,047 | $ | 190,138 | |||||
| Allowance for off-balance sheet credit losses: | |||||||||||||||
| Beginning balance | $ | 12,268 | $ | 10,174 | $ | 8,640 | $ | 9,351 | $ | 10,790 | |||||
| Impact of CECL adoption | — | — | 563 | — | — | ||||||||||
| Provision for off-balance sheet credit losses | 2,973 | 2,094 | 971 | (711 | ) | (1,439 | ) | ||||||||
| Ending balance | $ | 15,241 | $ | 12,268 | $ | 10,174 | $ | 8,640 | $ | 9,351 | |||||
| Total allowance for credit losses | $ | 305,406 | $ | 276,990 | $ | 251,132 | $ | 203,687 | $ | 199,489 | |||||
| Total provision for credit losses | $ | 30,000 | $ | 100,000 | $ | 96,000 | $ | 17,000 | $ | 11,000 | |||||
| Allowance for credit losses on loans to LHI | 1.15 | % | 1.04 | % | 0.99 | % | 0.79 | % | 0.77 | % | |||||
| Allowance for credit losses on loans to average LHI | 1.14 | % | 1.03 | % | 1.02 | % | 0.79 | % | 0.76 | % | |||||
| Net charge-offs to average LHI^(1)^ | 0.02 | % | 1.16 | % | 0.98 | % | 0.21 | % | 0.58 | % | |||||
| Net charge-offs to average LHI for last twelve months^(1)^ | 0.59 | % | 0.73 | % | 0.53 | % | 0.31 | % | 0.41 | % | |||||
| Total provision for credit losses to average LHI^(1)^ | 0.47 | % | 1.57 | % | 1.63 | % | 0.27 | % | 0.17 | % | |||||
| Total allowance for credit losses to LHI | 1.21 | % | 1.09 | % | 1.03 | % | 0.83 | % | 0.81 | % | |||||
| (1) | Interim period ratios are annualized. | ||||||||||||||
| --- | --- |
7
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | |||||||||||
| Non-performing assets (NPAs): | |||||||||||||||
| Non-accrual loans | $ | 161,946 | $ | 174,031 | $ | 219,165 | $ | 225,384 | $ | 120,686 | |||||
| Other real estate owned (OREO) | — | — | — | — | — | ||||||||||
| Total LHI NPAs | $ | 161,946 | $ | 174,031 | $ | 219,165 | $ | 225,384 | $ | 120,686 | |||||
| Non-accrual loans to LHI | 0.64 | % | 0.68 | % | 0.90 | % | 0.91 | % | 0.49 | % | |||||
| Total LHI NPAs to LHI plus OREO | 0.64 | % | 0.68 | % | 0.90 | % | 0.91 | % | 0.49 | % | |||||
| Total LHI NPAs to earning assets | 0.43 | % | 0.49 | % | 0.63 | % | 0.71 | % | 0.37 | % | |||||
| Allowance for credit losses on loans to non-accrual loans | 1.8x | 1.5x | 1.1x | .9x | 1.6x | ||||||||||
| LHI past due 90 days and still accruing^(1)^ | $ | 15,896 | $ | 21,079 | $ | 21,274 | $ | 17,584 | $ | 29,648 | |||||
| LHI past due 90 days to LHI | 0.06 | % | 0.08 | % | 0.09 | % | 0.07 | % | 0.12 | % | |||||
| LHS past due 90 days and still accruing^(2)^ | $ | 15,631 | $ | 10,152 | $ | 9,014 | $ | 8,207 | $ | 9,187 | |||||
| (1) | At September 30, 2020, loans past due 90 days and still accruing includes premium finance loans of $11.9 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as LHS and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not obligation, to repurchase and thus must record as LHS on our balance sheet regardless of whether the repurchase option has been exercised. | ||||||||||||||
| --- | --- |
8
| TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||
| 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | ||||||||||
| 2020 | 2020 | 2019 | 2019 | 2019 | ||||||||||
| Interest income | ||||||||||||||
| Interest and fees on loans | $ | 237,179 | $ | 247,595 | $ | 283,625 | $ | 312,147 | $ | 329,344 | ||||
| Investment securities | 3,674 | 2,024 | 2,183 | 2,618 | 2,316 | |||||||||
| Federal funds sold and securities purchased under resale agreements | 1 | 77 | 614 | 439 | 554 | |||||||||
| Interest-bearing deposits in other banks | 2,877 | 2,314 | 19,586 | 22,553 | 22,887 | |||||||||
| Total interest income | 243,731 | 252,010 | 306,008 | 337,757 | 355,101 | |||||||||
| Interest expense | ||||||||||||||
| Deposits | 27,830 | 32,294 | 62,174 | 70,987 | 80,967 | |||||||||
| Federal funds purchased | 128 | 176 | 669 | 1,319 | 1,835 | |||||||||
| Other borrowings | 3,365 | 4,569 | 9,582 | 11,712 | 14,703 | |||||||||
| Subordinated notes | 4,191 | 4,191 | 4,191 | 4,191 | 4,191 | |||||||||
| Trust preferred subordinated debentures | 648 | 852 | 1,073 | 1,163 | 1,237 | |||||||||
| Total interest expense | 36,162 | 42,082 | 77,689 | 89,372 | 102,933 | |||||||||
| Net interest income | 207,569 | 209,928 | 228,319 | 248,385 | 252,168 | |||||||||
| Provision for credit losses | 30,000 | 100,000 | 96,000 | 17,000 | 11,000 | |||||||||
| Net interest income after provision for credit losses | 177,569 | 109,928 | 132,319 | 231,385 | 241,168 | |||||||||
| Non-interest income | ||||||||||||||
| Service charges on deposit accounts | 2,864 | 2,459 | 3,293 | 2,785 | 2,707 | |||||||||
| Wealth management and trust fee income | 2,502 | 2,348 | 2,467 | 2,342 | 2,330 | |||||||||
| Brokered loan fees | 15,034 | 10,764 | 8,015 | 8,645 | 8,691 | |||||||||
| Servicing income | 7,329 | 6,120 | 4,746 | 4,030 | 3,549 | |||||||||
| Swap fees | 484 | 1,468 | 2,757 | 1,559 | 1,196 | |||||||||
| Net gain/(loss) on sale of LHS | 25,242 | 39,023 | (13,000 | ) | (7,757 | ) | (6,011 | ) | ||||||
| Other | 6,893 | 8,320 | 3,502 | 6,157 | 7,839 | |||||||||
| Total non-interest income | 60,348 | 70,502 | 11,780 | 17,761 | 20,301 | |||||||||
| Non-interest expense | ||||||||||||||
| Salaries and employee benefits | 84,096 | 100,791 | 77,193 | 90,248 | 80,722 | |||||||||
| Net occupancy expense | 8,736 | 9,134 | 8,712 | 9,075 | 8,125 | |||||||||
| Marketing | 3,636 | 7,988 | 8,522 | 12,807 | 14,753 | |||||||||
| Legal and professional | 11,207 | 11,330 | 17,466 | 21,032 | 11,394 | |||||||||
| Communications and technology | 31,098 | 42,760 | 13,791 | 13,801 | 10,805 | |||||||||
| FDIC insurance assessment | 6,374 | 7,140 | 5,849 | 5,613 | 5,220 | |||||||||
| Servicing-related expenses | 12,287 | 20,117 | 16,354 | 2,960 | 8,165 | |||||||||
| Merger-related expenses | — | 10,486 | 7,270 | 1,370 | — | |||||||||
| Other | 8,307 | 12,606 | 10,260 | 11,281 | 10,245 | |||||||||
| Total non-interest expense | 165,741 | 222,352 | 165,417 | 168,187 | 149,429 | |||||||||
| Income/(loss) before income taxes | 72,176 | (41,922 | ) | (21,318 | ) | 80,959 | 112,040 | |||||||
| Income tax expense/(benefit) | 15,060 | (7,606 | ) | (4,631 | ) | 16,539 | 23,958 | |||||||
| Net income/(loss) | 57,116 | (34,316 | ) | (16,687 | ) | 64,420 | 88,082 | |||||||
| Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | |||||||||
| Net income/(loss) available to common shareholders | $ | 54,678 | $ | (36,753 | ) | $ | (19,125 | ) | $ | 61,983 | $ | 85,644 |
9
| TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QUARTERLY FINANCIAL SUMMARY - UNAUDITED | ||||||||||||||||||||||||||||||
| Consolidated Daily Average Balances, Average Yields and Rates | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 3rd Quarter 2020 | 2nd Quarter 2020 | 1st Quarter 2020 | 4th Quarter 2019 | 3rd Quarter 2019 | ||||||||||||||||||||||||||
| Average<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 | $ | 525,149 | $ | 1,905 | 1.44 | % | $ | 38,829 | $ | 185 | 1.92 | % | $ | 42,799 | $ | 274 | 2.57 | % | $ | 40,904 | $ | 693 | 6.72 | % | $ | 39,744 | $ | 357 | 3.56 | % |
| Investment securities - Non-taxable^(2)^ | 190,797 | 2,239 | 4.67 | % | 195,806 | 2,327 | 4.78 | % | 195,578 | 2,417 | 4.97 | % | 197,591 | 2,437 | 4.89 | % | 200,090 | 2,480 | 4.92 | % | ||||||||||
| Federal funds sold and securities purchased under resale agreements | 12,051 | 1 | 0.04 | % | 245,434 | 77 | 0.13 | % | 199,727 | 614 | 1.24 | % | 102,320 | 439 | 1.70 | % | 100,657 | 554 | 2.18 | % | ||||||||||
| Interest-bearing deposits in other banks | 11,028,962 | 2,877 | 0.10 | % | 10,521,240 | 2,314 | 0.09 | % | 6,225,948 | 19,586 | 1.27 | % | 5,387,000 | 22,553 | 1.66 | % | 4,184,217 | 22,887 | 2.17 | % | ||||||||||
| LHS, at fair value | 543,606 | 3,867 | 2.83 | % | 380,624 | 2,547 | 2.69 | % | 3,136,381 | 27,480 | 3.52 | % | 3,567,836 | 33,411 | 3.72 | % | 2,555,269 | 26,206 | 4.07 | % | ||||||||||
| LHI, mortgage finance loans | 9,061,984 | 76,464 | 3.36 | % | 8,676,521 | 74,518 | 3.45 | % | 7,054,682 | 55,324 | 3.15 | % | 7,870,888 | 63,114 | 3.18 | % | 8,118,025 | 68,660 | 3.36 | % | ||||||||||
| LHI^(1)(2)^ | 16,286,036 | 157,230 | 3.84 | % | 17,015,041 | 170,970 | 4.04 | % | 16,598,775 | 201,781 | 4.89 | % | 16,667,259 | 216,686 | 5.16 | % | 16,901,391 | 235,557 | 5.53 | % | ||||||||||
| Less allowance for credit<br><br>losses on loans | 264,769 | — | — | 236,823 | — | — | 201,837 | — | — | 189,353 | — | — | 212,898 | — | — | |||||||||||||||
| LHI, net of allowance | 25,083,251 | 233,694 | 3.71 | % | 25,454,739 | 245,488 | 3.88 | % | 23,451,620 | 257,105 | 4.41 | % | 24,348,794 | 279,800 | 4.56 | % | 24,806,518 | 304,217 | 4.87 | % | ||||||||||
| Total earning assets | 37,383,816 | 244,583 | 2.60 | % | 36,836,672 | 252,938 | 2.76 | % | 33,252,053 | 307,476 | 3.72 | % | 33,644,445 | 339,333 | 4.00 | % | 31,886,495 | 356,701 | 4.44 | % | ||||||||||
| Cash and other assets | 1,037,760 | 1,075,864 | 976,520 | 974,866 | 1,000,117 | |||||||||||||||||||||||||
| Total assets | $ | 38,421,576 | $ | 37,912,536 | $ | 34,228,573 | $ | 34,619,311 | $ | 32,886,612 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Transaction deposits | $ | 4,275,574 | $ | 6,652 | 0.62 | % | $ | 3,923,966 | $ | 5,998 | 0.61 | % | $ | 3,773,067 | $ | 13,582 | 1.45 | % | $ | 3,817,294 | $ | 16,428 | 1.71 | % | $ | 3,577,905 | $ | 18,442 | 2.04 | % |
| Savings deposits | 12,786,719 | 12,808 | 0.40 | % | 12,537,467 | 13,510 | 0.43 | % | 11,069,429 | 35,961 | 1.31 | % | 11,111,326 | 40,603 | 1.45 | % | 10,331,078 | 45,586 | 1.75 | % | ||||||||||
| Time deposits | 2,844,083 | 8,370 | 1.17 | % | 3,434,388 | 12,786 | 1.50 | % | 2,842,535 | 12,631 | 1.79 | % | 2,453,655 | 13,956 | 2.26 | % | 2,706,434 | 16,939 | 2.48 | % | ||||||||||
| Total interest bearing deposits | 19,906,376 | 27,830 | 0.56 | % | 19,895,821 | 32,294 | 0.65 | % | 17,685,031 | 62,174 | 1.41 | % | 17,382,275 | 70,987 | 1.62 | % | 16,615,417 | 80,967 | 1.93 | % | ||||||||||
| Other borrowings | 2,811,435 | 3,493 | 0.49 | % | 3,612,263 | 4,745 | 0.53 | % | 3,020,255 | 10,251 | 1.37 | % | 2,822,465 | 13,031 | 1.83 | % | 2,896,477 | 16,538 | 2.27 | % | ||||||||||
| Subordinated notes | 282,343 | 4,191 | 5.91 | % | 282,252 | 4,191 | 5.97 | % | 282,165 | 4,191 | 5.97 | % | 282,074 | 4,191 | 5.89 | % | 281,979 | 4,191 | 5.90 | % | ||||||||||
| Trust preferred subordinated debentures | 113,406 | 648 | 2.28 | % | 113,406 | 852 | 3.02 | % | 113,406 | 1,073 | 3.80 | % | 113,406 | 1,163 | 4.07 | % | 113,406 | 1,237 | 4.33 | % | ||||||||||
| Total interest bearing liabilities | 23,113,560 | 36,162 | 0.62 | % | 23,903,742 | 42,082 | 0.71 | % | 21,100,857 | 77,689 | 1.48 | % | 20,600,220 | 89,372 | 1.72 | % | 19,907,279 | 102,933 | 2.05 | % | ||||||||||
| Demand deposits | 12,202,065 | 10,865,896 | 10,003,495 | 10,933,887 | 9,992,406 | |||||||||||||||||||||||||
| Other liabilities | 314,500 | 293,698 | 270,868 | 278,964 | 264,506 | |||||||||||||||||||||||||
| Stockholders’ equity | 2,791,451 | 2,849,200 | 2,853,353 | 2,806,240 | 2,722,421 | |||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 38,421,576 | $ | 37,912,536 | $ | 34,228,573 | $ | 34,619,311 | $ | 32,886,612 | ||||||||||||||||||||
| Net interest income^(2)^ | $ | 208,421 | $ | 210,856 | $ | 229,787 | $ | 249,961 | $ | 253,768 | ||||||||||||||||||||
| Net interest margin | 2.22 | % | 2.30 | % | 2.78 | % | 2.95 | % | 3.16 | % | ||||||||||||||||||||
| (1) | The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. | |||||||||||||||||||||||||||||
| --- | --- | |||||||||||||||||||||||||||||
| (2) | Taxable equivalent rates used where applicable. | |||||||||||||||||||||||||||||
| --- | --- |
10
a992presentation3q2020
Q3-2020 Earnings October 21, 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
Improved Profitability Financial Highlights ($M) 3Q 2019 2Q 2020 3Q 2020 ◼ Strong core financial performance with $54.7 million of net income to Net Interest Income $252.2 $209.9 $207.6 common, or $1.08 per diluted share Non-Interest Income 20.3 70.5 60.3 ◼ Stable Y-o-Y Total Revenue driven by continued robust mortgage demand and persistent HFI loan spreads Total Revenue 272.5 280.4 267.9 ◼ Additional one-time expense actions of $15.4 million related to software Non-Interest Expense 149.4 222.3 165.7 write-off taken this quarter PPNR1 123.1 58.1 102.2 ◼ Non-performing assets totaled $161.9 million, a decrease of $12.1 Provision for Credit Losses 11.0 100.0 30.0 million compared to Q2-2020. ACL / NPA coverage improved to 1.8x Income Tax Expense/(Benefit) 24.0 (7.6) 15.1 from 1.5x Net Income/(Loss) $88.1 $(34.3) $57.1 ◼ Moderating provision expense from 1H-2020 levels reflective of proactive early-cycle approach and stabilizing macroeconomic trends Key Performance Metrics ◼ Continued balance sheet strength evidenced by Common Equity Tier 1 ROA 1.06% (0.36)% 0.59% of 9.1% and Liquidity Assets / Total Assets of 27.2% both of which are expected to stay at elevated levels over the near-term PPNR 1 / Avg. Assets 1.48% 0.62% 1.06% ◼ Employee health and safety continue to be primary areas of focus; 2 Efficiency Ratio 54.8% 79.3% 61.9% business continuity plan remains in place EPS $1.70 $(0.73) $1.08 ROCE 13.21% (5.48)% 8.24% Sustainably Higher Core Earnings ◼ PPNR 1 / Avg. Assets trends improving as a result of lower expenses and improved balance sheet efficiency. Early assessment of 2021 indicates pull-through of anticipated expense savings ◼ Strong quarter for front-line hires; continued area of focus heading into 2021. Client activity beginning to pick up at a Progress on measured pace with improving loan, deposit, and treasury pipelines Strategic ◼ Redeployed portion of excess liquidity into $1.1B of securities; average yield 1.12 bps, duration ~5 years Priorities Effective Credit Cycle Management ◼ Multi-year, proactive de-risking in Energy and Leveraged Lending resulting in remaining portfolios more representative of go-forward composition and desired client profiles ◼ Focused on sustaining legacy of peer credit outperformance in the remainder of the loan portfolio 1 Net interest income and non-interest income, less non-interest expense 2 Non-interest expense divided by the sum of net interest income and non-interest income 3
Credit Risk Management; Continued Proactive Approach Highlights Credit Quality ◼ Credit Trends Q3 2019 Q2 2020 Q3 2020 ◼ Modest net charge-offs, which are down substantiality given proactive actions taken in previous quarters ◼ Velocity of negative risk migration has materially declined; 1.84% conversely, positive migration has increased 1.60% ◼ COVID-19 Impacts 1.04% 1.15% 1.13% ◼ Loans totaling $166 million remain on deferral at Q3-2020; 0.77% 0.49% 0.43% $1.2 billion at Q2-2020 0.37% ◼ $61 million of remaining $166 million granted second 90-day deferral ACL on Loans / Loans ACL on Loans / NPAs / Earning Assets ◼ Economic View for CECL HFI Loans HFI excl MFLs ◼ Unemployment: 8.8% @ Q4-2020, 6.6% @ Q4-2021 Initial COVID-Impacted Bal / Cmt % Total % % Loan Types / Industries ($B) Loans Criticized NPA Commentary Reserve coverage level at historical highs and criticized levels down 15% Q-o-Q. 0.96 / 1.4 4% 28% 8% C&I – Energy Market activity slowly increasing Granular portfolio with select credits negatively impacted by COVID-related social C&I – Real Estate 0.46 / 0.69 2% 4% 0% distancing protocols Borrowers adjusting to clients’ preferences and state restrictions; will require C&I – Food Services 1 0.19 / 0.21 1% 12% 0% continued monitoring C&I – Retail Trade 0.11 / 0.16 <1% 9% 0% Portfolio continues to show resilience Most impacted portfolio to-date. Texas-centric, limited service with significant cash CRE – Hospitality 0.34 / 0.35 1% 51% 0% equity providing support for extended stress Continues to perform well with quality of anchor/essential tenants (e.g., large CRE – Retail 0.29 / 0.31 1% 6% 0% grocery stores) in most properties a risk mitigating factor 1 Includes Accommodation 4
Loan Portfolio Growth Outlook Y-o-Y Changes in Ending LHI (excluding MFLs) ◼ Ending LHI (excluding MFLs) decreased $762 million (5%) from Q2- $16.8B 2020, and $982 million Y-o-Y, due to the following factors: ◼ Deliberate multi-quarter reductions in Energy and Leveraged Lending; ending balances down 27% and 9%, respectively, $0.7B $15.8B from Q1-2020 and 41% and 41%, respectively, from YE 2018 $1.3B ◼ Utilization rates in the low 50’s, down from historically observed levels $0.7B $0.3B ◼ Average Total MFLs 1 of $9.6 billion were modestly higher in Q3-2020 ($0.5 billion, or 6%) as strong mortgage demand continued ◼ Loan spreads have shown resilience even as the portfolio mixed to lower yielding products Beginning9/30/2019 Targeted Line Other PPP 9/30/2020Ending Balance Reductions Utilization Balance 9/30/2019 9/30/2020 Period-End Loan Composition 2 Average Loans & Total Loan Spread 3 1 3 $25.8B in balances LHI (excl. MFLs) Total MFLs Total Loan Spread Business Assets 25% Energy 4% $10.7B $11.4B $10.2B $9.1B $9.6B Other 8% $16.9B $16.7B $16.6B $17.0B $16.3B Owner Occupied R/E 3.48% 3.38% 3.43% 5% Total Mortgage 3.35% 3.33% Finance Residential R/E 39% Mkt. Risk 4% Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Comml R/E Mkt. Risk Total Loan 4.79% 4.45% 4.30% 3.86% 3.69% 15% Yield 1 Total MFLs include LHI, mortgage finance, and MCA LHS 2 Includes total LHI and LHS 5 3 Total Loan Spread = Yield on total loans (HFI & HFS) – Total cost of deposits and other borrowings
Deposits and Fundings Highlights Funding Costs ◼ Ending deposits increased $1.8 billion, primarily in non-interest bearing portfolios, as clients continued to build and maintain on- balance sheet cash ◼ Continued focus on cost-effective deposit growth within 1.25% verticals and core client relationships 1.03% 0.92% ◼ Brokered deposit balances stabilized, while costs declined, 1.21% 0.99% as the Bank replaced higher-priced maturing deposits 0.90% 0.45% ◼ Funding costs continued to improve, albeit modestly (7 bps), as the 0.38% mix trended towards lower-/no-cost funding 0.42% ◼ Focusing on further reducing core interest-bearing deposit 0.34% costs and increasing non-interest balances Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 ◼ Initiatives to reduce excess liquidity will proceed prudently by targeting higher-cost, indexed portfolios Avg Cost of Deposits Total Funding Costs Period-End Deposits Balances Upcoming Maturities CD Maturity FHLB Maturity $32.0B $30.2B $2.0B $27.4B $26.5B $27.1B $10.8B $12.3B $10.3B $9.4B $9.4B 1.40% 1.20% $2.3B $2.3B 1.01% $2.1B $2.7B $2.3B $0.9B 0.34% $0.7B 0.61% $17.0B $17.3B $0.4B $15.0B $14.7B $15.0B $0.3B $0.2B 0.15% Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2020 Q1 2021 Interest-bearing core Interest-bearing brokered DDAs Funding Rate 6
Q3-2020 Earnings Overview Net Interest Income & Margin Commentary Net Interest Margin Detail (bps) ◼ Total LHI yields continued to decline (17 bps) as balances mixed towards $252.2M relatively lower yielding MFLs $209.9M $207.6M ◼ Total time deposit costs declined significantly (33 bps), as did levels. Further benefitting from a $1.3 billion increase in average NIB deposits, 3.16% total deposit costs declined 8 bps 2.30% 2.22% ◼ With reductions in the LHI portfolio driving a net decrease in loans, excess deposit growth increased Net Interest Income Interest Net liquidity. Migration to securities will Q3 2019 Q2 2020 Q3 2020 further enhance yields as the balance Other Costs Loans Yields Yields sheet continues its transition Funding Q2 Q2 2020 Q3 2020 Balances (net (net PPP) PPP Loans PPP Liquid Liquid Asset Liquid Asset Provision for Credit Losses Commentary Criticized Loans ◼ The modest increase in criticized loans $1,075.6M $100.0M notwithstanding, a decrease in net $1,014.0M charge-offs and more stable economic outlook led to reduced provision 4.27% expense during the quarter 3.97% ◼ NCOs of $1.6 million demonstrate a $536.3M material improvement over both Q2- 2.17% $30.0M 2020 ($74.1 million) and Q3-2019 ($36.9 million). Expectation of higher $11.0M NCO levels in future quarters as the Credit Expense Credit cycle matures ◼ Provision expense is expected to Q3 2019 Q2 2020 Q3 2020 Q3 2019 Q2 2020 Q3 2020 remain moderate compared to 1H20, with risk migration peaking in 2021 Criticized Loans Criticized Loans % Total LHI 7
Q3-2020 Earnings Overview Non-interest Income Commentary Fee Income Details ◼ Deposit Service Charges up 16% Q-o-Q reflective of continued $70.5M $6.2M $6.3M market focus $5.9M $60.3M ◼ Wealth Management Fees $1.2M $1.5M $0.5M modestly improving Q-o-Q (up 7%) as the downturn stabilizes and $2.5M $2.3M $2.3M markets recover from troughs $20.3M ◼ GOS opportunities in MCA continue interest income interest to contribute significantly ($31.3 $2.9M - $2.7M $2.5M million higher than in Q3-2019) ◼ Brokered Loan Fees up significantly Non Q3 2019 Q2 2020 Q3 2020 Q-o-Q ($4.3 million, or 40%). Q3 2019 Q2 2020 Q3 2020 Volumes may remain unseasonably Swap Fees high in Q4-2020, but lower than in Wealth Management Fees Q3-2020 Deposit Service Charges Non-interest Expense Commentary Salary and Employee Benefits ◼ Q2-2020 expense-reduction actions $222.4M drove core salaries decline ($3.0 $100.8M million). Q3-2020 Salaries & Benefits $165.7M only 4% above year-ago levels $80.7M $84.1M $149.4M ◼ Incremental spend focused on revenue-producing positions ◼ Benefits from final software write-off in Q3 ($15.4 million) will be more fully realized in Q4 and 2021 interest expense interest - ◼ Servicing asset impairment weighed on Q2 results and did not reoccur in Non Q3 2019 Q2 2020 Q3 2020 Q3 due to active hedging. Heightened Q3 2019 Q2 2020 Q3 2020 amortization expense from declining rates may keep levels elevated, however 8
LOB Detail
Loan Portfolio Detail – Mortgage Finance Commentary MWH + MCA Annualized Revenue ◼ Q3-2020 average MFLs (excluding MCA LHS) increased 12% Y-o-Y as the Bank continued to optimize its business mix by taking advantage of industry volumes and GOS opportunities in MCA $174M -22.5% $135M ◼ When combined with MCA, annualized quarterly revenue increased +129.8% ~26% from Q3-2019. A favorable outlook suggests continued near- $76M term opportunity to provide substantial risk-adjusted returns acting as a counter-cyclical hedge to the traditional LHI portfolio +2.2% ◼ Mortgage Finance’s relationship-driven pricing approach continues $291M +10.3% $321M $328M to support yields (only 9 bp decrease Q-o-Q), allowing volume to offset potential declines in interest and drive higher non-interest fees ◼ Proven track-record of adjusting risk profile based on market Q3 2019 Q2 2020 Q3 2020 liquidity; underlying portfolio quality remains the priority Mortgage Warehouse Mortgage Correspondent Aggregation Average Mortgage Warehouse Loans and Yields $10.0B 6.0% $9.0B 5.0% $8.0B 4.0% $7.0B 3.0% $6.0B 2.0% $5.0B $4.0B 1.0% $3.0B 0.0% Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Mortgage Finance Yield 10YR 1M LIBOR 10
Loan Portfolio Detail – CRE 1 CRE Portfolio Overview $3.9B in balances Portfolio Composition ◼ History of proactive portfolio management evidenced by changes in Multi Family Office Industrial Senior Housing growth rates thru-cycle and strong credit performance during Hospitality Self Storage Other Retail periods of stress ◼ CRE managed as a line of business facilitating achievement of concentration objectives by product and geography. Underwriting 32% 14% 11% 10% 9% 9% 8% 7% focus on strong sponsors and developers with significant upfront cash equity Texas Other (<3% each) California Colorado Florida Georgia ◼ Emphasis on equity and LTV at origination with recent appraisals demonstrating value resiliency across collateral types ◼ Composition deliberately weighted towards lower risk multi-family 58% 25% 7% 4% ($1.2 billion in balances) with an emphasis on newly developed, Class A properties. Rent collection remains high 3% 3% ◼ Office and Industrial performance is stable with evidence of permanent market and/or sales appetite. Continuing to actively Net charge-off Performance monitor Office for signs of emerging stress resulting from COVID related restrictions ◼ Deferrals for COVID-impacted exposures are made in concert with 4.5% TCBI Peer Average loan restructures and modifications to support borrower performance longer term 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q2 2020 Q2 1 Excludes Specialized Residential Real Estate portfolio 11
Loan Portfolio Detail – Leveraged & Energy Leveraged Lending $0.7B in balances 2 ◼ Diversified portfolio with some exposure to industries believed to be Criticized Total ACL% most impacted by COVID-19; others may be affected depending on $254M their varying degrees of either reliance on consumer spending or $222M supply chain risks $204M $188M ◼ Significant reduction in originations over the past 12 months, $177M coupled with meaningful runoff, has reduced overall exposure by 8.1% ~30%; remaining portfolio more reflective of desired exposure 7.4% ◼ The increase in Criticized reflects impact of COVID-19 on 6.6% 6.2% 6.2% borrowers engaged in travel and entertainment industries ◼ Multi-period reduction in NPAs Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 NPAs % 2 2.8% 8.7% 6.4% 5.2% 4.4% Energy $1.0B in balances ◼ Continued loan balance contraction driven by improved market Criticized Total ACL% 2 activity and resolution of previously disclosed problem credits $324M ◼ Total Y-o-Y loan balances down ~35% from $1.5 billion to $275M $1.0 billion $248M ◼ Portfolio continues to trend towards improved granularity $211M with lower inherent loss potential 11.7% $136M ◼ ~70% of E&P production hedged for the remainder of 2020, ~50% 8.8% 9.2% in 2021 1 4.3% ◼ Early stages of Fall Redetermination; anticipate continued 3.0% hedge requirements ◼ ACL% at historical highs; no change to expectations for thru-cycle credit performance Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 NPAs % 2 4.1% 8.8% 11.4% 9.1% 7.6% 1 Hedge % calculated based on production volumes 2 Ratios calculated as a % of total energy or leveraged loans 12
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 Highlights ◼ 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 ◼ Actions taken in Q2-2020 set the foundation for improvements in profitability ◼ 2H-2020 Non-Interest Expense of low-/mid-$290 million, down from an adjusted $302 million in 1H-2020. Variability driven by pace of front-line hires and MSR servicing expense, both of which provide offsetting revenue Q4-2020 ◼ Absent significant economic deterioration, we believe we are adequately reserved for the losses inherent in our Outlook portfolio. Anticipate continued moderating provision expense in Q4-2020 as compared to 1H-2020 ◼ Elevated contribution from Mortgage Finance will persist against the backdrop of favorable market conditions ◼ Improving earnings generation in excess of anticipated 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 continue ◼ Core loan growth in targeted areas ◼ Attracting top front-line talent ◼ Mortgage Finance will continue to be a strong contributor, with volumes influenced by mortgage demand 2021 Areas of ◼ Provision levels dependent on economic conditions, but overall quality of existing portfolio and focus growth areas are Focus favorable. Charge-offs will be higher than Q3-2020 levels as credit-cycle matures ◼ Securities balances will continue to increase, and cash levels should moderate with repositioning of funding 14