Texas Capital Bancshares, Inc. Announces Operating Results for Q4 and Full Year 2020

Rhea-AI Summary

Texas Capital Bancshares (NASDAQ: TCBI) reported its fourth quarter and full-year results for 2020, highlighting a net income of $60.2 million ($1.14 per share) for the fourth quarter, a 7% decline year-over-year. The full-year net income was $66.3 million, down 79% from 2019. Average mortgage finance loans rose 5% quarter-over-quarter, and credit quality improved with decreases in non-performing assets. The company successfully deployed $1.8 billion into higher yielding securities. Despite challenges, the company remains optimistic with new CEO Rob Holmes expected to enhance performance.

Positive

• Average mortgage finance loans increased 5% quarter-over-quarter and 21% year-over-year.
• Improved credit quality with a decrease in non-performing assets by $40 million compared to the previous quarter.
• Successfully deployed $1.8 billion of excess liquidity into higher-yielding investment securities.

Negative

• Net income decreased 79% year-over-year to $66.3 million.
• Diluted earnings per share fell by 81% year-over-year to $1.12.
• Significant net charge-offs of $65.4 million, including $27.6 million in energy and $34.2 million in leveraged lending.

DALLAS, Jan. 21, 2021 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the fourth quarter and full year of 2020.

"While 2020 was certainly a challenging year, I am pleased with our strong fourth quarter results," said Larry Helm, Executive Chairman and CEO. "I want to thank our employees for their hard work and commitment to serving our clients during this unprecedented time. Though we are still navigating the pandemic, I am confident that Texas Capital Bank is well positioned for the future due to the actions we took in 2020. Looking ahead, Rob Holmes, our new CEO, officially joins us next week. Under his leadership, I have no doubt that Texas Capital Bank will continue to enhance its level of execution and recruit and develop the best talent, enabling us to drive long term shareholder value."

• Net income of $60.2 million ($1.14 per share) reported for the fourth quarter of 2020, an increase of $3.1 million on a linked quarter basis and a decrease of $4.2 million from the fourth quarter of 2019.
• Average mortgage finance loans held for investment ("LHI") increased 5% on a linked quarter basis and 21% from the fourth quarter of 2019.
• Credit quality improved in the fourth quarter of 2020, reflecting declines in non-performing assets and criticized loans of $40.0 million and $157.1 million, respectively, on a linked quarter basis.
• Successfully deployed $1.8 billion of excess liquidity into higher yielding investment securities in the fourth quarter of 2020.

FINANCIAL SUMMARY

(dollars and shares in thousands)	2020				2019				% Change
ANNUAL OPERATING RESULTS
Net income	$	66,289			$	312,015			(79	)%
Net income available to common stockholders	$	56,539			$	302,265			(81	)%
Diluted earnings per common share	$	1.12			$	5.99			(81	)%
Diluted shares	50,583				50,419				—	%
ROA	0.18		%		1.01		%
ROE	2.10		%		11.95		%
QUARTERLY OPERATING RESULTS
Net income	$	60,176			$	64,420			(7	)%
Net income available to common stockholders	$	57,739			$	61,983			(7	)%
Diluted earnings per common share	$	1.14			$	1.23			(7	)%
Diluted common shares	50,794				50,462				1	%
ROA	0.61		%		0.74		%
ROE	8.50		%		9.26		%
BALANCE SHEET
Loans held for sale ("LHS")	$	283,165			$	2,577,134			(89	)%
LHI, mortgage finance	9,079,409				8,169,849				11	%
LHI	15,351,451				16,476,413				(7	)%
Total LHI	24,430,860				24,646,262				(1	)%
Total assets	37,726,096				32,548,069				16	%
Demand deposits	12,740,947				9,438,459				35	%
Total deposits	30,996,589				26,478,593				17	%
Stockholders’ equity	2,871,224				2,801,321				2	%

DETAILED FINANCIALS

Texas Capital Bancshares, Inc. reported net income of $66.3 million and net income available to common stockholders of $56.5 million for the year ended December 31, 2020, compared to net income of $312.0 million and net income available to common stockholders of $302.3 million for the year ended December 31, 2019. For the fourth quarter of 2020, net income was $60.2 million, compared to net income of $57.1 million for the third quarter of 2020, and net income of $64.4 million for the fourth quarter of 2019. On a fully diluted basis, earnings per common share were $1.12 for the year ended December 31, 2020 compared to $5.99 for the same period in 2019. Diluted earnings per common share were $1.14 for the quarter ended December 31, 2020, compared to $1.08 for the quarter ended September 30, 2020 and $1.23 for the quarter ended December 31, 2019. The increase in net income for the fourth quarter of 2020 as compared to the third quarter of 2020 resulted primarily from a $15.4 million increase in net interest income and a $14.9 million decrease in non-interest expense, offset by a $17.5 million decrease in non-interest income.

We recorded a $32.0 million provision for credit losses for the fourth quarter of 2020 utilizing the Current Expected Credit Loss ("CECL") methodology adopted in the first quarter of 2020, compared to $30.0 million for the third quarter of 2020 and $17.0 million for the fourth quarter of 2019. We recorded $65.4 million in net charge-offs during the fourth quarter of 2020, including $27.6 million in energy net charge-offs and $34.2 million in leveraged lending net charge-offs, all of which were loans that had been previously identified as problem loans, compared to $1.6 million during the third quarter of 2020 and $12.8 million during the fourth quarter of 2019. Criticized loans totaled $918.4 million at December 31, 2020, compared to $1.1 billion at September 30, 2020 and $584.1 million at December 31, 2019. Criticized loan levels have declined in the fourth quarter of 2020 as compared to the third quarter of 2020, however remain elevated when compared to 2019 due to the downgrade of loans to borrowers that have been impacted by the COVID-19 pandemic or that are in categories that are expected to be more significantly impacted by COVID-19.

Non-performing assets ("NPAs") totaled $122.0 million at December 31, 2020, a decrease of $40.0 million compared to the third quarter of 2020 and a decrease of $103.4 million compared to the fourth quarter of 2019. Non-accrual energy loans totaled $51.7 million (42% of total NPAs) at December 31, 2020, compared to $73.8 million (46% of total NPAs) at September 30, 2020 and $125.0 million (55% of total NPAs) at December 31, 2019. Non-accrual leveraged lending loans totaled $18.9 million (15% of total NPAs) at December 31, 2020, compared to $31.3 million (19% of total NPAs) at September 30, 2020 and $73.2 million (32% of total NPAs) at December 31, 2019. The ratio of total LHI NPAs to total LHI plus other real estate owned ("OREO") for the fourth quarter of 2020 was 0.50%, compared to 0.64% for the third quarter of 2020 and 0.91% for the fourth quarter of 2019.

Net interest income was $223.0 million for the fourth quarter of 2020, compared to $207.6 million for the third quarter of 2020 and $248.4 million for the fourth quarter of 2019. Net interest margin for the fourth quarter of 2020 was 2.32%, an increase of 10 basis points from the third quarter of 2020 and a decrease of 63 basis points from the fourth quarter of 2019. The shift in earning assets, primarily the increases in liquidity assets and investment securities, and decrease in LHI, excluding mortgage finance, contributed to the year-over-year decrease in net interest margin. LHI yields, excluding mortgage finance loans, increased 28 basis points from the third quarter of 2020, and decreased 104 basis points compared to the fourth quarter of 2019. LHI, mortgage finance yields for the fourth quarter of 2020 decreased 7 basis points compared to the third quarter of 2020, and increased 11 basis points compared to the fourth quarter of 2019. Additionally, total cost of deposits for the fourth quarter of 2020 decreased 5 basis points to 0.29% compared to 0.34% for the third quarter of 2020, and decreased 70 basis points from 0.99% for the fourth quarter of 2019.

Non-interest income decreased $17.5 million, or 29%, during the fourth quarter of 2020 compared to the third quarter of 2020, and increased $25.1 million, or 141%, compared to the fourth quarter of 2019. The linked quarter decrease was primarily related to a decrease in net gain/(loss) on sale of LHS, resulting primarily from decreased margins and lower sales volume. The year-over-year increase was primarily related to increases in net gain/(loss) on sale of LHS, servicing fee income and brokered loan fees. The year-over-year increase in net gain/(loss) on sale of LHS was due to lower hedge costs in the fourth quarter of 2020 as a result of holding purchased loans for shorter durations than in prior periods, and is offset by the year-over-year decline in net interest income on LHS. The year-over-year increase in servicing fee income was due to an increase in the outstanding balance of our servicing portfolio. The year-over-year increase in brokered loan fees was due to an increase in total mortgage finance volumes in the fourth quarter of 2020.

Non-interest expense for the fourth quarter of 2020 decreased $14.9 million, or 9%, compared to the third quarter of 2020, and decreased $17.3 million, or 10%, compared to the fourth quarter of 2019. The linked quarter decrease was primarily related to decreases in salaries and employee benefits and communications and technology expense, offset by an increase in servicing-related expense. The year-over-year decrease was primarily due to decreases in salaries and employee benefits, marketing and legal and profession expenses, partially offset by an increase in servicing-related expense. The linked quarter decrease in communication and technology expense was primarily due to non-recurring software expenses recorded in the third quarter of 2020. The linked-quarter and year-over-year decreases in salaries and employee benefits was the result of cost savings related to our second quarter 2020 workforce reduction. The linked-quarter and year-over-year increases in servicing-related expense was primarily due to an increase in MSR amortization, resulting primarily from an increase in the cost basis of our MSR asset.

All regulatory ratios continue to be in excess of "well-capitalized" requirements as of December 31, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 9.4%, 10.3%, 12.1% and 7.5%, respectively, at December 31, 2020, compared to 9.1%, 9.9%, 11.8% and 7.6%, respectively, at September 30, 2020. At December 31, 2020, our ratio of tangible common equity to total tangible assets was 7.1% compared to 6.8% at September 30, 2020.

About Texas Capital Bancshares, Inc.

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

Forward Looking Statements

This communication contains “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,” “should,” “projects,” “targeted,,” “continue,,” “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 factors include, but are not limited to, (1) the credit quality of our loan portfolio, (2) general economic conditions in the United States, globally and in our markets and the impact they may have on us and our customers,, including the continued impact on our customers from volatility in oil and gas prices, (3) the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis, (4) expectations regarding rates of default and credit losses, (5) volatility in the mortgage industry, (6) our business strategies, (7) our expectations about future financial performance, future growth and earnings, (8) the appropriateness of our allowance for credit losses and provision for credit losses, (9) our ability to identify, attract and retain qualified employees, (10) the impact of changing regulatory requirements and legislative changes on our business, (11) increased competition from banking organizations and other financial service providers, (12) interest rate risk, (13) greater than expected costs or difficulties related to the integration of new lines of business, products or new service offerings, (14) technological changes, (15) the cost and effects of cyber incidents or other failures, interruptions or security breaches of our systems or those of third-party providers, and (16) our success at managing the risk and uncertainties involved in the foregoing items.

In addition, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope, duration and severity of the COVID-19 pandemic, actions taken by governmental authorities and other parties in response to the COVID-19 pandemic, the scale of distribution and public acceptance of any vaccines for COVID-19 and the effectiveness of such vaccines in stemming or stopping the spread of COVID-19, and the direct and indirect impact of the COVID-19 pandemic on our customers, clients, third parties and us.

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.

TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(dollars in thousands except per share data)
			4th Quarter			3rd Quarter			2nd Quarter				1st Quarter				4th Quarter
			2020			2020			2020				2020				2019
CONSOLIDATED STATEMENTS OF INCOME
Interest income			$	255,163		$	243,731		$	252,010			$	306,008			$	337,757
Interest expense			32,153			36,162			42,082				77,689				89,372
Net interest income			223,010			207,569			209,928				228,319				248,385
Provision for credit losses			32,000			30,000			100,000				96,000				17,000
Net interest income after provision for credit losses			191,010			177,569			109,928				132,319				231,385
Non-interest income			42,886			60,348			70,502				11,780				17,761
Non-interest expense			150,886			165,741			222,352				165,417				168,187
Income/(loss) before income taxes			83,010			72,176			(41,922		)		(21,318		)		80,959
Income tax expense/(benefit)			22,834			15,060			(7,606		)		(4,631		)		16,539
Net income/(loss)			60,176			57,116			(34,316		)		(16,687		)		64,420
Preferred stock dividends			2,437			2,438			2,437				2,438				2,437
Net income/(loss) available to common stockholders			$	57,739		$	54,678		$	(36,753	)		$	(19,125	)		$	61,983
Diluted earnings/(loss) per common share			$	1.14		$	1.08		$	(0.73	)		$	(0.38	)		$	1.23
Diluted common shares			50,794,421			50,573,073			50,416,331				50,474,802				50,461,723
CONSOLIDATED BALANCE SHEET DATA
Total assets			$	37,726,096		$	38,432,872		$	36,613,127			$	35,879,416			$	32,548,069
LHI			15,351,451			15,789,958			16,552,203				16,857,579				16,476,413
LHI, mortgage finance			9,079,409			9,378,104			8,972,626				7,588,803				8,169,849
LHS			283,165			648,009			454,581				774,064				2,577,134
Liquidity assets(1)			9,032,807			10,461,544			9,540,044				9,498,189				4,263,766
Investment securities			3,196,970			1,367,313			234,969				228,784				239,871
Demand deposits			12,740,947			12,339,212			10,835,911				9,420,303				9,438,459
Total deposits			30,996,589			31,959,487			30,187,695				27,134,263				26,478,593
Other borrowings			3,111,751			2,908,183			2,895,790				5,195,267				2,541,766
Subordinated notes			282,490			282,400			282,309				282,219				282,129
Long-term debt			113,406			113,406			113,406				113,406				113,406
Stockholders’ equity			2,871,224			2,800,404			2,734,755				2,772,596				2,801,321
End of period shares outstanding			50,470,450			50,455,552			50,435,672				50,407,778				50,337,741
Book value			$	53.92		$	52.53		$	51.25			$	52.03			$	52.67
Tangible book value(2)			$	53.57		$	52.18		$	50.89			$	51.67			$	52.31
SELECTED FINANCIAL RATIOS
Net interest margin			2.32		%	2.22		%	2.30		%		2.78		%		2.95		%
Return on average assets			0.61		%	0.59		%	(0.36		)%		(0.20		)%		0.74		%
Return on average common equity			8.50		%	8.24		%	(5.48		)%		(2.85		)%

FAQ

What were Texas Capital Bancshares' fourth quarter earnings for 2020?

Texas Capital Bancshares reported net income of $60.2 million, or $1.14 per share, for the fourth quarter of 2020.

How did Texas Capital Bancshares perform in 2020 compared to 2019?

The company reported a net income of $66.3 million for 2020, an 79% decrease compared to $312 million in 2019.

What improvements were noted in Texas Capital Bancshares' credit quality?

Credit quality improved with a $40 million decrease in non-performing assets in the fourth quarter of 2020.

What is Texas Capital Bancshares' approach to liquidity as of 2020?

The company successfully deployed $1.8 billion of excess liquidity into higher-yielding investment securities in the fourth quarter.

Who will lead Texas Capital Bancshares following the recent changes?

Rob Holmes is set to officially join as the new CEO next week, succeeding Larry Helm.