Texas Capital Bancshares(TCBI) - 2021 Q3 - Quarterly Report

Part I Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Texas Capital Bancshares, Inc. as of September 30, 2021 Consolidated Balance Sheets Consolidated Balance Sheet Summary (Unaudited) | (in thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $36,404,320 | $37,726,096 | | Loans held for investment, net | $23,527,760 | $24,176,245 | | Interest-bearing deposits in other banks | $8,317,926 | $9,032,807 | | Total Liabilities | $33,256,568 | $34,854,872 | | Total deposits | $29,813,668 | $30,996,589 | | Long-term debt | $928,062 | $395,896 | | Total Stockholders' Equity | $3,147,752 | $2,871,224 | - Total assets decreased to $36.4 billion from $37.7 billion at year-end 2020, primarily driven by a decrease in total deposits. Total stockholders' equity increased, partly due to a $150 million net increase in preferred stock[8] Consolidated Statements of Income Q3 2021 vs Q3 2020 Performance (Unaudited) | (in thousands except per share data) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net interest income | $194,095 | $207,569 | | Provision for credit losses | $5,000 | $30,000 | | Non-interest income | $21,220 | $60,348 | | Non-interest expense | $152,987 | $165,741 | | Net income | $43,390 | $57,116 | | Diluted earnings per common share | $0.76 | $1.08 | Nine Months 2021 vs 2020 Performance (Unaudited) | (in thousands except per share data) | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net interest income | $591,162 | $645,816 | | Provision for credit losses | ($20,000) | $226,000 | | Non-interest income | $90,414 | $142,613 | | Non-interest expense | $452,363 | $553,493 | | Net income | $188,809 | $6,113 | | Diluted earnings per common share | $3.41 | ($0.02) | - For the nine months ended September 30, 2021, net income surged to $188.8 million from $6.1 million in the prior year period, primarily due to a significant decrease in the provision for credit losses, which was a $20.0 million benefit in 2021 versus a $226.0 million expense in 2020[10] Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $2.87 billion at year-end 2020 to $3.15 billion at September 30, 2021. Key drivers included net income of $188.8 million and a net $139.7 million from preferred stock transactions (issuance of Series B and redemption of Series A), partially offset by a $56.5 million unrealized loss on available-for-sale securities[13] Consolidated Statements of Cash Flows Cash Flow Summary (Unaudited) | (in thousands) | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $546,313 | $2,169,830 | | Net cash provided by/(used in) investing activities | $223,015 | ($1,786,827) | | Net cash provided by/(used in) financing activities | ($1,440,657) | $5,838,200 | | Net decrease in cash and cash equivalents | ($671,329) | $6,221,203 | Notes to Consolidated Financial Statements - Effective September 15, 2021, Texas Capital Bank converted from a national association to a Texas state-chartered bank, with the Texas Department of Banking and FDIC now serving as its primary regulators[19] - On April 20, 2021, the company agreed to sell its mortgage servicing rights (MSRs) portfolio and transition its Mortgage Correspondent Aggregation (MCA) program to a third party, with the sale completed on June 1, 2021[42] - In March 2021, the company issued $300 million of Series B Preferred Stock and in June 2021, redeemed all $150 million of its outstanding Series A Preferred Stock[90][91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, new strategy, MSR portfolio sale, and key financial drivers Overview of Our Business Operations - In 2021, the company initiated an enterprise-wide transformation, culminating in a new long-term strategy announced on September 1, 2021, focusing on a technology-enabled operating model, technology investment, and aggressive hiring of client-facing professionals[101] - The new plan includes expanding treasury solutions, building the private wealth business, and broadening investment banking offerings, including establishing a broker-dealer service[101] Results of Operations Q3 2021 Performance Summary | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income | $43.4M | $57.1M | | Diluted EPS | $0.76 | $1.08 | | ROE | 5.41% | 8.24% | | ROA | 0.47% | 0.59% | - The decrease in Q3 2021 net income compared to Q3 2020 was primarily due to lower net interest income and non-interest income, partially offset by a lower provision for credit losses and reduced non-interest expense[109] - For the nine months ended September 30, 2021, net income increased significantly to $188.8 million from $6.1 million in the prior-year period, driven by a $246.0 million decrease in the provision for credit losses[110] Analysis of Financial Condition - Gross loans held for investment decreased by $686.0 million to $23.8 billion at September 30, 2021, from year-end 2020, mainly due to declines in energy, mortgage finance, and real estate loans[132] - Non-performing assets decreased to $87.5 million at September 30, 2021, down from $122.0 million at December 31, 2020, and $161.9 million at September 30, 2020, primarily due to declines in commercial and energy non-accrual loans[136][139] Allowance for Credit Losses Ratios | Ratio | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | Total allowance for credit losses to LHI | 1.01% | 1.11% | 1.21% | | Allowance for credit losses on loans as a multiple of non-performing loans | 2.5x | 2.1x | 1.8x | Liquidity and Capital Resources - The principal source of funding is customer deposits, supplemented by borrowings primarily from the FHLB to fund mortgage finance assets[145] - Deposits from core customers represented 91.7% of total deposits at September 30, 2021, an increase from 89.0% at year-end 2020[147] - As of September 30, 2021, the company had total FHLB borrowing capacity of $9.6 billion and unused federal funds lines of $1.2 billion[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, indicating an asset-sensitive position, with ongoing LIBOR transition management - The company's interest rate sensitivity gap analysis as of September 30, 2021, shows a cumulative positive gap of $13.2 billion in the 0-3 month period, indicating a significant asset-sensitive position[168] Net Interest Income Sensitivity Analysis | (in thousands) | Anticipated Impact Over Next 12 Months | | :--- | :--- | | 100 bps Increase | $42,678 | | 200 bps Increase | $104,513 | - The company has a working group managing the LIBOR transition and will be operationally ready to originate new alternative benchmark-based loans in Q4 2021, ceasing new LIBOR-based originations during the same period[174] Item 4. Controls and Procedures Management concluded the company's disclosure controls were effective as of September 30, 2021, with no material changes to internal controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[176] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[177] Part II Item 1. Legal Proceedings The company is subject to various legal actions, none expected to materially impact its financial statements or operations - Management does not expect the disposition of any current legal matters to have a material adverse impact on the Company's financial statements or results of operations[179] Item 1A. Risk Factors No material changes have occurred in the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - No material changes have occurred in the risk factors previously disclosed in the Form 10-K for the year ended December 31, 2020[180] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files