Texas Capital Bancshares, Inc. Announces Operating Results for Q2 2020

Rhea-AI Summary

Texas Capital Bancshares, Inc. (NASDAQ: TCBI) reported a net loss of $34.3 million, or $0.73 per diluted share, for Q2 2020, a significant decline from net income of $77.8 million in Q2 2019. The loss was attributed to a $100 million provision for credit losses amid rising criticized loans due to COVID-19. Non-interest income rose by $58.7 million, but non-interest expenses increased significantly by $56.9 million compared to Q1 2020. The bank continues to support clients with a loan modification program and funded $717.5 million under the Paycheck Protection Program.

Positive

• Increased non-interest income by $58.7 million compared to Q1 2020.
• Successfully funded $717.5 million in loans under the Paycheck Protection Program.

Negative

• Reported a net loss of $34.3 million in Q2 2020, compared to a profit of $77.8 million in Q2 2019.
• Incurred a $100 million provision for credit losses due to rising criticized loans.
• Non-interest expenses increased by $56.9 million from Q1 2020.

DALLAS, July 22, 2020 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the second quarter of 2020.

"As we navigate these unprecedented times with a focus on protecting our employees and our clients, we continue to position the Company for long-term, sustainable earnings growth," said Larry Helm, Executive Chairman and CEO. "Our significant investments in infrastructure and technology over the past few years enabled meaningful cost realignment during the second quarter. We remain vigilant in managing credit, while continuing to selectively recruit and acquire frontline talent."

• In response to pressures of the current economic environment and a refinement of our strategy, we took actions during the second quarter of 2020 which are expected to decrease our non-interest expenses, including a workforce reduction and write-offs of certain software assets.
• We reported a net loss of $34.3 million, or $0.73 per diluted share, for the second quarter of 2020, a $17.6 million decline from the first quarter of 2020, resulting from a $40.3 million increase in revenue, comprised of a $58.7 million increase in non-interest income and an $18.4 million decrease in net interest income, offset by a $56.9 million increase to non-interest expense. Significant transactions affecting our income statement during the second quarter of 2020 included:
  • $100.0 million ($1.55 per share) provision for credit losses; driven by an increase in charge-offs and reserve build related to higher criticized loan levels and continued economic uncertainty from the COVID-19 pandemic,
  • $26.6 million ($0.41 per share) in non-recurring software expenses; including $20.7 million in write-offs of certain software assets and $5.9 million in technology expense related to the roll-out of our Paycheck Protection Program capabilities,
  • $18.0 million ($0.28 per share) in severance accruals related to the workforce reduction referenced above,
  • $10.5 million ($0.16 per share) in final merger-related expenses, and
  • $9.1 million ($0.14 per share) in mortgage servicing rights ("MSR") impairment.

While these expenses had a significant impact on our second quarter operating results, we believe that we are better positioned to improve our core profitability going forward as the non-interest expense items are not expected to recur in future periods.

• In response to the COVID-19 pandemic over 90% of employees have been working virtually since early March with limited impact on the execution of our business and client experience. Additionally, we funded $717.5 million in loans under the Paycheck Protection Program and implemented a short-term loan modification program that complies with the CARES act to provide temporary relief to certain borrowers who meet the program's qualifications.

FINANCIAL SUMMARY

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(Dollars and shares in thousands)	Q2 2020		Q2 2019		% Change
QUARTERLY OPERATING RESULTS
54%; width:54%; min-width:54%;">Net income/(loss)	2%; width:2%; min-width:2%;">$	10%; width:10%; min-width:10%;">(34,316	3%; width:3%; min-width:3%;">)	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	10%; width:10%; min-width:10%;">77,812	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">	10%; width:10%; min-width:10%;">(144	5%; width:5%; min-width:5%;">)%
Net income/(loss) available to common stockholders	$	(36,753	)		$	75,375			(149	)%
Diluted earnings/(loss) per common share	$	(0.73	)		$	1.50			(149	)%
Diluted common shares	50,416			50,384			—	%
ROA	(0.36	)%		1.05	%
ROE	(5.48	)%		12.20	%
BALANCE SHEET
Loans held for sale ("LHS")	$	454,581			$	1,057,586			(57	)%
Loans held for investment ("LHI"), mortgage finance	8,972,626			7,415,363			21	%
LHI	16,552,203			16,924,535			(2	)%
Total LHI	25,524,829			24,339,898			5	%
Total assets	36,613,127			29,970,384			22	%
Demand deposits	10,835,911			7,685,340			41	%
Total deposits	30,187,695			22,999,077			31	%
Stockholders’ equity	2,734,755			2,647,071			3	%

DETAILED FINANCIALS

During the second quarter of 2020, we have continued to face unprecedented challenges as our country grapples with the continuing impact of the COVID-19 pandemic. Actions by U.S. federal, state and foreign governments to address the pandemic, including travel bans, business and entertainment venue closures and rapid changes in business and consumer behavior, have resulted in continuing high levels of uncertainty. economic weakness and market volatility. Due to these events, on May 22, 2020, we and Independent Bank Group, Inc. ("IBTX"), agreed to mutually terminate our merger agreement. The termination was approved by each company's board of directors after careful consideration of the significant impact of the COVID-19 pandemic on global markets and on the companies' ability to fully realize the benefits expected to be achieved through the merger.

We continue to focus on balance sheet strength and while we intend to operate with above-average liquidity in response to this uncertain economic environment, we believe opportunities exist to improve core earnings by reducing or replacing higher-cost funding sources and improving the earning asset mix. In the first few weeks of July 2020, we began to utilize low-yielding liquidity assets to increase the balance of our securities portfolio in an effort to improve yields during the second half of 2020.

For the second quarter of 2020, we reported a net loss of $34.3 million and net loss available to common stockholders of $36.8 million, compared to net income of $77.8 million and net income available to common stockholders of $75.4 million for the same period in 2019. On a fully diluted basis, earnings/(loss) per common share were $(0.73) for the quarter ended June 30, 2020 compared to $1.50 for the same period of 2019. The decline in net income for the second quarter of 2020 as compared to the same period in 2019 resulted primarily from a $73.0 million increase in the provision for credit losses, as well as an $80.6 million increase in non-interest expense, driven by the significant second quarter 2020 expenses described below, offset by a $46.1 million increase in non-interest income resulting primarily from a $45.0 million increase in net gain/(loss) on sale of loans held for sale.

We recorded a $100.0 million provision for credit losses for the second quarter of 2020 utilizing the Current Expected Credit Loss ("CECL") methodology adopted in the first quarter of 2020, compared to $96.0 million for the first quarter of 2020 and $27.0 million for the second quarter of 2019. The increase in provision for credit losses resulted primarily from an increase in charge-offs and reserve build related to higher criticized loan levels and continued economic uncertainty from the COVID-19 pandemic. We recorded $74.1 million in net charge-offs during the second quarter of 2020, including $62.4 million in energy net charge-offs and $8.1 million in leveraged lending net charge-offs, all of which were loans that had been previously identified as problem loans, compared to $57.7 million during the first quarter of 2020 and $20.0 million during the second quarter of 2019. Criticized loans totaled $1.0 billion at June 30, 2020, compared to $675.9 million at March 31, 2020 and $629.1 million at June 30, 2019. The increase in criticized loans was predominantly in special mention and was primarily due to the continued downgrade of loans that have been impacted by the COVID-19 pandemic or that are in categories that are expected to be more significantly impacted by COVID-19.

Non-performing assets ("NPAs") totaled $174.0 million at June 30, 2020, a decrease of $45.1 million compared to the first quarter of 2020 and an increase of $59.9 million compared to the second quarter of 2019. The linked quarter decrease is primarily related to charge-offs of energy and leveraged lending loans in the second quarter of 2020. Non-accrual energy loans totaled $103.9 million (60% of total NPAs) at June 30, 2020, $39.8 million of which relates to two loans that have been charged down to final resolution value and are expected to close in the third quarter of 2020, compared to $151.9 million at March 31, 2020. Non-accrual leveraged lending loans totaled $24.8 million (14% of total NPAs) at June 30, 2020, compared to $50.0 million at March 31, 2020. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the second quarter of 2020 was 0.68 percent, compared to 0.90 percent for the first quarter of 2020 and 0.47 percent for the second quarter of 2019.

In response to the COVID-19 pandemic, we implemented a short-term loan modification program in late March 2020 to provide temporary payment relief to borrowers who meet the program's qualifications. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of June 30, 2020, we have granted temporary modifications on 482 loans (336 during the second quarter of 2020) with a total outstanding loan balance of $1.2 billion, resulting in the deferral of $10.8 million ($7.1 million in the second quarter of 2020) in interest payments.

Net interest income was $209.9 million for the second quarter of 2020, compared to $228.3 million for the first quarter of 2020 and $243.6 million for the second quarter of 2019. The linked quarter decrease in net interest income was due primarily to a decrease in average LHS, as a result of holding purchased loans for shorter durations, as well as decreases in yields on LHI, excluding  mortgage finance, and liquidity assets offset by an increase in yields on LHI, mortgage finance, and a decrease in funding costs. The decline in net interest income on LHS resulting from shorter hold times was offset by an increase in non-interest income as noted below. Net interest margin for the second quarter of 2020 was 2.30 percent, a decrease of 48 basis points from the first quarter of 2020 and a decrease of 111 basis points from the second quarter of 2019. The shift in earning assets, primarily the increase in liquidity assets and decrease in loans held for sale, significantly contributed to the decrease in net interest margin. LHI yields, excluding mortgage finance loans, decreased 85 basis points from the first quarter of 2020, and decreased 169 basis points compared to the second quarter of 2019. LHI, mortgage finance yields for the second quarter of 2020 increased 30 basis points compared to the first quarter of 2020 as a result of decreases in incentive pricing in the second quarter of 2020, and decreased 17 basis points compared to the second quarter of 2019. Additionally, total cost of deposits for the second quarter of 2020 decreased 48 basis points to 0.42 percent compared to 0.90 percent for the first quarter of 2020, and decreased 87 basis points from 1.29 percent for the second quarter of 2019.

Non-interest income increased $58.7 million during the second quarter of 2020 compared to the first quarter of 2020, and increased $46.1 million compared to the second quarter of 2019. The linked quarter increase was primarily related to an increase in net gain/(loss) on sale of LHS, as well as increases in brokered loans fees and other non-interest income. The year-over-year increase was primarily related to an increase in net gain/(loss) on sale of LHS, as well as increases in brokered loan fees and servicing income, partially offset by a decrease in other non-interest income. The linked quarter and year-over-year increase in net gain/(loss) on sale of LHS was due to lower hedge costs in the second quarter of 2020 as a result of holding purchased loans for shorter durations than in prior periods, and is offset by the decline in net interest income on LHS noted above.

Non-interest expense for the second quarter of 2020 increased $56.9 million, or 34 percent, compared to the first quarter of 2020, and increased $80.6 million, or 57 percent, compared to the second quarter of 2019. The linked quarter increase was primarily related to increases in salaries and employee benefits and communications and technology expense. The year-over-year increase was primarily due to increases in salaries and employee benefits, communications and technology expense, servicing-related expenses and merger-related expenses. The year-over-year and linked quarter increases in salaries and employee benefits and communication and technology expense were primarily due to the severance accruals and non-recurring software expenses, respectively, discussed above. The year-over-year increase in servicing-related expenses was primarily due to an increase in MSR amortization, resulting primarily from an increase in the cost basis of our MSR asset as well as from higher mortgage prepayment rates, and an increase in impairment expense.

Texas Capital Bank is well capitalized under regulatory guidelines as of June 30, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 8.9%, 9.8%, 11.6% and 7.5%, respectively, at June 30, 2020, compared to 9.3%, 10.2%, 12.0% and 8.5%, respectively, at March 31, 2020. At June 30, 2020, our ratio of tangible common equity to total tangible assets was 7.0% percent compared to 7.3% at March 31, 2020.

About Texas Capital Bancshares, Inc.

Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 2000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.

Forward Looking Statements

This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding our financial condition, results of operations, business plans and future performance. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and credit losses, volatility in the mortgage industry, our business strategies, our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for credit losses and provision for credit losses, our ability to identify, employ and retain a successor chief executive officer, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, we disclaim any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

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TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands except per share data)
	2nd Quarter	1st Quarter	4th Quarter	3rd Quarter	2nd Quarter
	2020	2020	2019	2019	2019
CONSOLIDATED STATEMENTS OF INCOME
35%; width:35%; min-width:35%;">Interest income	1%; width:1%; min-width:1%;">$	10%; width:10%; min-width:10%;">252,010	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	10%; width:10%; min-width:10%;">306,008	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	10%; width:10%; min-width:10%;">337,757	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	10%; width:10%; min-width:10%;">355,101	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	10%; width:10%; min-width:10%;">346,893	2%; width:2%; min-width:2%;">
Interest expense	42,082		77,689		89,372		102,933		103,340
Net interest income	209,928		228,319		248,385		252,168		243,553
Provision for credit losses	100,000		96,000		17,000		11,000		27,000
Net interest income after provision for credit losses	109,928		132,319		231,385		241,168		216,553
Non-interest income	70,502		11,780		17,761		20,301		24,364
Non-interest expense	222,352		165,417		168,187		149,429		141,718
Income/(loss) before income taxes	(41,922	)	(21,318	)	80,959		112,040		99,199
Income tax expense/(benefit)	(7,606	)	(4,631	)	16,539		23,958		21,387
Net income/(loss)	(34,316	)	(16,687	)	64,420		88,082		77,812
Preferred stock dividends	2,437		2,438		2,437		2,438		2,437
Net income/(loss) available to common stockholders	$	(36,753	)	$	(19,125	)	$	61,983		$	85,644		$	75,375
Diluted earnings/(loss) per common share	$	(0.73	)	$	(0.38	)	$	1.23		$	1.70		$	1.50
Diluted common shares	50,416,331		50,474,802		50,461,723		50,416,402		50,383,870
CONSOLIDATED BALANCE SHEET DATA
Total assets	$	36,613,127		$	35,879,416		$	32,548,069		$	33,526,437		$	29,970,384
LHI	16,552,203		16,857,579		16,476,413		16,772,824		16,924,535
LHI, mortgage finance	8,972,626		7,588,803		8,169,849		7,951,432		7,415,363
LHS	454,581		774,064		2,577,134		2,674,225		1,057,586
Liquidity assets(1)	9,540,044		9,498,189		4,263,766		4,993,185		3,480,902
Investment securities	234,969		228,784		239,871		238,022		240,851
Demand deposits	10,835,911		9,420,303		9,438,459		10,289,572		7,685,340
Total deposits	30,187,695		27,134,263		26,478,593		27,413,303		22,999,077
Other borrowings	2,895,790		5,195,267		2,541,766		2,639,967		3,607,234
Subordinated notes	282,309		282,219		282,129		282,038		281,948
Long-term debt	113,406		113,406		113,406		113,406		113,406
Stockholders’ equity	2,734,755		2,803,533		2,801,321		2,735,993		2,647,071
End of period shares outstanding	50,435,672		50,407,778		50,337,741		50,317,654		50,297,552
Book value	$	51.25		$	52.64		$	52.67		$	51.39		$	49.65
Tangible book value(2)	$	50.89		$	52.28		$	52.31		$	51.03		$	49.28
SELECTED FINANCIAL RATIOS
Net interest margin	2.30	%	2.78	%	2.95	%	3.16	%	3.41	%
Return on average assets	(0.36	)%	(0.20	)%	0.85	%	1.06	%	1.05	%
Return on average common equity	(5.48	)%	(2.85	)%	10.68	%	13.22	%	12.20	%
Non-interest income to average earning assets	0.77	%	0.14	%	0.21	%	0.25	%	0.34	%
Efficiency ratio(3)	79.3	%	68.9	%	63.2	%	54.8	%	52.9	%
Efficiency ratio, adjusted(4)	77.5	%	65.8	%	61.4	%	51.3	%	49.6	%
Non-interest expense to average earning assets	2.43	%	2.00	%	1.98	%	1.86	%	1.98	%
Tangible common equity to total tangible assets(5)	7.0	%	7.3	%	8.1	%	7.6	%	8.3	%
Common Equity Tier 1	8.9	%	9.3	%	8.9	%	8.6	%	8.7	%
Tier 1 capital	9.8	%	10.2	%	9.7	%	9.4	%	9.6	%
Total capital	11.6	%	12.0	%	11.4	%	11.0	%	11.3	%
Leverage	7.5	%	8.5	%	8.4	%	8.6	%	9.2	%

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5%; width:5%; min-width:5%;">(1)	95%; width:95%; min-width:95%;">Liquidity assets include Federal funds sold and interest-bearing deposits in other banks.
(2)	Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end.
(3)	Non-interest expense divided by the sum of net interest income and non-interest income.
(4)	Non-interest expense, excluding deposit-related marketing fees and servicing related expenses, divided by the sum of net interest income and non-interest income, net of deposit-related marketing fees and servicing related expenses. Deposit-related marketing fees totaled $1.7 million, $5.2 million, $9.4 million, $11.9 million and $11.6 million for the second and first quarters of 2020, as well as the fourth, third and second quarters of 2019, respectively.
(5)	Stockholders’ equity excluding preferred stock and accumulated other comprehensive income, less goodwill and intangibles, divided by total assets, less accumulated other comprehensive income and goodwill and intangibles.

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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
	June 30, 2020	June 30, 2019	% Change
Assets
64%; width:64%; min-width:64%;">Cash and due from banks	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">176,540	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">163,675	1%; width:1%; min-width:1%;">	10%; width:10%; min-width:10%;">8	2%; width:2%; min-width:2%;">%
Interest-bearing deposits	9,490,044		3,446,902		175	%
Federal funds sold and securities purchased under resale agreements	50,000		34,000		47	%
Securities, available-for-sale	234,969		240,851		(2	)%
LHS, at fair value ($454.6 million at June 30, 2020 and $1,056.5 million at June 30, 2019)	454,581		1,057,586		(57	)%
LHI, mortgage finance	8,972,626		7,415,363		21	%
LHI (net of unearned income)	16,552,203		16,924,535		(2	)%
Less:  Allowance for credit losses on loans	264,722		214,572		23	%
LHI, net	25,260,107		24,125,326		5	%
Mortgage servicing rights, net	75,451		47,785		58	%
Premises and equipment, net	28,603		28,197		1	%
Accrued interest receivable and other assets	824,963		807,728		2	%
Goodwill and intangibles, net	17,869		18,334		(3	)%
Total assets	$	36,613,127		$	29,970,384		22	%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	10,835,911		$	7,685,340		41	%
Interest bearing	19,351,784		15,313,737		26	%
Total deposits	30,187,695		22,999,077		31	%
Accrued interest payable	20,314		23,115		(12	)%
Other liabilities	372,145		276,432		35	%
Federal funds purchased and repurchase agreements	195,790		507,234		(61	)%
Other borrowings	2,700,000		3,100,000		(13	)%
Subordinated notes, net	282,309		281,948		—	%
Trust preferred subordinated debentures	113,406		113,406		—	%
Total liabilities	33,871,659		27,301,212		24	%
Redeemable non-controlling interest	6,713		22,101		(70	)%
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 6,000,000 shares issued at June 30, 2020 and 2019	150,000		150,000		—	%
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,436,089 and 50,297,969 at June 30, 2020 and 2019, respectively	504		503		—	%
Additional paid-in capital	983,144		972,219		1	%
Retained earnings	1,600,639		1,516,044		6	%
Treasury stock (shares at cost: 417 at June 30, 2020 and 2019)	(8	)	(8	)	—	%
Accumulated other comprehensive income, net of taxes	476		8,313		N/M
Total stockholders’ equity	2,734,755		2,647,071		3	%
Total liabilities and stockholders’ equity	$	36,613,127		$	29,970,384		22	%

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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share data)
	Three Months Ended June 30,	Six Months Ended June 30,
	2020	2019	2020	2019
Interest income
52%; width:52%; min-width:52%;">Interest and fees on loans	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">247,595	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">329,842	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">531,220	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	9%; width:9%; min-width:9%;">642,545	1%; width:1%; min-width:1%;">
Investment securities	2,024		2,260		4,207		3,720
Federal funds sold and securities purchased under resale agreements	77		157		691		536
Interest-bearing deposits in other banks	2,314		14,634		21,900		25,653
Total interest income	252,010		346,893		558,018		672,454
Interest expense
Deposits	32,294		72,529		94,468		141,583
Federal funds purchased	176		5,202		845		8,718
Other borrowings	4,569		20,124		14,151		31,978
Subordinated notes	4,191		4,191		8,382		8,382
Trust preferred subordinated debentures	852		1,294		1,925		2,626
Total interest expense	42,082		103,340		119,771		193,287
Net interest income	209,928		243,553		438,247		479,167
Provision for credit losses	100,000		27,000		196,000		47,000
Net interest income after provision for credit losses	109,928		216,553		242,247		432,167
Non-interest income
Service charges on deposit accounts	2,459		2,849		5,752		5,828
Wealth management and trust fee income	2,348		2,129		4,815		4,138
Brokered loan fees	10,764		7,336		18,779		12,402
Servicing income	6,120		3,126		10,866		5,860
Swap fees	1,468		601		4,225		1,632
Net gain/(loss) on sale of LHS	39,023		(5,986	)	26,023		(6,491	)
Other	8,320		14,309		11,822		31,009
Total non-interest income	70,502		24,364		82,282		54,378
Non-interest expense
Salaries and employee benefits	100,255		76,889		176,922		154,712
Net occupancy expense	9,134		7,910		17,846		15,789
Marketing	7,988		14,087		16,510		25,795
Legal and professional	11,330		10,004		28,796		20,034
Communications and technology	42,760		11,022		56,551		20,220
FDIC insurance assessment	7,140		4,138		12,989		9,260
Servicing-related expenses	20,117		6,066		36,471		11,448
Merger-related expenses	10,486		—		17,756		—
Other	13,142		11,602		23,928		25,976
Total non-interest expense	222,352		141,718		387,769		283,234
Income/(loss) before income taxes	(41,922	)	99,199		(63,240	)	203,311
Income tax expense/(benefit)	(7,606	)	21,387		(12,237	)	43,798
Net income/(loss)	(34,316	)	77,812		(51,003	)	159,513
Preferred stock dividends	2,437		2,437		4,875		4,875
Net income/(loss) available to common stockholders	$	(36,753	)	$	75,375		$	(55,878	)	$	154,638
Basic earnings/(loss) per common share	$	(0.73	)	$	1.50		$	(1.11	)	$	3.07
Diluted earnings/(loss) per common share	$	(0.73	)	$	1.50		$	(1.11	)	$	3.07

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TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF CREDIT LOSS EXPERIENCE
(Dollars in thousands)
	2nd Quarter	1st Quarter	4th Quarter	3rd Quarter	2nd Quarter
	2020	2020	2019	2019	2019
Allowance for credit losses on loans:
45%; width:45%; min-width:45%;">Beginning balance	1%; width:1%; min-width:1%;">$	8%; width:8%; min-width:8%;">240,958	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	8%; width:8%; min-width:8%;">195,047	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	8%; width:8%; min-width:8%;">190,138	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	8%; width:8%; min-width:8%;">214,572	2%; width:2%; min-width:2%;">	1%; width:1%; min-width:1%;">$	8%; width:8%; min-width:8%;">208,573	2%; width:2%; min-width:2%;">
Impact of CECL adoption	—		8,585		—		—		—
Loans charged-off:
Commercial	12,287		20,653		13,968		21,124		4,880
Energy	62,368		37,730		797		16,655		15,173
Real estate	—		—		—		—		177
Total charge-offs	74,655		58,383		14,765		37,779		20,230
Recoveries:
Commercial	513		257		1,754		799		224
Energy	—		423		209		107		—
Total recoveries	513		680		1,963		906		224
Net charge-offs	74,142		57,703		12,802		36,873		20,006
Provision for credit losses on loans	97,906		95,029		17,711		12,439		26,005
Ending balance	$	264,722		$	240,958		$	195,047		$	190,138		$	214,572
Allowance for off-balance sheet credit losses:
Beginning balance	$	10,174		$	8,640		$	9,351		$	10,790		$	9,795
Impact of CECL adoption	—		563		—		—		—
Provision for off-balance sheet credit losses	2,094		971		(711	)	(1,439	)	995
Ending balance	$	12,268		$	10,174		$	8,640		$	9,351		$	10,790
Total allowance for credit losses	$	276,990		$	251,132		$	203,687		$	199,489		$	225,362
Total provision for credit losses	$	100,000		$	96,000		$	17,000		$	11,000		$	27,000
Allowance for credit losses on loans to LHI	1.04	%	0.99	%	0.79	%	0.77	%	0.88	%
Allowance for credit losses on loans to average LHI	1.03	%	1.02	%	0.79	%	0.76	%	0.90	%
Net charge-offs to average LHI(1)	1.16	%	0.98	%	0.21	%	0.58	%	0.34	%
Net charge-offs to average LHI for last twelve months(1)	0.73	%	0.53	%	0.31	%	0.41	%	0.27	%
Total provision for credit losses to average LHI(1)	1.57	%	1.63	%	0.27	%	0.17	%	0.45	%
Total allowance for credit losses to LHI	1.09	%	1.03	%	0.83	%	0.81	%	0.93	%

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5%; width:5%; min-width:5%;">(1)	95%; width:95%; min-width:95%;">Interim period ratios are annualized.

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TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS
(Dollars in thousands)
	2nd Quarter	1st Quarter	4th Quarter	3rd Quarter	2nd Quarter
	2020	2020	2019	2019	2019
Non-performing assets (NPAs):
45%; width:45%; min-width:45%;">Non-accrual loans	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">174,031	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">219,165	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">225,384	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">120,686	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">114,084	1%; width:1%; min-width:1%;">
Other real estate owned (OREO)	—		—		—		—		—
Total LHI NPAs	$	174,031		$	219,165		$	225,384		$	120,686		$	114,084
Non-accrual loans to LHI	0.68	%	0.90	%	0.91	%	0.49	%	0.47	%
Total LHI NPAs to LHI plus OREO	0.68	%	0.90	%	0.91	%	0.49	%	0.47	%
Total LHI NPAs to earning assets	0.49	%	0.63	%	0.71	%	0.37	%	0.39	%
Allowance for credit losses on loans to non-accrual loans	1.5x	1.1x	.9x	1.6x	1.9x
LHI past due 90 days and still accruing(1)	$	21,079		$	21,274		$	17,584		$	29,648		$	15,212
LHI past due 90 days to LHI	0.08	%	0.09	%	0.07	%	0.12	%	0.06	%
LHS past due 90 days and still accruing(2)	$	10,152		$	9,014		$	8,207		$	9,187		$	11,665

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5%; width:5%; min-width:5%;">(1)	95%; width:95%; min-width:95%;">At June 30, 2020, loans past due 90 days and still accruing includes premium finance loans of $14.8 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on canceled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(2)	Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as LHS and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not obligation, to repurchase and thus must record as LHS on our balance sheet regardless of whether the repurchase option has been exercised.

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TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
	2nd Quarter	1st Quarter	4th Quarter	3rd Quarter	2nd Quarter
	2020	2020	2019	2019	2019
Interest income
45%; width:45%; min-width:45%;">Interest and fees on loans	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">247,595	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">283,625	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">312,147	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">329,344	1%; width:1%; min-width:1%;">	2%; width:2%; min-width:2%;">$	8%; width:8%; min-width:8%;">329,842	1%; width:1%; min-width:1%;">
Investment securities	2,024		2,183		2,618		2,316		2,260
Federal funds sold and securities purchased under resale agreements	77		614		439		554		157
Interest-bearing deposits in other banks	2,314		19,586		22,553		22,887		14,634
Total interest income	252,010		306,008		337,757		355,101		346,893
Interest expense
Deposits	32,294		62,174		70,987		80,967		72,529
Federal funds purchased	176		669		1,319		1,835		5,202
Other borrowings	4,569		9,582		11,712		14,703		20,124
Subordinated notes	4,191		4,191		4,191		4,191		4,191
Trust preferred subordinated debentures	852		1,073		1,163		1,237		1,294
Total interest expense	42,082		77,689		89,372		102,933		103,340
Net interest income	209,928		228,319		248,385		252,168		243,553
Provision for credit losses	100,000		96,000		17,000		11,000		27,000
Net interest income after provision for credit losses	109,928		132,319		231,385		241,168		216,553
Non-interest income
Service charges on deposit accounts	2,459		3,293		2,785		2,707		2,849
Wealth management and trust fee income	2,348		2,467		2,342		2,330		2,129
Brokered loan fees	10,764		8,015		8,645		8,691		7,336
Servicing income	6,120		4,746		4,030		3,549		3,126
Swap fees	1,468		2,757		1,559		1,196		601
Net gain/(loss) on sale of LHS	39,023		(13,000	)	(7,757	)	(6,011	)	(5,986	)
Other	8,320		3,502		6,157		7,839		14,309
Total non-interest income	70,502		11,780		17,761		20,301		24,364
Non-interest expense
Salaries and employee benefits	100,255		76,667		80,262		80,106		76,889
Net occupancy expense	9,134		8,712		9,075		8,125		7,910
Marketing	7,988		8,522		12,807		14,753		14,087
Legal and professional	11,330		17,466		21,032		11,394		10,004
Communications and technology	42,760		13,791		13,801		10,805		11,022
FDIC insurance assessment	7,140		5,849		5,613		5,220		4,138
Servicing-related expenses	20,117		16,354		2,960		8,165		6,066
Merger-related expenses	10,486		7,270		1,370		—		—
Other	13,142		10,786		21,267		10,861		11,602
Total non-interest expense	222,352		165,417		168,187		149,429		141,718
Income/(loss) before income taxes	(41,922	)	(21,318	)	80,959		112,040		99,199
Income tax expense/(benefit)	(7,606	)	(4,631	)	16,539		23,958		21,387
Net income/(loss)	(34,316	)	(16,687	)	64,420		88,082		77,812
Preferred stock dividends	2,437		2,438		2,437		2,438		2,437
Net income/(loss) available to common shareholders	$	(36,753	)	$	(19,125	)	$	61,983		$	85,644		$	75,375

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TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands)
	2nd Quarter 2020		1st Quarter 2020		4th Quarter 2019		3rd Quarter 2019		2nd Quarter 2019
	Average Balance	Revenue/ Expense	Yield/ Rate		Average Balance	Revenue/ Expense	Yield/ Rate		Average Balance	Revenue/ Expense	Yield/ Rate		Average Balance	Revenue/ Expense	Yield/ Rate		Average Balance	Revenue/ Expense	Yield/ Rate
Assets
12%; width:12%; min-width:12%;">Investment securities - Taxable	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">38,829	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">185	1%; width:1%; min-width:1%;">	4%; width:4%; min-width:4%;">1.92	1%; width:1%; min-width:1%;">%	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">42,799	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">274	1%; width:1%; min-width:1%;">	4%; width:4%; min-width:4%;">2.57	1%; width:1%; min-width:1%;">%	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">40,904	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">693	1%; width:1%; min-width:1%;">	4%; width:4%; min-width:4%;">6.72	1%; width:1%; min-width:1%;">%	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">39,744	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">357	1%; width:1%; min-width:1%;">	4%; width:4%; min-width:4%;">3.56	1%; width:1%; min-width:1%;">%	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">38,887	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	4%; width:4%; min-width:4%;">287	1%; width:1%; min-width:1%;">	3%; width:3%; min-width:3%;">2.96	1%; width:1%; min-width:1%;">%
Investment securities - Non-taxable(2)	195,806		2,327		4.78	%		195,578		2,417		4.97	%		197,591		2,437		4.89	%		200,090		2,480		4.92	%		192,115		2,498		5.21	%
Federal funds sold and securities purchased under resale agreements	245,434		77		0.13	%		199,727		614		1.24	%		102,320		439		1.70	%		100,657		554		2.18	%		28,436		157		2.22	%
Interest-bearing deposits in other banks	10,521,240		2,314		0.09	%		6,225,948		19,586		1.27	%		5,387,000		22,553		1.66	%		4,184,217		22,887		2.17	%		2,491,827		14,634		2.36	%
LHS, at fair value	380,624		2,547		2.69	%		3,136,381		27,480		3.52	%		3,567,836		33,411		3.72	%		2,555,269		26,206		4.07	%		2,494,883		27,607		4.44	%
LHI, mortgage finance loans	8,676,521		74,518		3.45	%		7,054,682		55,324		3.15	%		7,870,888		63,114		3.18	%		8,118,025		68,660		3.36	%		7,032,963		63,523		3.62	%
LHI(1)(2)	17,015,041		170,970		4.04	%		16,598,775		201,781		4.89	%		16,667,259		216,686		5.16	%		16,901,391		235,557		5.53	%		16,781,733		239,829		5.73	%
Less allowance for credit losses on loans	236,823		—		—			201,837		—		—			189,353		—		—			212,898		—		—			206,654		—		—
LHI, net of allowance	25,454,739		245,488		3.88	%		23,451,620		257,105		4.41	%		24,348,794		279,800		4.56	%		24,806,518		304,217		4.87	%		23,608,042		303,352		5.15	%
Total earning assets	36,836,672		252,938		2.76	%		33,252,053		307,476		3.72	%		33,644,445		339,333		4.00	%		31,886,495		356,701		4.44	%		28,854,190		348,535		4.84	%
Cash and other assets	1,075,864					976,520					974,866					1,000,117					940,793
Total assets	$	37,912,536					$	34,228,573					$	34,619,311					$	32,886,612					$	29,794,983
Liabilities and Stockholders’ Equity
Transaction deposits	$	3,923,966		$	5,998		0.61	%		$	3,773,067		$	13,582		1.45	%		$	3,817,294		$	16,428		1.71	%		$	3,577,905		$	18,442		2.04	%		$	3,475,404		$	18,037		2.08	%
Savings deposits	12,537,467		13,510		0.43	%		11,069,429		35,961		1.31	%		11,111,326		40,603		1.45	%		10,331,078		45,586		1.75	%		8,896,537		40,994		1.85	%
Time deposits	3,434,388		12,786		1.50	%		2,842,535		12,631		1.79	%		2,453,655		13,956		2.26	%		2,706,434		16,939		2.48	%		2,227,460		13,498		2.43	%
Total interest bearing deposits	19,895,821		32,294		0.65	%		17,685,031		62,174		1.41	%		17,382,275		70,987		1.62	%		16,615,417		80,967		1.93	%		14,599,401		72,529		1.99	%
Other borrowings	3,612,263		4,745		0.53	%		3,020,255		10,251		1.37	%		2,822,465		13,031		1.83	%		2,896,477		16,538		2.27	%		4,018,231		25,326		2.53	%
Subordinated notes	282,252		4,191		5.97	%		282,165		4,191		5.97	%		282,074		4,191		5.89	%		281,979		4,191		5.90	%		281,889		4,191		5.96	%
Trust preferred subordinated debentures	113,406		852		3.02	%		113,406		1,073		3.80	%		113,406		1,163		4.07	%		113,406		1,237		4.33	%		113,406		1,294		4.58	%
Total interest bearing liabilities	23,903,742		42,082		0.71	%		21,100,857		77,689		1.48	%		20,600,220		89,372		1.72	%		19,907,279		102,933		2.05	%		19,012,927		103,340		2.18	%
Demand deposits	10,865,896					10,003,495					10,933,887					9,992,406					7,929,266
Other liabilities	293,698					270,868					278,964					264,506					220,305
Stockholders’ equity	2,849,200					2,853,353					2,806,240					2,722,421					2,632,485
Total liabilities and stockholders’ equity	$	37,912,536					$	34,228,573					$	34,619,311					$	32,886,612					$	29,794,983
Net interest income(2)		$	210,856					$	229,787					$	249,961					$	253,768					$	245,195
Net interest margin			2.30	%				2.78	%				2.95	%				3.16	%				3.41	%

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5%; width:5%; min-width:5%;">(1)	95%; width:95%; min-width:95%;">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.

FAQ

What was Texas Capital Bancshares' net loss for Q2 2020?

Texas Capital Bancshares reported a net loss of $34.3 million for Q2 2020.

How much did Texas Capital Bancshares fund under the Paycheck Protection Program?

Texas Capital Bancshares funded $717.5 million under the Paycheck Protection Program.

What caused the increase in provision for credit losses for TCBI?

The increase was driven by higher criticized loan levels and economic uncertainty due to COVID-19.

What was the diluted loss per share for TCBI in Q2 2020?

The diluted loss per share for Texas Capital Bancshares in Q2 2020 was $0.73.

How did non-interest expenses change for TCBI from Q1 to Q2 2020?

Non-interest expenses increased by $56.9 million from Q1 2020.