Texas Capital Bancshares, Inc. Reports Fourth Quarter and Full Year 2021 Results

Fourth quarter 2021 net income of $65.1 million, or $1.19 per diluted share

Continued improvement in credit quality drove a provision release of $10.0 million

Necessary regulatory approvals obtained for launch of Texas Capital Securities

Full year 2021 net income of $253.9 million, or $4.60 per diluted share

DALLAS, Jan. 20, 2022 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI) (the “Company”), the parent company of Texas Capital Bank, today reported results for the fourth quarter and full year of 2021.

Net income was $65.1 million, or $1.19 per diluted share, for the fourth quarter of 2021, compared to $43.4 million, or $0.76 per diluted share, for the third quarter of 2021 and $60.2 million, or $1.14 per diluted share, for the fourth quarter of 2020. Full year 2021 net income was $253.9 million, or $4.60 per diluted share, compared to $66.3 million, or $1.12 per diluted share, for full year 2020.

“This quarter’s results conclude a year full of new initiatives and accomplishments designed to best position the Company for yet another important year ahead,” said Rob C. Holmes, President and CEO. “Our entire team is poised to continue delivering on our goals outlined in September. With our organizational discipline improving and financial results trending favorably, I am confident we will continue realizing progress towards our vision of becoming the flagship financial services firm headquartered in Texas.”

FINANCIAL RESULTS
(dollars and shares in thousands)
	4th Quarter				3rd Quarter				4th Quarter				Full Year				Full Year
	2021				2021				2020				2021				2020
OPERATING RESULTS
Net income	$	65,130			$	43,390			$	60,176			$	253,939			$	66,289
Net income available to common stockholders	$	60,817			$	39,078			$	57,739			$	235,218			$	56,539
Diluted earnings per common share	$	1.19			$	0.76			$	1.14			$	4.60			$	1.12
Diluted common shares		51,208				51,140				50,794				51,141				50,583
Return on average assets		0.69	%			0.47	%			0.61	%			0.67	%			0.18	%
Return on average common equity		8.36	%			5.41	%			8.50	%			8.35	%			2.10	%
BALANCE SHEET
Loans held for investment (“LHI”)	$	15,331,457			$	15,221,404			$	15,351,451
LHI, mortgage finance		7,475,497				8,528,313				9,079,409
Total LHI		22,806,954				23,749,717				24,430,860
Loans held for sale (“LHS”)		8,123				9,660				283,165
Total assets		34,731,738				36,404,320				37,726,096
Demand deposits		13,390,370				14,970,462				12,740,947
Total deposits		28,109,365				29,813,668				30,996,589
Stockholders’ equity		3,209,616				3,147,752				2,871,224

FOURTH QUARTER 2021 COMPARED TO THIRD QUARTER 2021

For the fourth quarter of 2021, net income was $65.1 million, or $1.19 per diluted share, compared to $43.4 million, or $0.76 per diluted share, for the third quarter of 2021.

We recorded a $10.0 million negative provision for credit losses for the fourth quarter of 2021, compared to a $5.0 million provision for credit losses for the third quarter of 2021, resulting primarily from a decrease in criticized loans.

Net interest income was $194.0 million for the fourth quarter of 2021, compared to $190.5 million for the third quarter of 2021. The increase in net interest income was primarily driven by increases in LHI and investment securities yields. Net interest margin for the fourth quarter of 2021 was 2.12%, an increase of 1 basis point from the third quarter of 2021. LHI, excluding mortgage finance, yields increased 5 basis points from the third quarter of 2021 and LHI, mortgage finance yields decreased 2 basis points from the third quarter of 2021. Total cost of deposits of 0.19% for the fourth quarter of 2021 remained unchanged as compared to the third quarter of 2021.

Non-interest income for the fourth quarter of 2021 increased $6.7 million, or 27%, compared to the third quarter of 2021. The increase was primarily related to increases in investment banking and trading income, resulting from an increase in loan syndication fees, and other non-interest income. The increase in other non-interest income resulted from a one-time gain recognized in the fourth quarter of 2021 on the sale of a foreclosed asset.

Non-interest expense for the fourth quarter of 2021 decreased $6.3 million, or 4%, compared to the third quarter of 2021. The decrease was primarily due to decreases in communications and technology expense and servicing-related expenses, partially offset by less significant broad-based increases across all remaining non-interest expense categories. These broad-based increases were as expected and in support of our long-term strategy. The decrease in communications and technology expense resulted from a $12.0 million write-off of certain software assets in the third quarter of 2021. The decline in servicing-related expenses resulted primarily from the sale of our mortgage servicing rights (“MSR”) portfolio and transition of the mortgage correspondent aggregation (“MCA”) program to a third party earlier in 2021.

FOURTH QUARTER 2021 COMPARED TO FOURTH QUARTER 2020

Net income was $65.1 million, or $1.19 per diluted share, for the fourth quarter of 2021, compared to $60.2 million, or $1.14 per diluted share, for the fourth quarter of 2020.

The fourth quarter of 2021 included a $10.0 million negative provision for credit losses, compared to a $32.0 million provision for credit losses for the fourth quarter of 2020. The decrease resulted primarily from improvements in the economic outlook as the economy recovered from the impacts of the COVID-19 pandemic during 2021 and a decrease in criticized loans.

Net interest income decreased to $194.0 million for the fourth quarter of 2021, compared to $213.2 million for the fourth quarter of 2020, primarily due to declines in total average loans and LHI yields, partially offset by decreases in average interest-bearing deposits and cost of deposits. Net interest margin decreased 10 basis points to 2.12% for the fourth quarter of 2021, as compared to the fourth quarter of 2020. LHI, excluding mortgage finance loans, yields decreased 8 basis point compared to the fourth quarter of 2020 and LHI, mortgage finance yields decreased 38 basis points compared to the fourth quarter of 2020. Total cost of deposits decreased 10 basis points compared to the fourth quarter of 2020.

Non-interest income for the fourth quarter of 2021 decreased $21.2 million, or 40%, compared to the fourth quarter of 2020, as net gain/(loss) on sale of LHS, brokered loan fees and servicing income all decreased as a result of the MSR sale and MCA program transition earlier in 2021.

Non-interest expense for the fourth quarter of 2021 decreased $4.2 million, or 3%, compared to the fourth quarter of 2020. The decrease was primarily due to a decrease in servicing-related expenses, resulting from the MSR sale and MCA program transition earlier in 2021, partially offset by an increase in salaries and employee benefits.

CREDIT QUALITY

We recorded $1.0 million in net charge-offs during the fourth quarter of 2021, compared to $3.1 million during the third quarter of 2021 and $65.4 million during the fourth quarter of 2020. Criticized loans totaled $582.9 million at December 31, 2021, compared to $728.9 million at September 30, 2021 and $918.4 million at December 31, 2020. LHI non-performing assets (“LHI NPAs”) totaled $72.5 million at December 31, 2021, compared to $87.5 million at September 30, 2021 and $122.0 million at December 31, 2020. The ratio of LHI NPAs to total LHI for the fourth quarter of 2021 was 0.32%, compared to 0.37% for the third quarter of 2021 and 0.50% for the fourth quarter of 2020.

CAPITAL RATIOS

All regulatory ratios continue to be in excess of “well-capitalized” requirements as of December 31, 2021. Our CET 1, tier 1 capital, total capital and leverage ratios were 11.1%, 12.6%, 15.3% and 9.0%, respectively, at December 31, 2021, compared to 10.7%, 12.2%, 14.9% and 9.0%, respectively, at September 30, 2021, and 9.4%, 10.3%, 12.1% and 7.5%, respectively, at December 31, 2020. At December 31, 2021, our ratio of tangible common equity to total tangible assets was 8.3% compared to 7.8% at September 30, 2021 and 7.2% at December 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 (the “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 and pursuant to the Private Securities Litigation Reform Act of 1995 regarding, among other things, our financial condition, results of operations, business plans and future performance. These statements are not historical in nature and may often be identified by the use of words such as “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “should,” “projects,” “targeted,” “continue,” “become,” “intend” and similar expressions.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent and various uncertainties, risks, and changes in circumstances that are difficult to predict, may change over time, are based on management’s expectations and assumptions at the time the statements are made and are not guarantees of future results. 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) deterioration of the credit quality of our loan portfolio or declines in the value of collateral due to external factors or otherwise, (2) the unpredictability of economic and business conditions that may impact us or our customers, (3) the COVID-19 pandemic on us and our customers, employees and third-party service providers, (4) our ability to effectively manage our liquidity risk and any growth plans and the availability of capital and funding to us, (5) our ability to effectively manage our information technology systems, (6) the costs and effects of cyber-incidents or other failures, disruptions or security breaches of our systems or those of our third-party providers, (7) changes in interest rates, (8) changes in the method of determining the London Interbank Offered Rate, or LIBOR, or the replacement of LIBOR with an alternative reference rate, (9) adverse or unexpected economic or market conditions and other factors in Texas, the United States or internationally, (10) the concentration of our business in Texas and with the energy industry, (11) the failure to effectively balance our funding sources with cash demands by depositors and borrowers, the failure to maintain capital ratio as a result of adverse changes in our operating performance or financial condition or changes in applicable regulations or interpretations of regulations that impact our business or the characterization or risk weight of our assets, (12) material failures of our accounting estimates and risk management processes based on management judgment or the supporting assumptions or models, (13) the failure to effectively manage our interest rate risk, (14) the failure of our enterprise risk management framework, (15) uncertainty regarding the upcoming transition away from LIBOR, (16) our ability to comply with applicable governmental regulations, (17) risks related to U.S. federal government actions impacting us, (18) claims and litigation that may arise in the ordinary course of business, (19) the failure to successfully execute our business strategy, (20) the failure to identify, attract and retain key personnel, (21) increased or more competition from banks and other financial service providers in our markets, (22) the susceptibility of fraud on our business, (23) the failure to maintain adequate regulatory capital to support our business, (24) environmental liability associated with properties related to our lending activities, (25) severe weather, natural disasters, acts of war or terrorism and other external events and (26) risks relating to our securities.

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
	2021				2021				2021				2021				2020
CONSOLIDATED STATEMENTS OF INCOME
Interest income(1)	$	219,892			$	216,589			$	216,953			$	223,151			$	245,348
Interest expense		25,860				26,053				27,496				28,339				32,153
Net interest income		194,032				190,536				189,457				194,812				213,195
Provision for credit losses		(10,000	)			5,000				(19,000	)			(6,000	)			32,000
Net interest income after provision for credit losses		204,032				185,536				208,457				200,812				181,195
Non-interest income(1)		31,459				24,779				37,639				44,353				52,678
Non-interest expense		146,649				152,987				149,060				150,316				150,863
Income before income taxes		88,842				57,328				97,036				94,849				83,010
Income tax expense		23,712				13,938				23,555				22,911				22,834
Net income		65,130				43,390				73,481				71,938				60,176
Preferred stock dividends		4,313				4,312				6,317				3,779				2,437
Net income available to common stockholders	$	60,817			$	39,078			$	67,164			$	68,159			$	57,739
Diluted earnings per common share	$	1.19			$	0.76			$	1.31			$	1.33			$	1.14
Diluted common shares		51,208,161				51,139,555				51,093,660				51,069,511				50,794,421
CONSOLIDATED BALANCE SHEET DATA
Total assets	$	34,731,738			$	36,404,320			$	35,228,542			$	40,054,433			$	37,726,096
LHI		15,331,457				15,221,404				15,168,565				15,399,174				15,351,451
LHI, mortgage finance		7,475,497				8,528,313				8,772,799				9,009,081				9,079,409
LHS		8,123				9,660				63,747				176,286				283,165
Interest-bearing deposits in other banks		7,765,996				8,317,926				6,768,650				11,212,276				9,032,807
Investment securities		3,583,808				3,663,874				3,798,275				3,443,058				3,196,970
Demand deposits		13,390,370				14,970,462				14,228,038				15,174,642				12,740,947
Total deposits		28,109,365				29,813,668				28,839,563				33,391,970				30,996,589
Other borrowings		2,202,832				2,203,470				2,014,481				2,515,587				3,111,751
Long-term debt		928,738				928,062				927,386				664,968				395,896
Stockholders’ equity		3,209,616				3,147,752				3,114,957				3,159,482				2,871,224
End of period shares outstanding		50,618,494				50,605,626				50,592,201				50,557,767				50,470,450
Book value	$	57.48			$	56.27			$	55.64			$	53.59			$	53.92
Tangible book value(2)	$	57.14			$	55.93			$	55.29			$	53.24			$	53.57
SELECTED FINANCIAL RATIOS
Net interest margin		2.12	%			2.11	%			2.02	%			2.04	%			2.22	%
Return on average assets		0.69	%			0.47	%			0.76	%			0.73	%			0.61	%
Return on average common equity		8.36	%			5.41	%			9.74	%			10.08	%			8.50	%
Non-interest income to average earning assets		0.34	%			0.27	%			0.40	%			0.46	%			0.55	%
Efficiency ratio(3)		65.0	%			71.1	%			65.6	%			62.9	%			56.7	%
Non-interest expense to average earning assets		1.60	%			1.69	%			1.59	%			1.57	%			1.56	%
Tangible common equity to total tangible assets(4)		8.3	%			7.8	%			7.9	%			6.7	%			7.2	%
Common Equity Tier 1		11.1	%			10.7	%			10.5	%			10.2	%			9.4	%
Tier 1 capital		12.6	%			12.2	%			12.1	%			12.2	%			10.3	%
Total capital		15.3	%			14.9	%			14.8	%			14.0	%			12.1	%
Leverage		9.0	%			9.0	%			8.4	%			8.3	%			7.5	%

(1) In the fourth quarter of 2021 and in connection with our approval from the Financial Industry Regulatory Authority to conduct securities transactions and business with the investing public, we established a policy regarding the accounting for loan syndication fees and reclassified these fees from interest and fees on loans in interest income to investment banking and trading income in non-interest income for all periods presented. Please see our forthcoming Annual Report on Form 10-K for additional details when it is filed with the U.S. Securities and Exchange Commission.
(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) Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by total assets, less goodwill and intangibles.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
	December 31, 2021				December 31, 2020				% Change
Assets
Cash and due from banks	$	180,663			$	173,573			4	%
Interest-bearing deposits in other banks		7,765,996				9,032,807			(14	)%
Investment securities		3,583,808				3,196,970			12	%
LHS ($8.1 million and $239.1 million at December 31, 2021 and 2020, respectively, at fair value)		8,123				283,165			(97	)%
LHI, mortgage finance		7,475,497				9,079,409			(18	)%
LHI (net of unearned income)		15,331,457				15,351,451			—	%
Less: Allowance for credit losses on loans		211,866				254,615			(17	)%
LHI, net		22,595,088				24,176,245			(7	)%
Mortgage servicing rights, net		—				105,424			(100	)%
Premises and equipment, net		20,901				24,546			(15	)%
Accrued interest receivable and other assets		559,897				715,699			(22	)%
Goodwill and intangibles, net		17,262				17,667			(2	)%
Total assets	$	34,731,738			$	37,726,096			(8	)%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	13,390,370			$	12,740,947			5	%
Interest bearing		14,718,995				18,255,642			(19	)%
Total deposits		28,109,365				30,996,589			(9	)%
Accrued interest payable		7,699				11,150			(31	)%
Other liabilities		273,488				339,486			(19	)%
Federal funds purchased and repurchase agreements		2,832				111,751			(97	)%
Other borrowings		2,200,000				3,000,000			(27	)%
Long-term debt		928,738				395,896			135	%
Total liabilities		31,522,122				34,854,872			(10	)%
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 and 6,000,000 shares issued at December 31, 2021 and 2020, respectively		300,000				150,000			100	%
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,618,911 and 50,470,867 at December 31, 2021 and 2020, respectively		506				504			—	%
Additional paid-in capital		1,008,559				991,898			2	%
Retained earnings		1,948,274				1,713,056			14	%
Treasury stock (shares at cost: 417 at December 31, 2021 and 2020)		(8	)			(8	)		—	%
Accumulated other comprehensive income/(loss), net of taxes		(47,715	)			15,774			N/M
Total stockholders’ equity		3,209,616				2,871,224			12	%
Total liabilities and stockholders’ equity	$	34,731,738			$	37,726,096			(8	)%

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands except per share data)
	Three Months Ended December 31,								Twelve Months Ended December 31,
	2021				2020				2021				2020
Interest income
Interest and fees on loans(1)	$	204,379			$	232,961			$	820,532			$	993,670
Investment securities		11,780				9,594				42,820				17,475
Federal funds sold		—				1				1				693
Interest-bearing deposits in other banks		3,733				2,792				13,232				27,569
Total interest income		219,892				245,348				876,585				1,039,407
Interest expense
Deposits		14,513				23,819				65,507				146,117
Federal funds purchased		—				110				131				1,083
Other borrowings		771				3,407				4,482				20,923
Long-term debt		10,576				4,817				37,628				19,963
Total interest expense		25,860				32,153				107,748				188,086
Net interest income		194,032				213,195				768,837				851,321
Provision for credit losses		(10,000	)			32,000				(30,000	)			258,000
Net interest income after provision for credit losses		204,032				181,195				798,837				593,321
Non-interest income
Service charges on deposit accounts		4,702				3,004				18,674				11,620
Wealth management and trust fee income		3,793				2,681				13,173				9,998
Brokered loan fees		5,678				12,610				27,954				46,423
Servicing income		277				8,834				15,513				27,029
Investment banking and trading income(1)		6,456				10,288				24,441				22,687
Net gain/(loss) on sale of LHS		—				6,761				1,317				58,026
Other		10,553				8,500				37,158				27,198
Total non-interest income		31,459				52,678				138,230				202,981
Non-interest expense
Salaries and employee benefits		89,075				78,449				350,930				340,529
Net occupancy expense		8,769				8,373				33,232				34,955
Marketing		4,286				3,435				10,006				23,581
Legal and professional		12,673				12,129				41,152				52,132
Communications and technology		16,490				15,405				75,185				103,054
FDIC insurance assessment		4,688				6,592				21,027				25,955
Servicing-related expenses		25				15,844				27,765				64,585
Merger-related expenses		—				—				—				17,756
Other		10,643				10,636				39,715				41,809
Total non-interest expense		146,649				150,863				599,012				704,356
Income before income taxes		88,842				83,010				338,055				91,946
Income tax expense		23,712				22,834				84,116				25,657
Net income		65,130				60,176				253,939				66,289
Preferred stock dividends		4,313				2,437				18,721				9,750
Net income available to common stockholders	$	60,817			$	57,739			$	235,218			$	56,539
Basic earnings per common share	$	1.20			$	1.14			$	4.65			$	1.12
Diluted earnings per common share	$	1.19			$	1.14			$	4.60			$	1.12

(1) In the fourth quarter of 2021 and in connection with our approval from the Financial Industry Regulatory Authority to conduct securities transactions and business with the investing public, we established a policy regarding the accounting for loan syndication fees and reclassified these fees from interest and fees on loans in interest income to investment banking and trading income in non-interest income for all periods presented. Please see our forthcoming Annual Report on Form 10-K for additional details when it is filed with the U.S. Securities and Exchange Commission.

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF CREDIT LOSS EXPERIENCE
(dollars in thousands)
	4th Quarter				3rd Quarter				2nd Quarter				1st Quarter				4th Quarter
	2021				2021				2021				2021				2020
Allowance for credit losses on loans:
Beginning balance	$	221,957			$	221,511			$	242,484			$	254,615			$	290,165
Loans charged-off:
Commercial		3,776				4,348				1,412				2,451				37,984
Energy		—				—				686				5,732				33,283
Real estate		—				—				1,192				—				180
Total charge-offs		3,776				4,348			3,290