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 SUMMARYDETAILED 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 StatementsThis 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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