Texas Capital Bancshares, Inc. Announces Operating Results for Q2 2021

DALLAS, July 21, 2021 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the second quarter of 2021.

“I continue to be pleased with the progress we're making in these first six months of 2021,” said Rob C. Holmes, President and CEO. “Building on an incredibly productive first quarter, second quarter successes included executing our largest capital markets transaction to-date with a $375.0 million subordinated note issuance, making the strategic decision to sell our portfolio of mortgage servicing rights to better align resources for the future and continuing to add new talent in key strategic areas at a record-setting pace. All of these actions, combined with the necessary and much appreciated hard work being done by our team internally every day, are laying a lasting foundation to support our long-term strategy, which we are looking forward to sharing with you during the third quarter.”

• Net income of $73.5 million ($1.31 per diluted share) reported for the second quarter of 2021, an increase of $1.5 million on a linked quarter basis and an increase of $107.8 million from the second quarter of 2020.
• Loans held for investment (“LHI”), excluding mortgage finance loans, decreased 1% on a linked quarter basis and decreased 8% from the second quarter of 2020. PPP loans continue to pay off, as expected, and contributed $363.7 million to the linked quarter decrease in LHI, excluding mortgage finance loans.
• Total mortgage finance loans, including mortgage correspondent aggregation (“MCA”) loans held for sale (“LHS”), decreased 4% on a linked quarter basis and decreased 6% from the second quarter of 2020. The decrease in MCA LHS is consistent with the previously announced transition of the MCA program.
• Demand deposits decreased 6% and total deposits decreased 14% on a linked quarter basis, and increased 31% and decreased 4%, respectively, from the second quarter of 2020. The linked-quarter declines were the result of targeted actions to reduce high-cost indexed deposits.
• Issuance of $375.0 million in 4.00% fixed rate subordinated notes, completed in the second quarter of 2021, providing additional capital to be used for general corporate purposes. A portion of the proceeds were used for the redemption of our existing 6.50% fixed rate subordinated notes.
  

FINANCIAL SUMMARY

(dollars and shares in thousands)	Q2 2021				Q2 2020					% Change
QUARTERLY OPERATING RESULTS
Net income	$	73,481			$	(34,316	)			314		%
Net income available to common stockholders	$	67,164			$	(36,753	)			283		%
Diluted earnings per common share	$	1.31			$	(0.73	)			279		%
Diluted common shares	51,094				50,416					1		%
Return on average assets	0.76		%		(0.36		)	%
Return on average common equity	9.74		%		(5.48		)	%
BALANCE SHEET
LHS	$	63,747			$	454,581				(86	)	%
LHI, mortgage finance	8,772,799				8,972,626					(2	)	%
LHI	15,168,565				16,552,203					(8	)	%
Total LHI	23,941,364				25,524,829					(6	)	%
Total assets	35,228,542				36,613,127					(4	)	%
Demand deposits	14,228,038				10,835,911					31		%
Total deposits	28,839,563				30,187,695					(4	)	%
Stockholders’ equity	3,114,957				2,734,755					14		%

DETAILED FINANCIALS

For the second quarter of 2021, net income was $73.5 million, compared to net income of $71.9 million for the first quarter of 2021, and net loss of $34.3 million for the second quarter of 2020. On a fully diluted basis, earnings per common share were $1.31 for the quarter ended June 30, 2021, compared to earnings per common share of $1.33 for the quarter ended March 31, 2021 and loss per common share of $0.73 for the quarter ended June 30, 2020.

We recorded a $19.0 million negative provision for credit losses for the second quarter of 2021, compared to a $6.0 million negative provision for credit losses for the first quarter of 2021 and a $100.0 million provision for credit losses for the second quarter of 2020. The linked quarter decrease in provision for credit losses resulted primarily from decreases in charge-offs and criticized loans, as well as an improvement in the economic outlook as the economy continues to recover from the impacts of the COVID-19 pandemic. We recorded $2.4 million in net charge-offs during the second quarter of 2021, compared to $6.4 million during the first quarter of 2021 and $74.1 million during the second quarter of 2020. Criticized loans totaled $891.6 million at June 30, 2021, compared to $945.1 million at March 31, 2021 and $1.0 billion at June 30, 2020.

Non-performing assets (“NPAs”) totaled $86.6 million at June 30, 2021, a decrease of $11.1 million compared to the first quarter of 2021 and a decrease of $87.4 million compared to the second quarter of 2020. The ratio of total LHI NPAs to total LHI plus other real estate owned for the second quarter of 2021 was 0.36%, compared to 0.40% for the first quarter of 2021 and 0.68% for the second quarter of 2020.

Net interest income was $197.0 million for the second quarter of 2021, compared to $200.1 million for the first quarter of 2021 and $209.9 million for the second quarter of 2020. The linked-quarter and year-over-year decreases in net interest income were primarily driven by a decrease in total average loans, partially offset by increases in loan fees. Net interest margin for the second quarter of 2021 was 2.10%, an increase of 1 basis point from the first quarter of 2021 and a decrease of 20 basis points from the second quarter of 2020. LHI yields, excluding mortgage finance loans, increased 10 basis points from the first quarter of 2021, and decreased 3 basis points compared to the second quarter of 2020. LHI, mortgage finance yields for the second quarter of 2021 decreased 13 basis points compared to the first quarter of 2021, and decreased 36 basis points compared to the second quarter of 2020. Additionally, total cost of deposits for the second quarter of 2021 decreased 4 basis points to 0.20% compared to 0.24% for the first quarter of 2021, and decreased 22 basis points from 0.42% for the second quarter of 2020.

Non-interest income for the second quarter of 2021 decreased $9.0 million, or 23%, compared to the first quarter of 2021, and decreased $40.4 million, or 57%, compared to the second quarter of 2020. The linked quarter decrease was primarily related to decreases in brokered loans fees, servicing income and net gain/(loss) on sale of LHS, partially offset by an increase in other non-interest income. The year-over-year decrease was primarily related to decreases in net gain/(loss) on sale of LHS and brokered loan fees, offset by increases in service charges on deposit accounts and other non-interest income. The linked quarter and year-over-year decreases in brokered loan fees and net gain/(loss) on sale of LHS, as well as the linked quarter decline in servicing income, were primarily due to the second quarter 2021 sale of our portfolio of MSRs and transition of the MCA program to a third-party.

Non-interest expense for the second quarter of 2021 decreased $1.3 million, or 1 percent, compared to the first quarter of 2021, and decreased $73.3 million, or 33%, compared to the second quarter of 2020. The year-over-year decrease was primarily due to decreases in marketing expense, communications and technology expense, servicing-related expenses and merger-related expenses.

All regulatory ratios continue to be in excess of “well-capitalized” requirements as of June 30, 2021. Our CET 1, tier 1 capital, total capital and leverage ratios were 10.5%, 12.1%, 14.8% and 8.4%, respectively, at June 30, 2021, compared to 10.2%, 12.2%, 14.0% and 8.3%, respectively, at March 31, 2021. At June 30, 2021, our ratio of tangible common equity to total tangible assets was 7.9% compared to 6.7% at March 31, 2021.

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,” “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) the credit quality of our loan portfolio, (2) general economic conditions and related material risks and uncertainties in the United States, globally and in our markets and the impact they may have on us and our customers, including the continued impact on our customers from volatility in oil and gas prices as well as the continued impact of the COVID-19 pandemic (and any other pandemic, epidemic or health-related crisis), (3) technological changes, including the increased focus on information technology and cybersecurity and our ability to manage such information systems and the effects of cyber-incidents (including failures, disruptions or security breaches) or those of third-party providers, (4) changes in interest rates and changes in the value of commercial and residential real estate securing our loans, (5) adverse economic or market conditions that could affect the credit quality of our loan portfolio or our operating performance, (6) expectations regarding rates of default and credit losses and the appropriateness of our allowance for credit losses and provision for credit losses, (7) unexpected market conditions, regulatory changes or changes in our credit ratings that could, among other things, cause access to capital market transactions and other sources of funding to become more difficult, (8) the inadequacy of our available funds to meet our obligations, (9) the failure to effectively balance our funding sources with cash demands by depositors and borrowers, (10) material failures of our accounting estimates and risk management processes based on management judgment, (11) failure of our risk management strategies and procedures, including failure or circumvention of our controls, (12) the failure to effectively manage risk, (13) uncertainty regarding the London Interbank Offered Rate and our ability to successfully implement any new interest rate benchmarks, (14) the impact of changing regulatory requirements and legislative changes on our business, (15) the failure to successfully execute our business strategy, including completing planned merger, acquisition or sale transactions, (16) the failure to identify, attract and retain key personnel or the loss of such personnel, (17) increased or more effective competition from banks or other financial service providers in our markets, (18) structural changes in the markets for origination, sale and servicing of residential mortgages, (19) certainty in the pricing of mortgage loans that we purchase, and later sell or securitize, (20) volatility in the market price of our common stock, (21) credit risk resulting from our exposure to counterparties, (22) an increase in the incidence or severity of fraud, illegal payments, security breaches and other illegal acts impacting us, (23) the failure to maintain adequate regulatory capital to support our business, (24) environmental liability or other environmental, social or governance factors that may materially negatively impact the company, (25) severe weather, natural disasters, acts of war or terrorism and other external events and (26) our success at managing the risk and uncertainties involved in the foregoing factors.

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.

TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(dollars in thousands except per share data)
	2nd Quarter				1st Quarter				4th Quarter			3rd Quarter			2nd Quarter
	2021				2021				2020			2020			2020
CONSOLIDATED STATEMENTS OF INCOME
Interest income	$	224,490			$	228,412			$	255,163		$	243,731		$	252,010
Interest expense	27,496				28,339				32,153			36,162			42,082
Net interest income	196,994				200,073				223,010			207,569			209,928
Provision for credit losses	(19,000		)		(6,000		)		32,000			30,000			100,000
Net interest income after provision for credit losses	215,994				206,073				191,010			177,569			109,928
Non-interest income	30,102				39,092				42,863			60,348			70,485
Non-interest expense	149,060				150,316				150,863			165,741			222,335
Income/(loss) before income taxes	97,036				94,849				83,010			72,176			(41,922		)
Income tax expense/(benefit)	23,555				22,911				22,834			15,060			(7,606		)
Net income/(loss)	73,481				71,938				60,176			57,116			(34,316		)
Preferred stock dividends	6,317				3,779				2,437			2,438			2,437
Net income/(loss) available to common stockholders	$	67,164			$	68,159			$	57,739		$	54,678		$	(36,753	)
Diluted earnings/(loss) per common share	$	1.31			$	1.33			$	1.14		$	1.08		$	(0.73	)
Diluted common shares	51,093,660				51,069,511				50,794,421			50,573,073			50,416,331
CONSOLIDATED BALANCE SHEET DATA
Total assets	$	35,228,542			$	40,054,433			$	37,726,096		$	38,432,872		$	36,613,127
LHI	15,168,565				15,399,174				15,351,451			15,789,958			16,552,203
LHI, mortgage finance	8,772,799				9,009,081				9,079,409			9,378,104			8,972,626
LHS	63,747				176,286				283,165			648,009			454,581
Liquidity assets(1)	6,768,650				11,212,276				9,032,807			10,461,544			9,540,044
Investment securities	3,798,275				3,443,058				3,196,970			1,367,313			234,969
Demand deposits	14,228,038				15,174,642				12,740,947			12,339,212			10,835,911
Total deposits	28,839,563				33,391,970				30,996,589			31,959,487			30,187,695
Other borrowings	2,014,481				2,515,587				3,111,751			2,908,183			2,895,790
Long-term debt	927,386				664,968				395,896			395,806			395,715
Stockholders’ equity	3,114,957				3,159,482				2,871,224			2,800,404			2,734,755
End of period shares outstanding	50,592,201				50,557,767				50,470,450			50,455,552			50,435,672
Book value	$	55.64			$	53.59			$	53.92		$	52.53		$	51.25
Tangible book value(2)	$	55.29			$	53.24			$	53.57		$	52.18		$	50.89
SELECTED FINANCIAL RATIOS
Net interest margin	2.10			%	2.09			%	2.32		%	2.22		%	2.30			%
Return on average assets	0.76			%	0.73			%	0.61		%	0.59		%	(0.36		)	%
Return on average common equity	9.74			%	10.08			%	8.50		%	8.24		%	(5.48		)	%
Non-interest income to average earning assets	0.32			%	0.41			%	0.44		%	0.64		%	0.77			%
Efficiency ratio(3)	65.6			%	62.9			%	56.7		%	61.9		%	79.3			%
Non-interest expense to average earning assets	1.59			%	1.57			%	1.56		%	1.76		%	2.43			%
Tangible common equity to total tangible assets(4)	7.9			%	6.7			%	7.2		%	6.9		%	7.0			%
Common Equity Tier 1	10.5			%	10.2			%	9.4		%	9.1		%	8.8			%
Tier 1 capital	12.1			%	12.2			%	10.3		%	9.9		%	9.7			%
Total capital	14.8			%	14.0			%	12.1		%	11.8		%	11.6			%
Leverage	8.4			%	8.3			%	7.5		%	7.6		%	7.5			%

(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, less goodwill and intangibles, divided by total assets, less goodwill and intangibles.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
	June 30, 2021				June 30, 2020				% Change
Assets
Cash and due from banks	$	202,549			$	176,540			15		%
Interest-bearing deposits	6,768,650				9,490,044				(29	)	%
Federal funds sold and securities purchased under resale agreements	—				50,000				(100	)	%
Securities, available-for-sale	3,798,275				234,969				N/M
LHS, at fair value	63,747				454,581				(86	)	%
LHI, mortgage finance	8,772,799				8,972,626				(2	)	%
LHI (net of unearned income)	15,168,565				16,552,203				(8	)	%
Less: Allowance for credit losses on loans	221,511				264,722				(16	)	%
LHI, net	23,719,853				25,260,107				(6	)	%
Mortgage servicing rights, net	1,316				75,451				(98	)	%
Premises and equipment, net	21,969				28,603				(23	)	%
Accrued interest receivable and other assets	634,719				824,963				(23	)	%
Goodwill and intangibles, net	17,464				17,869				(2	)	%
Total assets	$	35,228,542			$	36,613,127			(4	)	%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	14,228,038			$	10,835,911			31		%
Interest bearing	14,611,525				19,351,784				(24	)	%
Total deposits	28,839,563				30,187,695				(4	)	%
Accrued interest payable	8,116				20,314				(60	)	%
Other liabilities	324,039				378,858				(14	)	%
Federal funds purchased and repurchase agreements	14,481				195,790				(93	)	%
Other borrowings	2,000,000				2,700,000				(26	)	%
Long-term debt	927,386				395,715				134		%
Total liabilities	32,113,585				33,878,372				(5	)	%
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares - 10,000,000
Issued shares - 300,000 and 6,000,000 shares issued at June 30, 2021 and 2020, respectively	300,000				150,000				100		%
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,592,618 and 50,436,089 at June 30, 2021 and 2020, respectively	506				504				—		%
Additional paid-in capital	992,469				983,144				1		%
Retained earnings	1,848,379				1,600,639				15		%
Treasury stock (shares at cost: 417 at June 30, 2021 and 2020)	(8		)		(8		)		—		%
Accumulated other comprehensive income/(loss), net of taxes	(26,389		)		476				N/M
Total stockholders’ equity	3,114,957				2,734,755				14		%
Total liabilities and stockholders’ equity	$	35,228,542			$	36,613,127			(4	)	%

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands except per share data)
	Three Months Ended June 30,								Six Months Ended June 30,
	2021				2020				2021				2020
Interest income
Interest and fees on loans	$	210,611			$	247,595			$	426,203			$	531,220
Investment securities	10,918				2,024				20,805				4,207
Federal funds sold and securities purchased under resale agreements	—				77				1				691
Interest-bearing deposits in other banks	2,961				2,314				5,893				21,900
Total interest income	224,490				252,010				452,902				558,018
Interest expense
Deposits	16,271				32,294				36,275				94,468
Federal funds purchased	51				176				126				845
Other borrowings	451				4,569				2,968				14,151
Long-term debt	10,723				5,043				16,466				10,307
Total interest expense	27,496				42,082				55,835				119,771
Net interest income	196,994				209,928				397,067				438,247
Provision for credit losses	(19,000		)		100,000				(25,000		)		196,000
Net interest income after provision for credit losses	215,994				109,928				422,067				242,247
Non-interest income
Service charges on deposit accounts	4,634				2,459				9,350				5,752
Wealth management and trust fee income	3,143				2,348				5,998				4,815
Brokered loan fees	6,933				10,764				16,244				18,779
Servicing income	5,935				6,120				14,944				10,866
Swap fees	534				1,468				1,060				4,225
Net gain/(loss) on sale of LHS	(3,070		)		39,023				2,502				26,023
Other	11,993				8,303				19,096				11,805
Total non-interest income	30,102				70,485				69,194				82,265
Non-interest expense
Salaries and employee benefits	86,830				100,791				174,352				177,984
Net occupancy expense	7,865				9,134				16,139				17,846
Marketing	1,900				7,988				3,597				16,510
Legal and professional	9,147				11,330				17,424				28,796
Communications and technology	14,352				42,760				30,321				56,551
FDIC insurance assessment	5,226				7,140				11,839				12,989
Servicing-related expenses	12,355				20,100				25,344				36,454
Merger-related expenses	—				10,486				—				17,756
Other	11,385				12,606				20,360				22,866
Total non-interest expense	149,060				222,335				299,376				387,752
Income/(loss) before income taxes	97,036				(41,922		)		191,885				(63,240		)
Income tax expense/(benefit)	23,555				(7,606		)		46,466				(12,237		)
Net income/(loss)	73,481				(34,316		)		145,419				(51,003		)
Preferred stock dividends	6,317				2,437				10,096				4,875
Net income/(loss) available to common stockholders	$	67,164			$	(36,753	)		$	135,323			$	(55,878	)
Basic earnings/(loss) per common share	$	1.33			$	(0.73	)		$	2.68			$	(1.11	)
Diluted earnings/(loss) per common share	$	1.31			$	(0.73	)		$	2.65			$	(1.11	)

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF CREDIT LOSS EXPERIENCE
(dollars in thousands)
	2nd Quarter				1st Quarter				4th Quarter			3rd Quarter			2nd Quarter
	2021				2021				2020			2020			2020
Allowance for credit losses on loans:
Beginning balance	$	242,484			$	254,615			$	290,165		$	264,722		$	240,958
Loans charged-off:
Commercial	1,412				2,451				37,984			2,436			12,287
Energy	686				5,732				33,283			141			62,368
Real estate	1,192				—				180			—			—
Total charge-offs	3,290				8,183				71,447			2,577			74,655
Recoveries:
Commercial	308				1,050				394			113			513
Energy	609				715				5,696			880			—
Total recoveries	917				1,765				6,090			993			513
Net charge-offs	2,373				6,418				65,357			1,584			74,142
Provision for credit losses on loans	(18,600		)		(5,713		)		29,807			27,027			97,906
Ending balance	$	221,511			$	242,484			$	254,615		$	290,165		$	264,722
Allowance for off-balance sheet credit losses:
Beginning balance	$	17,147			$	17,434			$	15,241		$	12,268		$	10,174
Provision for off-balance sheet credit losses	(400		)		(287		)		2,193			2,973			2,094
Ending balance	$	16,747			$	17,147			$	17,434		$	15,241		$	12,268
Total allowance for credit losses	$	238,258			$	259,631			$	272,049		$	305,406		$	276,990
Total provision for credit losses	$	(19,000	)		$	(6,000	)		$	32,000		$	30,000		$	100,000
Allowance for credit losses on loans to LHI	0.93			%	0.99			%	1.04		%	1.15		%	1.04		%
Allowance for credit losses on loans to average LHI	0.98			%	1.03			%	1.01		%	1.14		%	1.03		%
Net charge-offs to average LHI(1)	0.04			%	0.11			%	1.03		%	0.02		%	1.16		%
Net charge-offs to average LHI for last twelve months(1)	0.31			%	0.59			%	0.80		%	0.59		%	0.73		%
Total provision for credit losses to average LHI(1)	(0.34		)	%	(0.10		)	%	0.51		%	0.47		%	1.57		%
Total allowance for credit losses to LHI	1.00			%	1.06			%	1.11		%	1.21		%	1.09		%

(1) Interim period ratios are annualized.

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS
(dollars in thousands)
	2nd Quarter			1st Quarter			4th Quarter			3rd Quarter			2nd Quarter
	2021			2021			2020			2020			2020
Non-performing assets (NPAs):
Non-accrual loans	$	86,636		$	97,730		$	121,989		$	161,946		$	174,031
Other real estate owned (OREO)	—			—			—			—			—
Total LHI NPAs	$	86,636		$	97,730		$	121,989		$	161,946		$	174,031
Non-accrual loans to LHI	0.36		%	0.40		%	0.50		%	0.64		%	0.68		%
Total LHI NPAs to LHI plus OREO	0.36		%	0.40		%	0.50		%	0.64		%	0.68		%
Total LHI NPAs to earning assets	0.25		%	0.25		%	0.33		%	0.43		%	0.49		%
Allowance for credit losses on loans to non-accrual loans		2.6x			2.5x			2.1x			1.8x			1.5x
LHI past due 90 days and still accruing(1)	$	7,671		$	6,187		$	12,541		$	15,896		$	21,079
LHI past due 90 days to LHI	0.03		%	0.03		%	0.05		%	0.06		%	0.08		%
LHS non-accrual(2)	$	—		$	—		$	6,966		$	—		$	—
LHS past due 90 days and still accruing(3)	$	2,695		$	16,359		$	16,667		$	15,631		$	10,152

(1) At June 30, 2021, loans past due 90 days and still accruing includes premium finance loans of $3.0 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. 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 our balance sheet regardless of whether the repurchase option has been exercised.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands)
	2nd Quarter				1st Quarter				4th Quarter			3rd Quarter			2nd Quarter
	2021				2021				2020			2020			2020
Interest income
Interest and fees on loans	$	210,611			$	215,592			$	242,776		$	237,179		$	247,595
Investment securities	10,918				9,887				9,594			3,674			2,024
Federal funds sold and securities purchased under resale agreements	—				1				1			1			77
Interest-bearing deposits in other banks	2,961				2,932				2,792			2,877			2,314
Total interest income	224,490				228,412				255,163			243,731			252,010
Interest expense
Deposits	16,271				20,004				23,819			27,830			32,294
Federal funds purchased	51				75				110			128			176
Other borrowings	451				2,517				3,407			3,365			4,569
Long-term debt	10,723				5,743				4,817			4,839			5,043
Total interest expense	27,496				28,339				32,153			36,162			42,082
Net interest income	196,994				200,073				223,010			207,569			209,928
Provision for credit losses	(19,000		)		(6,000		)		32,000			30,000			100,000
Net interest income after provision for credit losses	215,994				206,073				191,010			177,569			109,928
Non-interest income
Service charges on deposit accounts	4,634				4,716				3,004			2,864			2,459
Wealth management and trust fee income	3,143				2,855				2,681			2,502			2,348
Brokered loan fees	6,933				9,311				12,610			15,034			10,764
Servicing income	5,935				9,009				8,834			7,329			6,120
Swap fees	534				526				473			484			1,468
Net gain/(loss) on sale of LHS	(3,070		)		5,572				6,761			25,242			39,023
Other	11,993				7,103				8,500			6,893			8,303
Total non-interest income	30,102				39,092				42,863			60,348			70,485
Non-interest expense
Salaries and employee benefits	86,830				87,522				78,449			84,096			100,791
Net occupancy expense	7,865				8,274				8,373			8,736			9,134
Marketing	1,900				1,697				3,435			3,636			7,988
Legal and professional	9,147				8,277				12,129			11,207			11,330
Communications and technology	14,352				15,969				15,405			31,098			42,760
FDIC insurance assessment	5,226				6,613				6,592			6,374			7,140
Servicing-related expenses	12,355				12,989				15,844			12,287			20,100
Merger-related expenses	—				—				—			—			10,486
Other	11,385				8,975				10,636			8,307			12,606
Total non-interest expense	149,060				150,316				150,863			165,741			222,335
Income/(loss) before income taxes	97,036				94,849				83,010			72,176			(41,922		)
Income tax expense/(benefit)	23,555				22,911				22,834			15,060			(7,606		)
Net income/(loss)	73,481				71,938				60,176			57,116			(34,316		)
Preferred stock dividends	6,317				3,779				2,437			2,438			2,437
Net income/(loss) available to common shareholders	$	67,164			$	68,159			$	57,739		$	54,678		$	(36,753	)

TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(dollars in thousands)
	2nd Quarter 2021									1st Quarter 2021									4th Quarter 2020									3rd Quarter 2020									2nd Quarter 2020
	Average Balance			Revenue/ Expense			Yield/ Rate			Average Balance			Revenue/ Expense			Yield/ Rate			Average Balance			Revenue/ Expense			Yield/ Rate			Average Balance			Revenue/ Expense			Yield/ Rate			Average Balance			Revenue/ Expense			Yield/ Rate
Assets
Investment securities - taxable	$	3,361,696		$	9,222		1.10	%		$	3,225,786		$	8,112		1.02	%		$	2,137,481		$	7,748		1.44	%		$	525,149		$	1,905		1.44	%		$	38,829		$	185		1.92	%
Investment securities - non-taxable(2)	181,574			2,147			4.74	%		196,785			2,247			4.63	%		200,781			2,337			4.63	%		190,797			2,239			4.67	%		195,806			2,327			4.78	%
Federal funds sold and securities purchased under resale agreements	713			—			0.18	%		4,605			1			0.07	%		1,709			1			0.13	%		12,051			1			0.04	%		245,434			77			0.13	%
Interest-bearing deposits in other banks	11,583,046			2,961			0.10	%		11,840,942			2,932			0.10	%		10,808,548			2,792			0.10	%		11,028,962			2,877			0.10	%		10,521,240			2,314			0.09	%
LHS, at fair value	93,164			781			3.36	%		243,326			1,595			2.66	%		410,637			2,475			2.40	%		543,606			3,867			2.83	%		380,624			2,547			2.69	%
LHI, mortgage finance loans	7,462,223			57,401			3.09	%		8,177,759			64,942			3.22	%		9,550,119			78,906			3.29	%		9,061,984			76,464			3.36	%		8,676,521			74,518			3.45	%
LHI(1)(2)	15,242,975			152,515			4.01	%		15,457,888			149,196			3.91	%		15,620,410			161,750			4.12	%		16,286,036			157,230			3.84	%		17,015,041			170,970			4.04	%
Less allowance for credit losses on loans	241,676			—			—			254,697			—			—			290,189			—			—			264,769			—			—			236,823			—			—
LHI, net of allowance	22,463,522			209,916			3.75	%		23,380,950			214,138			3.71	%		24,880,340			240,656			3.85	%		25,083,251			233,694			3.71	%		25,454,739			245,488			3.88	%
Total earning assets	37,683,715			225,027			2.40	%		38,892,394			229,025			2.39	%		38,439,496			256,009			2.65	%		37,383,816			244,583			2.60	%		36,836,672			252,938			2.76	%
Cash and other assets	996,946									1,064,679									1,031,195									1,037,760									1,075,864
Total assets	$	38,680,661								$	39,957,073								$	39,470,691								$	38,421,576								$	37,912,536
Liabilities and Stockholders’ Equity
Transaction deposits	$	3,795,152		$	5,395		0.57	%		$	3,991,966		$	5,861		0.60	%		$	4,384,493		$	6,604		0.60	%		$	4,275,574		$	6,652		0.62	%		$	3,923,966		$	5,998		0.61	%
Savings deposits	11,296,382			8,990			0.32	%		12,889,974			10,788			0.34	%		12,982,189			12,671			0.39	%		12,786,719			12,808			0.40	%		12,537,467			13,510			0.43	%
Time deposits	1,755,993			1,886			0.43	%		2,204,242			3,355			0.62	%		2,355,199			4,544			0.77	%		2,844,083			8,370			1.17	%		3,434,388			12,786			1.50	%
Total interest bearing deposits	16,847,527			16,271			0.39	%		19,086,182			20,004			0.43	%		19,721,881			23,819			0.48	%		19,906,376			27,830			0.56	%		19,895,821			32,294			0.65	%
Other borrowings	2,349,718			502			0.09	%		2,686,398			2,592			0.39	%		3,022,077			3,517			0.46	%		2,811,435			3,493			0.49	%		3,612,263			4,745			0.53	%
Long-term debt	881,309			10,723			4.88	%		464,731			5,743			5.01	%		395,841			4,817			4.84	%		395,749			4,839			4.87	%		395,658			5,043			5.13	%
Total interest bearing liabilities	20,078,554			27,496			0.55	%		22,237,311			28,339			0.52	%		23,139,799			32,153			0.55	%		23,113,560			36,162			0.62	%		23,903,742			42,082			0.71	%
Demand deposits	15,139,546									14,421,505									13,174,114									12,202,065									10,865,896
Other liabilities	274,401									309,644									303,480									314,500									293,698
Stockholders’ equity	3,188,160									2,988,613									2,853,298									2,791,451									2,849,200
Total liabilities and stockholders’ equity	$	38,680,661								$	39,957,073								$	39,470,691								$	38,421,576								$	37,912,536
Net interest income(2)				$	197,531								$	200,686								$	223,856								$	208,421								$	210,856
Net interest margin							2.10	%								2.09	%								2.32	%								2.22	%								2.30	%

(1) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income.
(2) Taxable equivalent rates used where applicable.