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Texas Capital Bancshares, Inc. Announces Operating Results for Q2 2018

July 18, 2018 4:03 PM

DALLAS, July 18, 2018 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced earnings and operating results for the second quarter of 2018.

“We are pleased with our continued strong operating results in the second quarter, including solid growth in traditional LHI and mortgage finance balances," said Keith Cargill, CEO. "We are highly focused on credit quality, as well as driving efficiencies and improving client experience to position us for long-term success."

FINANCIAL SUMMARY(dollars and shares in thousands)

Q2 2018 Q2 2017 % Change
QUARTERLY OPERATING RESULTS
Net income$71,436 $51,095 40%
Net income available to common stockholders$68,999 $48,658 42%
Diluted EPS$1.38 $0.97 42%
Diluted shares50,096 50,230 —%
ROA1.16% 0.96%
ROE12.72% 10.08%
BALANCE SHEET
Loans held for sale (LHS), MCA$1,275,466 $843,164 51%
LHI, mortgage finance5,923,058 5,183,600 14%
LHI16,536,721 14,280,353 16%
Total LHI22,459,779 19,463,953 15%
Total loans23,736,547 20,309,970 17%
Total assets27,781,910 23,119,713 20%
Demand deposits7,648,125 8,174,830 (6)%
Total deposits20,334,871 17,292,223 18%
Stockholders’ equity2,343,530 2,100,553 12%

DETAILED FINANCIALS

Texas Capital Bancshares, Inc. reported net income of $71.4 million and net income available to common stockholders of $69.0 million for the quarter ended June 30, 2018 compared to net income of $51.1 million and net income available to common stockholders of $48.7 million for the same period in 2017. On a fully diluted basis, earnings per common share were $1.38 for the quarter ended June 30, 2018 compared to $0.97 for the same period of 2017. The increase reflects a $20.3 million year-over-year increase in net income caused by an increase in net interest income for the second quarter of 2018 compared to the second quarter of 2017 and a decrease in income tax rates as a result of the Tax Cuts and Jobs Act which became effective on January 1, 2018, offset by an increase in the provision for credit losses and non-interest expense.

Return on average common equity (“ROE”) was 12.72 percent and return on average assets (“ROA”) was 1.16 percent for the second quarter of 2018, compared to 13.39 percent and 1.22 percent, respectively, for the first quarter of 2018 and 10.08 percent and 0.96 percent, respectively, for the second quarter of 2017. The linked quarter decreases in ROE and ROA resulted primarily from increases in the provision for credit losses.

Net interest income was $231.7 million for the second quarter of 2018, compared to $210.3 million for the first quarter of 2018 and $183.0 million for the second quarter of 2017. The linked quarter and year-over-year increases in net interest income were primarily due to increases in total mortgage finance loans (including MCA) and traditional LHI loans, improved earning asset composition and the effect of increases in interest rates on loan yields attributable to our asset-sensitive balance sheet. Net interest margin for the second quarter of 2018 was 3.93 percent, an increase of 22 basis points from the first quarter of 2018 and an increase of 36 basis points from the second quarter of 2017. We experienced significant improvement in traditional LHI yields, reporting a 33 basis point increase for the second quarter of 2018 compared to the first quarter of 2018 and a 75 basis point increase compared to the second quarter of 2017. In contrast, total cost of deposits for the second quarter of 2018 was up only 15 basis points to 0.81 percent compared to 0.66 percent for the first quarter of 2018, and was up 43 basis points from 0.38 percent for the second quarter of 2017.

Average LHI, excluding mortgage finance loans, for the second quarter of 2018 were $15.9 billion, an increase of $458.0 million, or 3 percent, from the first quarter of 2018 and an increase of $2.2 billion, or 16 percent, from the second quarter of 2017. Average total mortgage finance loans for the second quarter of 2018 were $6.4 billion, an increase of $1.1 billion, or 21 percent, from the first quarter of 2018 and an increase of $1.8 billion, or 38 percent, from the second quarter of 2017. Total mortgage finance volumes for the second quarter of 2018 showed increases in average balances from the seasonal lower volumes in the first quarter of 2018.

Average total deposits for the second quarter of 2018 increased $242.8 million from the first quarter of 2018 and increased $2.4 billion from the second quarter of 2017. Average demand deposits for the second quarter of 2018 decreased $130.1 million, or 2 percent, to $8.0 billion from $8.1 billion during the first quarter of 2018, and increased $154.2 million, or 2 percent, from the second quarter of 2017.

We recorded a $27.0 million provision for credit losses for the second quarter of 2018 compared to $12.0 million for the first quarter of 2018 and $13.0 million for the second quarter of 2017. The provision for the second quarter of 2018 was driven by the consistent application of our methodology. The linked-quarter increase was primarily related to traditional LHI growth, as well as credit deterioration in four loans, all of which were identified as non-accrual as of March 31, 2018. The total allowance for credit losses decreased to 1.15 percent of LHI excluding mortgage finance loans at June 30, 2018 compared to 1.27 percent at March 31, 2018 and 1.28 percent at June 30, 2017. In management’s opinion, the allowance is appropriate and is derived from consistent application of the methodology for establishing reserves for the loan portfolio.

We experienced a decrease in non-performing assets ("NPAs") in the second quarter of 2018, decreasing the ratio of total non-performing assets to total LHI plus other real estate owned (“OREO”) to 0.41 percent compared to 0.65 percent for the first quarter of 2018 and 0.73 percent for the second quarter of 2017. Net charge-offs for the second quarter of 2018 were $38.0 million compared to $5.2 million for the first quarter of 2018 and $12.4 million for the second quarter of 2017. The elevated charge-offs for the second quarter of 2018 were primarily related to the four loans referred to above. One of the loans is energy-related, two are leveraged health care and one is general commercial and industrial. For the second quarter of 2018, net charge-offs were 0.73 percent of average total LHI, compared to 0.11 percent for the first quarter of 2018 and 0.28 percent for the same period in 2017. At June 30, 2018, total OREO was $9.5 million compared to $9.6 million at March 31, 2018 and $18.7 million at June 30, 2017. We did not record an OREO valuation allowance during the second quarter of 2018, compared to a valuation allowance of $2.0 million recorded during the first quarter of 2018.

Non-interest income decreased $1.5 million, or 8 percent, during the second quarter of 2018 compared to the same period of 2017, and decreased $2.7 million, or 13 percent, compared to the first quarter of 2018. The year-over-year decrease primarily related to a $3.9 million decrease in other non-interest income attributable to a decrease in gain on sale of MCA loans, offset by a $1.3 million increase in servicing income attributable to an increase in mortgage servicing rights ("MSRs") associated with our MCA program.

Non-interest expense for the second quarter of 2018 increased $20.3 million, or 18 percent, compared to the second quarter of 2017, and increased $5.2 million, or 4 percent, compared to the first quarter of 2018. The year-over-year increase is primarily related to increases in salaries and employee benefits, marketing, legal and professional, FDIC insurance assessment and other non-interest expenses, all of which were attributable to general business growth. Servicing related expenses for the second quarter of 2018 increased $1.7 million compared to the second quarter of 2017 primarily due to an increase in MSRs, which are being amortized. Offsetting these increases was a $4.8 million decrease in communications and technology expense related to a technology write-off taken in the second quarter of 2017. The linked quarter increase in non-interest expense is primarily related to increases in marketing, legal and professional, communications and technology and servicing related expenses, offset by a decrease in allowance and other carrying costs for OREO.

Stockholders’ equity increased by 12 percent from $2.1 billion at June 30, 2017 to $2.3 billion at June 30, 2018, due to retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines and at June 30, 2018, our ratio of tangible common equity to total tangible assets was 7.8 percent.

ABOUT TEXAS CAPITAL BANCSHARES, INC.Texas Capital Bancshares, Inc. (NASDAQ: TCBI), a member of the Russell 1000® 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.

This news release may be deemed to include forward-looking statements which are based on management’s current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and similar expressions. 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 declines and volatility in oil and gas prices, the financial impact of the Tax Cuts and Jobs Act on our results of operations, rates of default or loan losses, volatility in the mortgage industry, the success or failure of our business strategies, future financial performance, future growth and earnings, the appropriateness of our allowance for loan losses and provision for credit losses, the impact of increased regulatory requirements and legislative changes on our business, increased competition, interest rate risk, the success or failure of new lines of business and new product or service offerings and the impact of 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 and in other filings we make with the Securities and Exchange Commission. The information contained in this release speaks only as of its date. We are under no obligation, and expressly disclaim such obligation, to update, alter or revise our forward-looking statements, whether as a result of new information, future events, or otherwise.

TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands except per share data)
2nd Quarter1st Quarter4th Quarter3rd Quarter2nd Quarter
20182018201720172017
CONSOLIDATED STATEMENTS OF INCOME
Interest income$286,852 $253,869 $249,519 $237,643 $208,191
Interest expense55,140 43,569 38,870 33,282 25,232
Net interest income231,712 210,300 210,649 204,361 182,959
Provision for credit losses27,000 12,000 2,000 20,000 13,000
Net interest income after provision for credit losses204,712 198,300 208,649 184,361 169,959
Non-interest income17,279 19,947 19,374 19,003 18,769
Non-interest expense132,131 126,960 133,138 114,830 111,814
Income before income taxes89,860 91,287 94,885 88,534 76,914
Income tax expense18,424 19,342 50,143 29,850 25,819
Net income71,436 71,945 44,742 58,684 51,095
Preferred stock dividends2,437 2,438 2,437 2,438 2,437
Net income available to common stockholders$68,999 $69,507 $42,305 $56,246 $48,658
Diluted EPS$1.38 $1.38 $0.84 $1.12 $0.97
Diluted shares50,096,015 50,353,497 50,311,962 50,250,866 50,229,670
CONSOLIDATED BALANCE SHEET DATA
Total assets$27,781,910 $24,449,147 $25,075,645 $24,400,998 $23,119,713
LHI16,536,721 15,741,772 15,366,252 14,828,406 14,280,353
LHI, mortgage finance5,923,058 4,689,938 5,308,160 5,642,285 5,183,600
LHS1,276,768 1,088,565 1,011,004 955,983 846,017
Liquidity assets(1)3,288,107 2,296,673 2,727,581 2,357,537 2,142,658
Investment securities24,408 24,929 23,511 24,224 119,043
Demand deposits7,648,125 7,413,340 7,812,660 8,263,202 8,174,830
Total deposits20,334,871 18,764,533 19,123,180 19,081,257 17,292,223
Other borrowings4,520,849 2,835,540 3,165,040 2,583,496 3,162,224
Subordinated notes281,586 281,496 281,406 281,315 281,225
Long-term debt113,406 113,406 113,406 113,406 113,406
Stockholders’ equity2,343,530 2,273,429 2,202,721 2,158,363 2,100,553
End of period shares outstanding50,151,064 49,669,774 49,643,344 49,621,825 49,595,252
Book value$43.74 $42.75 $41.35 $40.47 $39.33
Tangible book value(2)$43.36 $42.37 $40.97 $40.09 $38.94
SELECTED FINANCIAL RATIOS
Net interest margin3.93% 3.71% 3.47% 3.59% 3.57%
Return on average assets1.16% 1.22% 0.71% 0.99% 0.96%
Return on average common equity12.72% 13.39% 8.18% 11.20% 10.08%
Non-interest income to average earning assets0.29% 0.35% 0.32% 0.33% 0.36%
Efficiency ratio(3)53.1% 55.1% 57.9% 51.4% 55.4%
Efficiency ratio, excluding OREO write-down(3)53.1% 54.3% 55.2% 51.4% 55.4%
Non-interest expense to average earning assets2.23% 2.23% 2.17% 2.00% 2.17%
Tangible common equity to total tangible assets(4)7.8% 8.6% 8.1% 8.2% 8.4%
Common Equity Tier 18.3% 8.8% 8.5% 8.4% 8.6%
Tier 1 capital9.3% 9.9% 9.5% 9.4% 9.8%
Total capital11.1% 11.9% 11.5% 11.4% 11.8%
Leverage9.9% 9.9% 9.2% 9.6% 10.3%

(1) Liquidity assets include Federal funds sold and interest-bearing deposits in other banks.
(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 and accumulated other comprehensive income less goodwill and intangibles divided by total assets less accumulated other comprehensive income and goodwill and intangibles.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
June 30, 2018June 30, 2017%Change
Assets
Cash and due from banks$174,687 $126,977 38%
Interest-bearing deposits in other banks3,249,107 2,117,658 53%
Federal funds sold and securities purchased under resale agreements39,000 25,000 56%
Investment securities24,408 119,043 (79)%
LHS ($1,275.5 million and $843.2 million at June 30, 2018 and June 30, 2017, respectively, at fair value)1,276,768 846,017 51%
LHI, mortgage finance5,923,058 5,183,600 14%
LHI (net of unearned income)16,536,721 14,280,353 16%
Less: Allowance for loan losses179,096 174,225 3%
LHI, net22,280,683 19,289,728 16%
Mortgage servicing rights, net82,776 63,023 31%
Premises and equipment, net26,175 20,750 26%
Accrued interest receivable and other assets609,501 492,240 24%
Goodwill and intangibles, net18,805 19,277 (2)%
Total assets$27,781,910 $23,119,713 20%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing$7,648,125 $8,174,830 (6)%
Interest bearing12,686,746 9,117,393 39%
Total deposits20,334,871 17,292,223 18%
Accrued interest payable11,268 6,246 80%
Other liabilities176,400 163,836 8%
Federal funds purchased and repurchase agreements520,849 462,224 13%
Other borrowings4,000,000 2,700,000 48%
Subordinated notes, net281,586 281,225 —
Trust preferred subordinated debentures113,406 113,406 —
Total liabilities25,438,380 21,019,160 21%
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 6,000,000 shares issued at June 30, 2018 and 2017150,000 150,000 −
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,151,481 and 49,595,669 at June 30, 2018 and 2017, respectively502 496 1%
Additional paid-in capital963,732 957,721 1%
Retained earnings1,228,924 991,949 24%
Treasury stock (shares at cost: 417 at June 30, 2018 and 2017)(8) (8) —
Accumulated other comprehensive income, net of taxes380 395 (4)%
Total stockholders’ equity2,343,530 2,100,553 12%
Total liabilities and stockholders’ equity$27,781,910 $23,119,713 20%

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share data)
Three Months Ended June 30Six Months EndedJune 30
2018201720182017
Interest income
Interest and fees on loans$279,447 $201,646 $523,311 $378,270
Investment securities193 287 399 512
Federal funds sold and securities purchased under resale agreements745 434 1,790 964
Interest-bearing deposits in other banks6,467 5,824 15,221 12,391
Total interest income286,852 208,191 540,721 392,137
Interest expense
Deposits39,607 16,533 71,309 29,826
Federal funds purchased1,665 726 2,634 978
Other borrowings8,484 2,901 14,164 4,922
Subordinated notes4,191 4,191 8,382 8,382
Trust preferred subordinated debentures1,193 881 2,220 1,711
Total interest expense55,140 25,232 98,709 45,819
Net interest income231,712 182,959 442,012 346,318
Provision for credit losses27,000 13,000 39,000 22,000
Net interest income after provision for credit losses204,712 169,959 403,012 324,318
Non-interest income
Service charges on deposit accounts3,005 3,067 6,142 6,112
Wealth management and trust fee income2,007 1,402 3,931 2,759
Bank owned life insurance (BOLI) income657 481 1,316 947
Brokered loan fees5,815 5,809 10,983 11,487
Servicing income4,967 3,700 10,459 5,901
Swap fees1,352 954 2,914 2,757
Other(524) 3,356 1,481 5,916
Total non-interest income17,279 18,769 37,226 35,879
Non-interest expense
Salaries and employee benefits72,404 63,154 144,941 126,157
Net occupancy expense7,356 6,515 14,590 12,626
Marketing10,236 6,157 18,913 11,107
Legal and professional11,654 7,127 19,184 14,580
Communications and technology7,143 11,906 13,776 18,412
FDIC insurance assessment6,257 4,603 12,360 10,597
Servicing related expenses4,367 2,682 8,172 4,432
Allowance and other carrying costs for OREO176 71 2,331 210
Other12,538 9,599 24,824 19,787
Total non-interest expense132,131 111,814 259,091 217,908
Income before income taxes89,860 76,914 181,147 142,289
Income tax expense18,424 25,819 37,766 48,652
Net income71,436 51,095 143,381 93,637
Preferred stock dividends2,437 2,437 4,875 4,875
Net income available to common stockholders$68,999 $48,658 $138,506 $88,762
Basic earnings per common share$1.39 $0.98 $2.79 $1.79
Diluted earnings per common share$1.38 $0.97 $2.76 $1.77

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
2nd Quarter1st Quarter4th Quarter3rd Quarter2nd Quarter
20182018201720172017
Allowance for loan losses:
Beginning balance$190,898 $184,655 $182,929 $174,225 $172,013
Loans charged-off:
Commercial38,305 5,667 1,999 10,603 12,310
Real estate— — — 250 40
Construction— — — 59 —
Consumer— — — — 180
Total charge-offs38,305 5,667 1,999 10,912 12,530
Recoveries:
Commercial320 360 1,019 132 61
Real estate8 24 1 21 3
Construction— — — 3 —
Consumer9 59 14 15 36
Leases1 19 1 1 —
Total recoveries338 462 1,035 172 100
Net charge-offs37,967 5,205 964 10,740 12,430
Provision for loan losses26,165 11,448 2,690 19,444 14,642
Ending balance$179,096 $190,898 $184,655 $182,929 $174,225
Allowance for off-balance sheet credit losses:
Beginning balance$9,623 $9,071 $9,761 $9,205 $10,847
Provision for off-balance sheet credit losses835 552 (690) 556 (1,642)
Ending balance$10,458 $9,623 $9,071 $9,761 $9,205
Total allowance for credit losses$189,554 $200,521 $193,726 $192,690 $183,430
Total provision for credit losses$27,000 $12,000 $2,000 $20,000 $13,000
Allowance for loan losses to LHI0.80% 0.93% 0.89% 0.89% 0.90%
Allowance for loan losses to LHI excluding mortgage finance loans(2)1.08% 1.21% 1.20% 1.23% 1.22%
Allowance for loan losses to average LHI0.86% 0.98% 0.92% 0.95% 0.99%
Allowance for loan losses to average LHI excluding mortgage finance loans(2)1.13% 1.24% 1.23% 1.27% 1.27%
Net charge-offs to average LHI(1)0.73% 0.11% 0.02% 0.22% 0.28%
Net charge-offs to average LHI excluding mortgage finance loans(1)(2)0.96% 0.14% 0.03% 0.30% 0.36%
Net charge-offs to average LHI for last twelve months(1)0.28% 0.15% 0.16% 0.29% 0.27%
Net charge-offs to average LHI excluding mortgage finance loans for last twelve months(1)(2)0.36% 0.20% 0.21% 0.37% 0.36%
Total provision for credit losses to average LHI(1)0.52% 0.25% 0.04% 0.41% 0.30%
Total provision for credit losses to average LHI excluding mortgage finance loans(1)(2)0.68% 0.32% 0.05% 0.55% 0.38%
Total allowance for credit losses to LHI0.84% 0.98% 0.94% 0.94% 0.94%
Total allowance for credit losses to LHI excluding mortgage finance loans(1)(2)1.15% 1.27% 1.26% 1.30% 1.28%

(1) Interim period ratios are annualized.
(2) The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
2nd Quarter1st Quarter4th Quarter3rd Quarter2nd Quarter
20182018201720172017
Non-accrual loans$83,295$123,542$101,444$118,205$123,730
Other real estate owned (OREO)(2)9,5269,55811,74218,13118,689
Total LHI NPAs$92,821$133,100$113,186$136,336$142,419
Non-accrual loans to LHI0.37%0.60%0.49%0.58%0.64%
Non-accrual loans to LHI excluding mortgage finance loans(1)0.50%0.78%0.66%0.80%0.87%
Total NPAs to LHI plus OREO0.41%0.65%0.55%0.67%0.73%
Total NPAs to LHI excluding mortgage finance loans plus OREO(1)0.56%0.85%0.74%0.92%1.00%
Total NPAs to earning assets0.35%0.56%0.47%0.58%0.64%
Allowance for loan losses to non-accrual loans2.2x1.5x1.8x1.5x1.4x
Loans past due 90 days and still accruing(3)$7,357$13,563$8,429$8,892$11,077
Loans past due 90 days to LHI0.03%0.07%0.14%0.04%0.06%
Loans past due 90 days to LHI excluding mortgage finance loans(1)0.04%0.09%0.18%0.06%0.08%
LHS past due 90 days and still accruing(4)$27,858$35,226$19,737$—$—

(1) The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.
(2) At June 30, 2018, there was a $2.0 million valuation allowance recorded against the OREO balance.
(3) At June 30, 2018, loans past due 90 days and still accruing includes premium finance loans of $6.0 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(4) 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. Also includes 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 the balance sheet regardless of whether the repurchase option has been exercised.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
2nd Quarter1st Quarter4th Quarter3rd Quarter2nd Quarter
20182018201720172017
Interest income
Interest and fees on loans$279,447 $243,864 $238,906 $229,116 $201,646
Investment securities193 206 213 341 287
Federal funds sold and securities purchased under resale agreements745 1,045 936 642 434
Interest-bearing deposits in other banks6,467 8,754 9,464 7,544 5,824
Total interest income286,852 253,869 249,519 237,643 208,191
Interest expense
Deposits39,607 31,702 27,625 22,435 16,533
Federal funds purchased1,665 969 723 891 726
Other borrowings8,484 5,680 5,380 4,835 2,901
Subordinated notes4,191 4,191 4,191 4,191 4,191
Trust preferred subordinated debentures1,193 1,027 951 930 881
Total interest expense55,140 43,569 38,870 33,282 25,232
Net interest income231,712 210,300 210,649 204,361 182,959
Provision for credit losses27,000 12,000 2,000 20,000 13,000
Net interest income after provision for credit losses204,712 198,300 208,649 184,361 169,959
Non-interest income
Service charges on deposit accounts3,005 3,137 3,109 3,211 3,067
Wealth management and trust fee income2,007 1,924 1,767 1,627 1,402
Bank owned life insurance (BOLI) income657 659 698 615 481
Brokered loan fees5,815 5,168 5,692 6,152 5,809
Servicing income4,967 5,492 5,270 4,486 3,700
Swap fees1,352 1,562 586 647 954
Other(524)2,005 2,252 2,265 3,356
Total non-interest income17,279 19,947 19,374 19,003 18,769
Non-interest expense
Salaries and employee benefits72,404 72,537 70,192 67,882 63,154
Net occupancy expense7,356 7,234 6,749 6,436 6,515
Marketing10,236 8,677 8,438 7,242 6,157
Legal and professional11,654 7,530 8,756 6,395 7,127
Communications and technology7,143 6,633 6,590 6,002 11,906
FDIC insurance assessment6,257 6,103 6,710 6,203 4,603
Servicing related expenses4,367 3,805 7,177 3,897 2,682
Allowance and other carrying costs for OREO176 2,155 6,122 105 71
Other12,538 12,286 12,404 10,668 9,599
Total non-interest expense132,131 126,960 133,138 114,830 111,814
Income before income taxes89,860 91,287 94,885 88,534 76,914
Income tax expense18,424 19,342 50,143 29,850 25,819
Net income71,436 71,945 44,742 58,684 51,095
Preferred stock dividends2,437 2,438 2,437 2,438 2,437
Net income available to common shareholders$68,999 $69,507 $42,305 $56,246 $48,658

TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands)
2nd Quarter 2018 1st Quarter 2018 4th Quarter 2017 3rd Quarter 2017 2nd Quarter 2017
AverageBalanceRevenue/ExpenseYield/Rate Average BalanceRevenue/ ExpenseYield/ Rate Average BalanceRevenue/ ExpenseYield/ Rate Average BalanceRevenue/ ExpenseYield/ Rate Average BalanceRevenue/ ExpenseYield/ Rate
Assets
Investment securities - Taxable$24,514 $193 3.15% $23,854 $206 3.50% $23,678 $213 3.57% $86,087 $340 1.57% $65,049 $287 1.77%
Investment securities - Non-taxable(2)— — —% — — —% — — —% — — —% — — —%
Federal funds sold and securities purchased under resale agreements166,613 745 1.79% 261,641 1,045 1.62% 292,544 936 1.27% 205,938 642 1.24% 174,264 434 1.00%
Interest-bearing deposits in other banks1,498,474 6,467 1.73% 2,302,938 8,754 1.54% 2,924,942 9,464 1.28% 2,383,060 7,544 1.26% 2,250,330 5,824 1.04%
LHS, at fair value1,516,047 17,026 4.50% 1,187,594 12,535 4.28% 1,144,124 11,507 3.99% 1,009,703 9,882 3.88% 845,623 8,235 3.91%
LHI, mortgage finance loans4,898,411 47,056 3.85% 4,097,995 37,362 3.70% 5,102,107 44,477 3.46% 4,847,530 42,294 3.46% 3,805,831 33,399 3.52%
LHI(1)(2)15,883,317 216,755 5.47% 15,425,323 195,333 5.14% 15,010,041 185,039 4.89% 14,427,980 178,839 4.92% 13,718,739 161,369 4.72%
Less allowance for loan losses189,238 — — 184,238 — — 183,233 — — 172,774 — — 170,957 — —
LHI, net of allowance20,592,490 263,811 5.14% 19,339,080 232,695 4.88% 19,928,915 229,516 4.57% 19,102,736 221,133 4.59% 17,353,613 194,768 4.50%
Total earning assets23,798,138 288,242 4.86% 23,115,107 255,235 4.48% 24,314,203 251,636 4.11% 22,787,524 239,541 4.17% 20,688,879 209,548 4.06%
Cash and other assets808,099 797,506 766,622 713,778 632,097
Total assets$24,606,237 $23,912,613 $25,080,825 $23,501,302 $21,320,976
Liabilities and Stockholders’ Equity
Transaction deposits$2,889,834 $10,295 1.43% $2,792,954 $8,651 1.26% $2,469,984 $5,845 0.94% $2,145,324 $4,359 0.81% $2,008,872 $2,893 0.58%
Savings deposits7,784,937 25,454 1.31% 7,982,256 21,958 1.12% 8,403,473 20,655 0.98% 7,618,843 17,152 0.89% 6,952,317 12,940 0.75%
Time deposits979,735 3,858 1.58% 506,375 1,093 0.88% 533,312 1,125 0.84% 496,076 924 0.74% 455,542 700 0.62%
Total interest bearing deposits11,654,506 39,607 1.36% 11,281,585 31,702 1.14% 11,406,769 27,625 0.96% 10,260,243 22,435 0.87% 9,416,731 16,533 0.70%
Other borrowings2,113,391 10,149 1.93% 1,721,914 6,649 1.57% 1,852,750 6,103 1.31% 1,821,837 5,726 1.25% 1,456,737 3,627 1.00%
Subordinated notes281,527 4,191 5.97% 281,437 4,191 6.04% 281,348 4,191 5.91% 281,256 4,191 5.91% 281,167 4,191 5.98%
Trust preferred subordinated debentures113,406 1,193 4.22% 113,406 1,027 3.67% 113,406 951 3.33% 113,406 930 3.25% 113,406 881 3.12%
Total interest bearing liabilities14,162,830 55,140 1.56% 13,398,342 43,569 1.32% 13,654,273 38,870 1.13% 12,476,742 33,282 1.06% 11,268,041 25,232 0.90%
Demand deposits8,017,578 8,147,721 9,085,819 8,764,263 7,863,402
Other liabilities100,074 110,698 138,050 116,998 102,653
Stockholders’ equity2,325,755 2,255,852 2,202,683 2,143,299 2,086,880
Total liabilities and stockholders’ equity$24,606,237 $23,912,613 $25,080,825 $23,501,302 $21,320,976
Net interest income(2) $233,102 $211,666 $212,766 $206,259 $184,316
Net interest margin 3.93% 3.71% 3.47% 3.59% 3.57%

(1) The loan averages include non-accrual loans and are stated net of unearned income.
(2) Taxable equivalent rates used where applicable.

INVESTOR CONTACTHeather Worley, 214.932.6646[email protected]

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Source: Texas Capital Bancshares, Inc.

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