TCBI - 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.”

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.

(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.

(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.

(1) Interim period ratios are annualized.

(1) At December 31, 2021, loans past due 90 days and still accruing included premium finance loans of $3.3 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 one non-accrual loan previously reported in loans HFI that was transferred to loans HFS as of December 31, 2020 and subsequently sold at carrying value.
(3) 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. The first quarter of 2021 and fourth quarter of 2020 also include 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.