10-Q 1 tcbi-20220331.htm 10-Q tcbi-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2022
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from              to             
Commission file number 001-34657
TEXAS CAPITAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2679109
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
2000 McKinney Avenue
Suite 700
DallasTXUSA75201
(Address of principal executive offices)(Zip Code)
(214) 932-6600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareTCBINasdaq Stock Market
5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per shareTCBIONasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý        No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý        ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerxAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes          No  ý
On April 20, 2022, the number of shares set forth below was outstanding with respect to each of the issuer's classes of common stock:
Common Stock, par value $0.01 per share 50,723,232



Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended March 31, 2022

Index
 






PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands except share data)March 31, 2022December 31, 2021
(Unaudited)
Assets
Cash and due from banks$234,853 $180,663 
Interest-bearing cash and cash equivalents5,136,680 7,765,996 
Available-for-sale debt securities2,591,218 3,538,201 
Held-to-maturity debt securities1,009,972  
Equity securities40,825 45,607 
Investment securities3,642,015 3,583,808 
Loans held for sale8,085 8,123 
Loans held for investment, mortgage finance5,827,965 7,475,497 
Loans held for investment15,849,434 15,331,457 
Less: Allowance for credit losses on loans211,151 211,866 
Loans held for investment, net21,466,248 22,595,088 
Premises and equipment, net24,181 20,901 
Accrued interest receivable and other assets556,154 559,897 
Goodwill and intangible assets, net17,161 17,262 
Total assets$31,085,377 $34,731,738 
Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing$13,434,723 $13,390,370 
Interest bearing11,943,215 14,718,995 
Total deposits25,377,938 28,109,365 
Accrued interest payable8,560 7,699 
Other liabilities252,394 273,488 
Short-term borrowings1,427,033 2,202,832 
Long-term debt929,414 928,738 
Total liabilities27,995,339 31,522,122 
Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 at March 31, 2022 and December 31, 2021
300,000 300,000 
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,710,858 and 50,618,911 at March 31, 2022 and December 31, 2021, respectively
507 506 
Additional paid-in capital1,011,353 1,008,559 
Retained earnings1,983,611 1,948,274 
Treasury stock - 417 shares at cost at March 31, 2022 and December 31, 2021
(8)(8)
Accumulated other comprehensive income/(loss), net of taxes(205,425)(47,715)
Total stockholders’ equity3,090,038 3,209,616 
Total liabilities and stockholders’ equity$31,085,377 $34,731,738 
See accompanying notes to consolidated financial statements.
3


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME/(LOSS) - UNAUDITED
 Three months ended March 31,
(in thousands except per share data)20222021
Interest income
Interest and fees on loans$187,657 $210,331 
Investment securities17,302 9,887 
Interest-bearing cash and cash equivalents3,571 2,933 
Total interest income208,530 223,151 
Interest expense
Deposits13,630 20,004 
Short-term borrowings758 2,592 
Long-term debt10,595 5,743 
Total interest expense24,983 28,339 
Net interest income183,547 194,812 
Provision for credit losses(2,000)(6,000)
Net interest income after provision for credit losses185,547 200,812 
Non-interest income
Service charges on deposit accounts6,022 4,716 
Wealth management and trust fee income3,912 2,855 
Brokered loan fees3,970 9,311 
Servicing income237 9,009 
Investment banking and trading income4,179 5,787 
Net gain/(loss) on sale of loans held for sale 5,572 
Other1,962 7,103 
Total non-interest income20,282 44,353 
Non-interest expense
Salaries and benefits100,098 87,522 
Occupancy expense8,885 8,274 
Marketing4,977 1,697 
Legal and professional10,302 8,277 
Communications and technology14,700 15,969 
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment3,981 6,613 
Servicing-related expenses 12,989 
Other10,149 8,975 
Total non-interest expense153,092 150,316 
Income before income taxes52,737 94,849 
Income tax expense13,087 22,911 
Net income39,650 71,938 
Preferred stock dividends4,313 3,779 
Net income available to common stockholders$35,337 $68,159 
Other comprehensive income/(loss):
Change in unrealized gain/(loss) on available-for-sale debt securities, before tax$(199,633)$(91,407)
Income tax benefit(41,923)(19,196)
Other comprehensive loss, net of tax(157,710)(72,211)
Comprehensive loss$(118,060)$(273)
Basic earnings per common share$0.70 $1.35 
Diluted earnings per common share$0.69 $1.33 
See accompanying notes to consolidated financial statements.
4


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Preferred StockCommon StockAdditional Treasury StockAccumulated Other 
 Paid-inRetainedComprehensive 
(in thousands except share data)SharesAmountSharesAmountCapitalEarningsSharesAmountIncome/(Loss)Total
Balance at December 31, 2020 (audited)6,000,000 $150,000 50,470,867 $504 $991,898 $1,713,056 (417)$(8)$15,774 $2,871,224 
Comprehensive income/(loss):
Net income— — — — — 71,938 — — — 71,938 
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes— — — — — — — — (72,211)(72,211)
Total comprehensive loss(273)
Stock-based compensation expense recognized in earnings
— — — — 5,461 — — — — 5,461 
Issuance of preferred stock300,000 300,000 — — (10,277)— — — — 289,723 
Preferred stock dividend — — — — — (3,779)— — — (3,779)
Issuance of stock related to stock-based awards
— — 87,317 1 (2,875)— — — — (2,874)
Balance at March 31, 20216,300,000 $450,000 50,558,184 $505 $984,207 $1,781,215 (417)$(8)$(56,437)$3,159,482 
Balance at December 31, 2021 (audited)300,000 $300,000 50,618,911 $506 $1,008,559 $1,948,274 (417)$(8)$(47,715)$3,209,616 
Comprehensive income/(loss):
Net income— — — — — 39,650 — — — 39,650 
Change in unrealized gain/(loss) on available-for-sale debt securities, net of taxes— — — — — — — — (157,710)(157,710)
Total comprehensive loss(118,060)
Stock-based compensation expense recognized in earnings
— — — — 5,407 — — — — 5,407 
Preferred stock dividend— — — — — (4,313)— — — (4,313)
Issuance of stock related to stock-based awards
— — 91,947 1 (2,613)— — — — (2,612)
Balance at March 31, 2022300,000 $300,000 50,710,858 $507 $1,011,353 $1,983,611 (417)$(8)$(205,425)$3,090,038 
See accompanying notes to consolidated financial statements.
5


TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
 Three months ended March 31,
(in thousands)20222021
Operating activities
Net income$39,650 $71,938 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(benefit) for credit losses(2,000)(6,000)
Depreciation and amortization expense10,604 26,067 
Net (gain)/loss on sale of loans held for sale (5,572)
Decrease in valuation allowance on mortgage servicing rights (16,448)
Stock-based compensation expense5,588 6,368 
Purchases and originations of loans held for sale (1,133,239)
Proceeds from sales and repayments of loans held for sale571 1,233,725 
Changes in operating assets and liabilities:
Accrued interest receivable and other assets43,200 48,927 
Accrued interest payable and other liabilities(24,691)(27,335)
Net cash provided by operating activities72,922 198,431 
Investing activities
Purchases of available-for-sale debt securities(376,415)(460,793)
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities104,338 118,316 
Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities9,882  
Sales/(purchases) of equity securities, net940 (588)
Originations of loans held for investment, mortgage finance(26,902,960)(48,097,222)
Proceeds from pay-offs of loans held for investment, mortgage finance28,550,492 48,167,550 
Net (increase)/decrease in loans held for investment, excluding mortgage finance(517,465)(54,141)
Purchases of premises and equipment, net(2,709)(924)
Net cash provided by/(used in) investing activities866,103 (327,802)
Financing activities
Net increase/(decrease) in deposits(2,731,427)2,395,381 
Issuance of stock related to stock-based awards(2,612)(2,874)
Net proceeds from issuance of preferred stock 289,723 
Preferred stock dividends paid(4,313)(3,779)
Net decrease in short-term borrowings(775,799)(596,164)
Net proceeds from issuance of long-term debt 268,815 
Net cash provided by/(used in) financing activities(3,514,151)2,351,102 
Net increase/(decrease) in cash and cash equivalents(2,575,126)2,221,731 
Cash and cash equivalents at beginning of period7,946,659 9,206,380 
Cash and cash equivalents at end of period$5,371,533 $11,428,111 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$24,122 $33,860 
Cash paid during the period for income taxes302 440 
Transfers of debt securities from available-for-sale to held-to-maturity1,019,365  
See accompanying notes to consolidated financial statements.
6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(1) Operations and Summary of Significant Accounting Policies
Organization and Nature of Business
Texas Capital Bancshares, Inc. (“we,” “us”, “TCBI” or the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998. The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Texas Capital Bank (the “Bank”).
We serve the needs of commercial businesses and professionals and entrepreneurs located in Texas as well as operate several lines of business serving a regional or national clientele of commercial borrowers. We are primarily a secured lender, with the majority of our loans held for investment, excluding mortgage finance loans and other national lines of business, being made to businesses headquartered or with operations in Texas. Our national lines of business provide specialized lending products to businesses throughout the United States.
Basis of Presentation
Our accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) and to generally accepted practices within the banking industry. Certain prior period balances have been reclassified to conform to the current period presentation.
The consolidated interim financial statements are unaudited and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q adopted by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change.
(2) Earnings Per Share
The following table presents the computation of basic and diluted earnings per share:
 Three months ended March 31,
(in thousands except share and per share data)20222021
Numerator:
Net income$39,650 $71,938 
Preferred stock dividends4,313 3,779 
Net income available to common stockholders$35,337 $68,159 
Denominator:
Denominator for basic earnings per common share—weighted average common shares50,667,090 50,513,277 
Effect of dilutive outstanding stock-settled awards656,937 556,234 
Denominator for dilutive earnings per common share—weighted average diluted common shares51,324,027 51,069,511 
Basic earnings per common share$0.70 $1.35 
Diluted earnings per common share$0.69 $1.33 
Anti-dilutive outstanding stock-settled awards229,488 80,263 

7


(3) Investment Securities
The following is a summary of our investment securities: 
(in thousands)Amortized
Cost(1)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
March 31, 2022
Available-for-sale debt securities:
U.S. Treasury securities$376,569 $ $(8,715)$367,854 
U.S. government agency securities125,000  (11,484)113,516 
Residential mortgage-backed securities2,099,900 46 (167,844)1,932,102 
Tax-exempt asset-backed securities166,889 926 (1,970)165,845 
Credit risk transfer (“CRT”) securities14,713  (2,812)11,901 
Total available-for-sale debt securities2,783,071 972 (192,825)2,591,218 
Held-to-maturity debt securities:
Residential mortgage-backed securities1,009,972  (36,381)973,591 
Total held-to-maturity debt securities1,009,972  (36,381)973,591 
Equity securities40,825 
Total investment securities(2)$3,642,015 
December 31, 2021
Available-for-sale debt securities:
U.S. government agency securities$125,000 $ $(4,056)$120,944 
Residential mortgage-backed securities3,288,261 156 (63,039)3,225,378 
Tax-exempt asset-backed securities170,626 9,407  180,033 
CRT securities14,713  (2,867)11,846 
Total available-for-sale debt securities3,598,600 9,563 (69,962)3,538,201 
Equity securities45,607 
Total investment securities(2)$3,583,808 
(1)Excludes accrued interest receivable of $5.5 million and $6.6 million at March 31, 2022 and December 31, 2021, respectively, related to available-for-sale debt securities, and $1.6 million at March 31, 2022 related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
(2)Includes available-for-sale debt securities and equity securities at estimated fair value and held-to-maturity debt securities at amortized cost.
Debt Securities
In the first quarter of 2022, we transferred $1.0 billion of available-for-sale debt securities to held-to-maturity at fair value. The transfer was the result of deliberate actions taken to execute on our asset-liability management strategies in response to rising interest rates. Management determined that it has both the positive intent and ability to hold these securities to maturity. On the date of transfer, the difference between the carrying value and fair value of these securities, which was recorded, net of tax, as a loss in accumulated other comprehensive income/(loss) (“AOCI”), resulted in the securities transferring at a discount of $69.2 million. The discount and unrealized loss, net of tax, in AOCI will be amortized to interest income over the remaining life of the securities using the interest method. There were no gains or losses recognized as a result of this transfer.
The amortized cost and estimated fair value as of March 31, 2022, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity. Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
Available-for-saleHeld-to-maturity
(in thousands)Amortized CostFair ValueAmortized CostFair Value
Due within one year$95 $101 $ $ 
Due after one year through five years376,612 367,899   
Due after five years through ten years156,492 140,462   
Due after ten years2,249,872 2,082,756 1,009,972 973,591 
Total$2,783,071 $2,591,218 $1,009,972 $973,591 
8


The following table discloses our available-for-sale debt securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months:
Less Than 12 Months12 Months or LongerTotal
(in thousands)Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
March 31, 2022
U.S. treasury securities$367,854 $(8,715)$ $ $367,854 $(8,715)
U.S. government agency securities  113,516 (11,484)113,516 (11,484)
Residential mortgage-backed securities962,312 (77,250)967,491 (90,594)1,929,803 (167,844)
Tax-exempt asset-backed securities70,464 (1,970)  70,464 (1,970)
CRT securities  11,901 (2,812)11,901 (2,812)
Total$1,400,630 $(87,935)$1,092,908 $(104,890)$2,493,538 $(192,825)
December 31, 2021
U.S. government agency securities$24,085 $(915)$96,859 $(3,141)$120,944 $(4,056)
Residential mortgage-backed securities2,871,052 (50,721)303,491 (12,318)3,174,543 (63,039)
CRT securities  11,846 (2,867)11,846 (2,867)
Total$2,895,137 $(51,636)$412,196 $(18,326)$3,307,333 $(69,962)
At March 31, 2022, we had 81 available-for-sale debt securities in an unrealized loss position, comprised of five U.S. treasury securities, five U.S. government agency securities, 68 residential mortgage-backed securities, one tax-exempt asset-backed security and two CRT securities. The unrealized losses on the available-for-sale debt securities were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. We do not intend to sell and it is not more likely than not that we will be required to sell before recovery of the amortized cost of the available-for-sale debt securities in an unrealized loss position and have recorded the unrealized losses related to this portfolio in AOCI. Held-to-maturity debt securities consist of government guaranteed securities for which no loss is expected. At March 31, 2022 and December 31, 2021, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.
Debt securities with carrying values of approximately $19.5 million and $1.9 million were pledged to secure certain customer repurchase agreements and deposits, respectively, at March 31, 2022. The comparative amounts at December 31, 2021 were $22.0 million and $2.0 million, respectively.
Equity Securities
Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments related to our non-qualified deferred compensation plan. The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income/(loss):
Three months ended March 31,
(in thousands)20222021
Net gains/(losses) recognized during the period$(3,640)$378 
Less: Realized net gains/(losses) recognized on securities sold202 398 
Unrealized net gains/(losses) recognized on securities held$(3,842)$(20)
9


(4) Loans and Allowance for Credit Losses on Loans
Loans are summarized by portfolio segment as follows:
(in thousands)March 31, 2022December 31, 2021
Loans held for investment:
Commercial$10,175,668 $9,897,561 
Energy797,191 721,373 
Mortgage finance5,827,965 7,475,497 
Real estate4,943,195 4,777,530 
Gross loans held for investment(1)21,744,019 22,871,961 
Unearned income (net of direct origination costs)(66,620)(65,007)
Total loans held for investment(1)21,677,399 22,806,954 
Allowance for credit losses on loans(211,151)(211,866)
Total loans held for investment, net(1)$21,466,248 $22,595,088 
Loans held for sale:
Mortgage loans, at fair value$8,085 $8,123 
Total loans held for sale$8,085 $8,123 
(1)    Excludes accrued interest receivable of $49.7 million and $50.3 million at March 31, 2022 and December 31, 2021, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.
10


The following tables summarize our gross loans held for investment by year of origination and internally assigned credit grades:
(in thousands)202220212020201920182017 and priorRevolving lines of creditRevolving lines of credit converted to term loansTotal
March 31, 2022
Commercial
(1-7) Pass$234,841 $3,863,274 $330,939 $453,566 $305,767 $430,483 $4,264,331 $34,280 $9,917,481 
(8) Special mention3,118 26,848 4,077 26,776  5,043 28,622 3,907 98,391 
(9) Substandard - accruing 666 3,410 77,915 24,366 16,847 9,458 1,664 134,326 
(9+) Non-accrual 2,003  44 12,898 6,918 3,607  25,470 
Total commercial$237,959 $3,892,791 $338,426 $558,301 $343,031 $459,291 $4,306,018 $39,851 $10,175,668 
Energy
(1-7) Pass$34,710 $61,000 $ $ $ $1,581 $673,649 $ $770,940 
(8) Special mention         
(9) Substandard - accruing     7,984