TEXAS CAPITAL BANCSHARES INC/TX [TCBI] Filings

10-Q 1 tcbi-20220630.htm 10-Q tcbi-20220630

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 June 30, 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

Dallas

USA

75201

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TCBI

Nasdaq Stock Market

5.75% Non-Cumulative Perpetual Preferred Stock Series B, par value $0.01 per share

TCBIO

Nasdaq 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 Filer

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller 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 July 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 49,884,477

Texas Capital Bancshares, Inc.

Form 10-Q

Quarter Ended June 30, 2022

Index


Part I.—Financial Information
	Item 1.	Financial Statements - Unaudited	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income and Other Comprehensive Income/(Loss)	4
		Consolidated Statements of Stockholders' Equity	5
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	39

Part II.—Other Information
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 6.	Exhibits	40

Signatures			41

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED


(in thousands except share data)	June 30, 2022		December 31, 2021
	(Unaudited)
Assets
Cash and due from banks	$	242,425	$	180,663
Interest-bearing cash and cash equivalents	4,032,931		7,765,996

Available-for-sale debt securities	2,535,646		3,538,201
Held-to-maturity debt securities	980,935		—
Equity securities	36,118		45,607
Investment securities	3,552,699		3,583,808
Loans held for sale	4,266		8,123

Loans held for investment, mortgage finance	6,549,507		7,475,497
Loans held for investment	17,517,866		15,331,457
Less: Allowance for credit losses on loans	229,013		211,866
Loans held for investment, net	23,838,360		22,595,088


Premises and equipment, net	28,722		20,901
Accrued interest receivable and other assets	622,501		559,897
Goodwill and intangible assets, net	17,059		17,262
Total assets	$	32,338,963	$	34,731,738

Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing deposits	$	12,555,367	$	13,390,370
Interest bearing deposits	12,884,654		14,718,995

Total deposits	25,440,021		28,109,365
Accrued interest payable	8,928		7,699

Other liabilities	314,548		273,488
Short-term borrowings	2,651,536		2,202,832
Long-term debt	917,098		928,738


Total liabilities	29,332,131		31,522,122

Stockholders’ equity:
Preferred stock, $0.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 shares issued at June 30, 2022 and December 31, 2021	300,000		300,000
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,820,337 and 50,618,911 at June 30, 2022 and December 31, 2021, respectively	508		506
Additional paid-in capital	1,015,105		1,008,559
Retained earnings	2,013,458		1,948,274
Treasury stock - 942,296 and 417 shares at cost at June 30, 2022 and December 31, 2021, respectively	(50,031)		(8)
Accumulated other comprehensive loss, net of taxes	(272,208)		(47,715)
Total stockholders’ equity	3,006,832		3,209,616
Total liabilities and stockholders’ equity	$	32,338,963	$	34,731,738

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED


	Three months ended June 30,				Six months ended June 30,
(in thousands except per share data)	2022		2021		2022		2021
Interest income
Interest and fees on loans	$	218,290	$	203,074	$	405,947	$	413,405
Investment securities	14,665		10,918		31,967		20,805

Interest-bearing cash and cash equivalents	9,394		2,961		12,965		5,894
Total interest income	242,349		216,953		450,879		440,104
Interest expense
Deposits	20,566		16,271		34,196		36,275


Short-term borrowings	4,859		502		5,617		3,094
Long-term debt	11,393		10,723		21,988		16,466


Total interest expense	36,818		27,496		61,801		55,835
Net interest income	205,531		189,457		389,078		384,269
Provision for credit losses	22,000		(19,000)		20,000		(25,000)
Net interest income after provision for credit losses	183,531		208,457		369,078		409,269
Non-interest income
Service charges on deposit accounts	6,003		4,634		12,025		9,350
Wealth management and trust fee income	4,051		3,143		7,963		5,998

Brokered loan fees	4,133		6,933		8,103		16,244
Servicing income	228		5,935		465		14,944
Investment banking and trading income	11,126		8,071		15,305		13,858
Net gain/(loss) on sale of loans held for sale	—		(3,070)		—		2,502
Other	701		11,993		2,663		19,096
Total non-interest income	26,242		37,639		46,524		81,992
Non-interest expense
Salaries and benefits	103,885		86,830		203,983		174,352
Occupancy expense	8,874		7,865		17,759		16,139
Marketing	8,506		1,900		13,483		3,597
Legal and professional	11,288		9,147		21,590		17,424
Communications and technology	15,649		14,352		30,349		30,321
Federal Deposit Insurance Corporation (“FDIC”) insurance assessment	3,318		5,226		7,299		11,839
Servicing-related expenses	—		12,355		—		25,344


Other	12,783		11,385		22,932		20,360
Total non-interest expense	164,303		149,060		317,395		299,376
Income before income taxes	45,470		97,036		98,207		191,885
Income tax expense	11,311		23,555		24,398		46,466
Net income	34,159		73,481		73,809		145,419
Preferred stock dividends	4,312		6,317		8,625		10,096
Net income available to common stockholders	$	29,847	$	67,164	$	65,184	$	135,323
Other comprehensive income/(loss):
Change in unrealized gain/(loss)	$	(86,438)	$	38,037	$	(287,057)	$	(53,370)
Amounts reclassified into net income	1,903		—		2,889		—
Other comprehensive income/(loss)	(84,535)		38,037		(284,168)		(53,370)
Income tax expense/(benefit)	(17,752)		7,989		(59,675)		(11,207)
Other comprehensive income/(loss), net of tax	(66,783)		30,048		(224,493)		(42,163)
Comprehensive income/(loss)	$	(32,624)	$	103,529	$	(150,684)	$	103,256
Basic earnings per common share	$	0.59	$	1.33	$	1.29	$	2.68
Diluted earnings per common share	$	0.59	$	1.31	$	1.28	$	2.65

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED


	Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other
							Paid-in		Retained					Comprehensive
(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Total
Balance at March 31, 2021	6,300,000	$	450,000	50,558,184	$	505	$	984,207	$	1,781,215	(417)	$	(8)	$	(56,437)	$	3,159,482

Comprehensive income:
Net income	—	—		—	—		—		73,481		—	—		—		73,481
Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		30,048		30,048
Total comprehensive income																103,529

Stock-based compensation expense recognized in earnings	—	—		—	—		8,315		—		—	—		—		8,315

Preferred stock dividend	—	—		—	—		—		(6,317)		—	—		—		(6,317)
Issuance of stock related to stock-based awards	—	—		34,434	1		(53)		—		—	—		—		(52)
Redemption of preferred stock	(6,000,000)	(150,000)		—	—		—		—		—	—		—		(150,000)


Balance at June 30, 2021	300,000	$	300,000	50,592,618	$	506	$	992,469	$	1,848,379	(417)	$	(8)	$	(26,389)	$	3,114,957

Balance at March 31, 2022	300,000	$	300,000	50,710,858	$	507	$	1,011,353	$	1,983,611	(417)	$	(8)	$	(205,425)	$	3,090,038

Comprehensive income:
Net income	—	—		—	—		—		34,159		—	—		—		34,159
Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(66,783)		(66,783)
Total comprehensive loss																(32,624)

Stock-based compensation expense recognized in earnings	—	—		—	—		5,022		—		—	—		—		5,022
Preferred stock dividend	—	—		—	—		—		(4,312)		—	—		—		(4,312)
Issuance of stock related to stock-based awards	—	—		109,479	1		(1,270)		—		—	—		—		(1,269)
Repurchase of common stock	—	—		—	—		—		—		(941,879)	(50,023)		—		(50,023)



Balance at June 30, 2022	300,000	$	300,000	50,820,337	$	508	$	1,015,105	$	2,013,458	(942,296)	$	(50,031)	$	(272,208)	$	3,006,832

See accompanying notes to consolidated financial statements.


	Preferred Stock			Common Stock			Additional				Treasury Stock			Accumulated Other
							Paid-in		Retained					Comprehensive
(in thousands except share data)	Shares	Amount		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(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:
Net income	—	—		—	—		—		145,419		—	—		—		145,419
Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(42,163)		(42,163)
Total comprehensive income																103,256

Stock-based compensation expense recognized in earnings	—	—		—	—		13,776		—		—	—		—		13,776
Issuance of preferred stock	300,000	300,000		—	—		(10,277)		—		—	—		—		289,723
Preferred stock dividend	—	—		—	—		—		(10,096)		—	—		—		(10,096)
Issuance of stock related to stock-based awards	—	—		121,751	2		(2,928)		—		—	—		—		(2,926)
Redemption of preferred stock	(6,000,000)	(150,000)		—	—		—		—		—	—		—		(150,000)


Balance at June 30, 2021	300,000	$	300,000	50,592,618	$	506	$	992,469	$	1,848,379	(417)	$	(8)	$	(26,389)	$	3,114,957

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:
Net income	—	—		—	—		—		73,809		—	—		—		73,809
Change in other comprehensive income/(loss), net of taxes	—	—		—	—		—		—		—	—		(224,493)		(224,493)
Total comprehensive loss																(150,684)

Stock-based compensation expense recognized in earnings	—	—		—	—		10,429		—		—	—		—		10,429

Preferred stock dividend	—	—		—	—		—		(8,625)		—	—		—		(8,625)
Issuance of stock related to stock-based awards	—	—		201,426	2		(3,883)		—		—	—		—		(3,881)
Repurchase of common stock	—	—		—	—		—		—		(941,879)	(50,023)		—		(50,023)



Balance at June 30, 2022	300,000	$	300,000	50,820,337	$	508	$	1,015,105	$	2,013,458	(942,296)	$	(50,031)	$	(272,208)	$	3,006,832

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED


	Six months ended June 30,
(in thousands)	2022		2021
Operating activities
Net income	$	73,809	$	145,419
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(benefit) for credit losses	20,000		(25,000)

Depreciation and amortization expense	24,081		47,531
Net (gain)/loss on sale of loans held for sale	—		(2,502)
Decrease in valuation allowance on mortgage servicing rights	—		(16,448)


Stock-based compensation expense	10,612		14,804

Purchases and originations of loans held for sale	(1,072)		(1,409,716)
Proceeds from sales and repayments of loans held for sale	4,600		1,618,331



Changes in operating assets and liabilities:
Accrued interest receivable and other assets	(10,753)		85,388
Accrued interest payable and other liabilities	25,259		(19,164)
Net cash provided by operating activities	146,536		438,643
Investing activities
Purchases of available-for-sale debt securities	(637,803)		(903,395)
Proceeds from maturities, redemptions and pay-downs of available-for-sale debt securities	333,811		240,891

Proceeds from maturities, redemptions and pay-downs of held-to-maturity debt securities	40,224		—
Sales/(purchases) of equity securities, net	855		—
Originations of loans held for investment, mortgage finance	(54,492,183)		(88,516,423)
Proceeds from pay-offs of loans held for investment, mortgage finance	55,418,173		88,823,033
Proceeds from sale of mortgage servicing rights	—		108,646
Net (increase)/decrease in loans held for investment, excluding mortgage finance	(2,188,546)		174,095
Purchases of premises and equipment, net	(9,201)		(1,516)



Net cash used in investing activities	(1,534,670)		(74,669)
Financing activities
Net decrease in deposits	(2,669,344)		(2,157,026)
Issuance of stock related to stock-based awards	(3,881)		(2,926)

Net proceeds from issuance of preferred stock	—		289,723
Redemption of preferred stock	—		(150,000)
Preferred stock dividends paid	(8,625)		(10,096)
Repurchase of common stock	(50,023)		—
Net increase/(decrease) in short-term borrowings	448,704		(1,097,270)


Net proceeds from issuance of long-term debt	—		639,440
Redemption of long-term debt	—		(111,000)

Net cash used in financing activities	(2,283,169)		(2,599,155)
Net decrease in cash and cash equivalents	(3,671,303)		(2,235,181)
Cash and cash equivalents at beginning of period	7,946,659		9,206,380
Cash and cash equivalents at end of period	$	4,275,356	$	6,971,199
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	60,572	$	58,869
Cash paid during the period for income taxes	29,350		36,701
Transfers of debt securities from available-for-sale to held-to-maturity	1,019,365		—

See accompanying notes to consolidated financial statements.

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”, 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 in 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 present a fair presentation of our financial position and results of operations. 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 and the notes to the consolidated unaudited financial statements required by GAAP for complete annual financial statements do not include all of the information 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 June 30,				Six months ended June 30,
(in thousands except share and per share data)	2022		2021		2022		2021
Numerator:
Net income	$	34,159	$	73,481	$	73,809	$	145,419
Preferred stock dividends	4,312		6,317		8,625		10,096
Net income available to common stockholders	$	29,847	$	67,164	$	65,184	$	135,323
Denominator:
Denominator for basic earnings per common share—weighted average common shares	50,258,681		50,580,184		50,462,735		50,549,236
Effect of dilutive outstanding stock-settled awards	542,947		513,476		607,034		553,851

Denominator for dilutive earnings per common share—weighted average diluted common shares	50,801,628		51,093,660		51,069,769		51,103,087

Basic earnings per common share	$	0.59	$	1.33	$	1.29	$	2.68
Diluted earnings per common share	$	0.59	$	1.31	$	1.28	$	2.65

Anti-dilutive outstanding stock-settled awards	430,224		153,232		301,842		98,079

(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
June 30, 2022
Available-for-sale debt securities:
U.S. Treasury securities	$	638,427	$	974	$	(13,598)	$	625,803
U.S. government agency securities	125,000		—		(16,382)		108,618
Residential mortgage-backed securities	2,036,101		21		(246,567)		1,789,555


Credit risk transfer (“CRT”) securities	14,713		—		(3,043)		11,670
Total available-for-sale debt securities	2,814,241		995		(279,590)		2,535,646
Held-to-maturity debt securities:
Residential mortgage-backed securities	980,935		—		(81,688)		899,247
Total held-to-maturity debt securities

TEXAS CAPITAL BANCSHARES INC/TX [TCBI] Filings

TEXAS CAPITAL BANCSHARES INC/TX [TCBIO] Filings