Texas Capital Bancshares, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; the filing also reports fourth-quarter results. Texas Capital is a Texas-focused commercial bank holding company. In November 2022, it completed the sale of BankDirect Capital Finance (BDCF), its insurance premium finance subsidiary.
Key financial results
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $875.8 million | $768.8 million |
| Provision for credit losses | $66.0 million expense | $30.0 million benefit |
| Non-interest income | $349.5 million | $138.2 million |
| Non-interest expense | $727.5 million | $599.0 million |
| Net income | $332.5 million | $253.9 million |
| Net income available to common shareholders | $315.2 million | $235.2 million |
| Diluted earnings per share | $6.18 | $4.60 |
| Net interest margin | 2.79% | 2.07% |
| Return on average assets / common equity | 1.04% / 11.33% | 0.67% / 8.35% |
| Efficiency ratio | 59.4% | 66.0% |
Fourth-quarter 2022 net income was $217.3 million and diluted EPS was $4.23. The quarter included most of the BDCF disposal gain: non-interest income was $277.7 million, including a $248.5 million pre-tax gain. The filing does not provide a clearly stated adjusted or recurring earnings figure excluding that gain.
Financial position, liquidity and credit
- At year-end, total assets were $28.4 billion, down from $34.7 billion; deposits were $22.9 billion, down from $28.1 billion; and net loans held for investment were $19.0 billion, down from $22.6 billion.
- Year-end cash and cash equivalents totaled $5.0 billion. Short-term borrowings were $1.2 billion and long-term debt was $931.4 million. Reported unused borrowing capacity included $6.16 billion at the FHLB, $3.57 billion from the Federal Reserve and $1.48 billion on federal funds lines; these are separate disclosed sources, not a stated combined liquidity total.
- Estimated uninsured deposits were $13.6 billion, or 59% of deposits, versus $16.1 billion, or 56%, a year earlier.
- Gross loans held for investment were $19.35 billion, down $3.52 billion. The reduction reflected the BDCF portfolio sale and lower mortgage finance balances; the company said loan categories other than mortgage finance grew excluding the BDCF sale.
- Non-accrual loans were $48.3 million, or 0.25% of loans, versus $72.5 million, or 0.32%. The allowance for loan losses was $253.5 million, or 1.31% of loans, versus $211.9 million, or 0.93%. Net charge-offs rose to $19.9 million from $12.9 million.
- The Bank’s year-end CET1, total risk-based capital and leverage ratios were 13.95%, 16.32% and 11.48%, respectively; each exceeded the disclosed well-capitalized threshold.
- Operating cash flow was $148.0 million. Investing activities provided $3.31 billion, including $3.32 billion of BDCF sale proceeds; financing activities used $6.39 billion, and cash and cash equivalents declined $2.93 billion during the year.
Material changes and unusual items
- BDCF was sold for an all-cash purchase price of $3.4 billion, including a portfolio of approximately $3.1 billion in loans, producing a $248.5 million pre-tax gain. The sale was not reported as discontinued operations.
- Net interest margin improved as higher asset yields from rising rates more than offset higher funding costs. Average deposit cost increased to 0.74% from 0.21%; average earning assets and average deposits declined.
- Higher salaries, marketing, legal and professional costs contributed to the $128.5 million increase in non-interest expense. 2022 expenses included $13.7 million in salaries and $15.9 million in legal and professional costs related to the BDCF sale.
- Accumulated other comprehensive loss widened to $418.9 million from $47.7 million, primarily reflecting unrealized securities and hedge losses. Management attributed available-for-sale securities losses mainly to interest-rate changes, not credit deterioration. The company transferred $1.0 billion of securities from available-for-sale to held-to-maturity during 2022.
- The company repurchased 2.08 million shares for $115.3 million in 2022. It authorized a further $150 million repurchase program in January 2023. It does not currently pay common dividends and said it does not expect to do so in the foreseeable future.
Outlook, commentary and risks
Management described 2022 as a year of strategic alignment, emphasizing a client-focused operating model, expense realignment, technology investment, expanded coverage and services, and financial resilience. The filing provides no specific earnings or revenue guidance. Management said it was not aware of events reasonably likely to materially adversely affect liquidity, capital resources or operations, or of material regulatory liquidity recommendations.
Key risks include commercial and real estate credit exposure; Texas and energy-related concentration; competition for deposits and rising funding costs; the high share of uninsured deposits; interest-rate and securities valuation volatility; execution of the post-sale strategy; cyber, vendor and operational risks; and regulatory requirements. Management’s allowance sensitivity analysis estimated that the modeled allowance would be approximately $118 million higher under sole use of its most severe downside economic scenario; this sensitivity excludes qualitative overlays and is not a forecast. The company also disclosed significant but declining LIBOR exposure, including instruments extending beyond June 30, 2023, and said it was continuing the transition to alternative rates.
The company reported that pending litigation was not expected by management to have a material adverse impact. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded that disclosure controls were effective.
Important facts for investors to verify
- How much of 2022 earnings and fourth-quarter EPS reflects the one-time BDCF gain, and what post-sale earnings base management expects.
- Deposit trends, uninsured-deposit concentration and liquidity availability, including the usability and collateral requirements of borrowing facilities.
- Credit trends in commercial, commercial real estate and energy portfolios, including criticized loans, charge-offs, reserve adequacy and the sensitivity of construction lending.
- The impact of rising deposit costs, interest-rate movements, securities valuation losses and cash-flow hedge reclassifications on future net interest income and capital.
- Execution and timing of the strategic realignment, expense changes and newly authorized share repurchases, subject to capital and regulatory constraints.