Texas Capital Bancshares, Inc. — Q1 2024 Form 10-Q
Business context and period: Texas Capital Bancshares, Inc. is the holding company for Texas Capital Bank, a commercial bank serving businesses, entrepreneurs and individuals. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Balance-sheet comparisons are with December 31, 2023. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2024 | Comparable / change |
|---|---|---|
| Net interest income | $215.0 million | $235.3 million; down 8.6% |
| Net interest margin | 3.03% | 3.33% |
| Non-interest income | $41.3 million | $37.4 million |
| Non-interest expense | $202.4 million | $194.0 million |
| Net income | $26.1 million | $38.7 million |
| Net income available to common stockholders | $21.8 million | $34.3 million |
| Diluted EPS | $0.46 | $0.70 |
| Efficiency ratio | 79.0% | 71.1% |
| ROA / ROE | 0.36% / 3.03% | 0.53% / 5.06% |
| Operating cash flow | $95.8 million | $18.2 million |
Balance sheet, funding and credit
- Total assets were $29.2 billion, up $824 million from year-end 2023. Loans held for investment were $20.8 billion, up $490 million; growth was reported in mortgage finance, commercial real estate and consumer lending, while commercial loans declined slightly.
- Deposits rose $1.58 billion to $24.0 billion. Customer deposits were 97.5% of total deposits; brokered deposits were 2.5%. Estimated uninsured deposits were 42% of total deposits.
- Cash and cash equivalents were $3.32 billion. Short-term borrowings fell by $750 million to $750 million, all from FHLB borrowings. Long-term debt was $859.8 million, including $200 million of bank-issued credit-linked notes due in 2024.
- Available borrowing capacity included $8.27 billion from the FHLB, $1.16 billion in unused federal funds lines and $4.31 billion of unused Federal Reserve capacity. These facilities are subject to terms, collateral and availability.
- The allowance for credit losses on loans was $264.0 million, or 1.27% of loans held for investment. Criticized loans increased to $859.5 million from $738.2 million at year-end. Non-accrual loans held for investment were $92.8 million versus $81.4 million; total non-performing assets were $102.1 million.
- Net charge-offs were $10.8 million, down from $19.9 million in Q1 2023. The income statement reports a $19.0 million total provision for credit losses; the notes show a $24.8 million loan provision partly offset by a $5.8 million release in the off-balance-sheet credit-loss reserve.
- Regulatory capital ratios remained above well-capitalized thresholds: company CET1 was 12.38% and total capital 16.64%; bank CET1 was 13.84% and total capital 15.13%.
Material changes and management commentary
- Management attributed lower net income mainly to reduced net interest income and higher non-interest expense, partly offset by lower provision expense and higher non-interest income.
- Funding costs pressured results: the average cost of interest-bearing deposits rose to 4.67% from 3.63%, while total deposit cost rose to 2.97% from 2.06%. Higher asset yields partly offset the funding-cost impact; loan yield increased to 6.70% from 6.46%.
- Non-interest income increased by $3.9 million, primarily due to higher investment banking and advisory fees. Non-interest expense increased by $8.4 million, including a $5.0 million legal settlement expense and a $3.0 million FDIC special assessment; lower marketing costs partly offset increases.
- Other comprehensive loss was $17.9 million, compared with $44.2 million of comprehensive income in Q1 2023. Available-for-sale securities had $368.0 million of gross unrealized losses at quarter-end; management attributed these primarily to interest-rate changes and said it did not intend, and did not expect to be required, to sell the securities before recovery.
- Cash flow from investing activities was negative $810.0 million, mainly reflecting purchases of available-for-sale securities and loan activity. Financing cash flow was positive $787.4 million, including deposit growth and lower short-term borrowings.
Outlook, risks and unusual items
- The filing provides no specific earnings, revenue or margin guidance. Management cautions that interim results are not necessarily indicative of full-year or future results.
- Interest-rate simulations estimate annualized net interest income would rise 2.8% under an immediate 200-basis-point increase and fall 9.2% under a 200-basis-point decrease. These are model estimates, not forecasts, and depend on assumptions about repricing, deposits and customer behavior.
- Management estimates that an additional $58.1 million related to active and terminated cash-flow hedges will be reclassified from accumulated other comprehensive loss as a reduction to interest income over the next 12 months.
- Risks highlighted include credit deterioration, Texas economic and real-estate conditions, interest-rate and funding-cost changes, liquidity and capital management, regulatory requirements, cybersecurity and operational disruption, competition, and litigation or regulatory actions. The filing reports no material change to previously disclosed risk factors.
- A new $150 million share repurchase authorization runs through January 31, 2025. The company repurchased 529,338 shares for $31.5 million, at a weighted-average $59.27, during Q1. No common-stock dividend was declared or paid.
- Management does not expect ordinary-course legal proceedings to have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize enough to support net interest margin and earnings.
- Trends in criticized and non-accrual loans, commercial real estate exposure, charge-offs and the adequacy of the credit-loss allowance.
- Liquidity and deposit composition, including uninsured deposits, borrowing availability and the 2024 maturity of $200 million in credit-linked notes.
- The effects of unrealized securities losses and expected hedge-related reductions to interest income.
- The impact of the legal settlement, FDIC assessment and ongoing share repurchases on future expenses and capital.