Texas Capital Bancshares, Inc. — FY 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, with comparisons primarily to FY 2022. Texas Capital Bancshares is a Texas-based financial holding company; substantially all operations are conducted through Texas Capital Bank. Its business is primarily commercial banking, with mortgage finance, investment banking, wealth management and online banking operations.
Key financial metrics
| Metric | FY 2023 / year-end 2023 | FY 2022 / year-end 2022 |
|---|---|---|
| Net interest income | $914.1 million | $875.8 million |
| Net interest margin | 3.17% | 2.79% |
| Net income | $189.1 million | $332.5 million |
| Net income available to common stockholders | $171.9 million | $315.2 million |
| Diluted earnings per share | $3.54 | $6.18 |
| Return on average assets / common equity | 0.64% / 6.15% | 1.04% / 11.33% |
| Total assets | $28.36 billion | $28.41 billion |
| Total deposits | $22.37 billion | $22.86 billion |
| Loans held for investment, net | $20.09 billion | $19.03 billion |
| Allowance for credit losses on loans | $250.0 million | $253.5 million |
| Cash and cash equivalents | $3.24 billion | $5.01 billion |
| Short-term borrowings / long-term debt | $1.50 billion / $859.1 million | $1.20 billion / $931.4 million |
Performance, changes and financial condition
- Net interest income rose 4.4%, and net interest margin improved 38 basis points, principally as higher market rates lifted loan and cash yields. This was partly offset by higher funding costs: average total deposit cost rose to 2.47% from 0.74%.
- Net income fell 43%. The main comparison factor was a $248.5 million gain from the sale of the premium finance subsidiary recognized in 2022, with no comparable gain in 2023. FY 2023 non-interest income was $161.4 million versus $349.5 million.
- Non-interest expense increased 4.0% to $756.9 million. FDIC assessment expense rose to $36.8 million, including a $19.9 million special assessment; salaries and technology costs also increased. The efficiency ratio deteriorated to 70.4% from 59.4%.
- Operating cash flow was $373.7 million; investing cash outflow was $1.76 billion and financing cash outflow was $387.7 million. Cash and cash equivalents declined $1.77 billion during the year.
- Period-end deposits decreased 2.1%. Estimated uninsured deposits declined to $9.7 billion, or 43% of deposits, from $12.4 billion, or 54%. Customer deposits were 95.9% of period-end deposits; brokered deposits were 4.1%.
- Loan balances grew 5.5%. Commercial real estate loans increased to $5.50 billion, while mortgage finance loans were $3.98 billion. Approximately 59% of CRE collateral was in Texas; office loans represented 8.2% of the CRE portfolio.
- Credit indicators weakened: non-accrual loans rose to $81.4 million from $48.3 million; criticized loans increased to $738.2 million from $513.2 million; and net charge-offs increased to $50.9 million from $19.9 million. The allowance for credit losses on loans was 1.23% of loans, versus 1.31%.
- Regulatory capital remained above well-capitalized thresholds. At year-end, company CET1 and total capital ratios were 12.65% and 17.07%; bank ratios were 14.01% and 15.41%, respectively.
- Available-for-sale securities had $347.1 million of unrealized losses at year-end; held-to-maturity securities had a $101.6 million fair-value shortfall to amortized cost. Accumulated other comprehensive loss improved to $362.0 million from $418.9 million.
Outlook, commentary, risks and unusual items
- Management reported that liquidity and the balance sheet remained robust despite banking-sector volatility, and described capital as historically high. The filing provides no specific earnings, revenue, margin or balance-sheet guidance.
- Management highlighted proactive client outreach and enhanced review of borrowing and liquidity positions in response to 2023 bank failures and industry concerns.
- Interest-rate sensitivity modeling estimated next-12-month net interest income would change by +3.2% under a 200-basis-point increase and −9.1% under a 200-basis-point decrease. These are model results, not forecasts, and depend on assumptions about deposit pricing, prepayments and customer behavior.
- Material risks include commercial credit and real estate exposure, Texas economic concentration, deposit volatility and uninsured deposits, funding costs, interest-rate and securities valuation risk, regulatory changes, cybersecurity and third-party/vendor risk. The company noted that past cyber incidents had not materially affected it, while warning that future incidents could.
- The ACL model was revised during Q2 2023, including more granular loss estimates and revised allocation between loan and off-balance-sheet reserves. Management estimated that the model’s quantitative allowance would be about $220.4 million higher under the most severe downside scenario alone; this sensitivity excludes qualitative adjustments and is not a forecast of required reserves.
- The company repurchased 1.82 million shares for an aggregate $105.0 million including excise tax. A new authorization of up to $150 million was approved in January 2024. The company has not paid common dividends and reported no plans to do so in the foreseeable future.
- Management did not expect the disposition of pending legal matters to materially adversely affect the financial statements or results. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether rising criticized, non-accrual and charge-off measures persist, and how CRE and commercial exposures perform.
- Deposit stability, uninsured-deposit concentration, funding mix and the cost of deposits relative to asset yields.
- Liquidity capacity under stress, including availability and terms of FHLB, Federal Reserve and other borrowing sources.
- Realized or potential effects of securities marks, AOCI and interest-rate movements on earnings and capital.
- Allowance adequacy and the effects of the revised CECL model, forecast assumptions and qualitative overlays.
- Execution of repurchases and capital plans, while maintaining regulatory capital and liquidity buffers.