Texas Capital Bancshares, Inc. Announces Operating Results for Q3 2021

DALLAS, Oct. 20, 2021 (GLOBE NEWSWIRE) -- Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the third quarter of 2021.

“I am very pleased by the important actions taken this quarter,” said Rob C. Holmes, President and CEO. “We have communicated a transformative vision for the future of our company which we believe will lead to higher quality, more sustainable earnings for our shareholders. I am encouraged by the support we have received thus far, and with a vastly improved balance sheet, a strengthening loan portfolio, and a highly motivated management team and employee base, we are focused on what needs to be done to become the flagship financial services firm headquartered in Texas.”

• Net income of $43.4 million ($0.76 per diluted share) reported for the third quarter of 2021, a decrease of $30.1 million on a linked quarter basis and a decrease of $13.7 million from the third quarter of 2020.
• Provision for credit losses of $5.0 million for the third quarter of 2021, compared to a negative provision of $19.0 million for the second quarter of 2021 and a provision of $30.0 million for the third quarter of 2020.
• During the third quarter of 2021, we recorded a $12.0 million write-off of certain software assets to reposition our capitalized technology investment to align with the long-term strategy as announced by management in the third quarter of 2021.
• Loans held for investment (“LHI”), excluding mortgage finance loans, increased $52.8 million (less than 1%) on a linked quarter basis and decreased $568.6 million (4)% from the third quarter of 2020.
• LHI, mortgage finance loans decreased 3% on a linked quarter basis and decreased 9% from the third quarter of 2020.
• Demand deposits increased 5% and total deposits increased 3% on a linked quarter basis, and increased 21% and decreased 7%, respectively, from the third quarter of 2020.

FINANCIAL SUMMARY

(dollars and shares in thousands)	Q3 2021				Q3 2020				% Change
QUARTERLY OPERATING RESULTS
Net income	$	43,390			$	57,116			(24	)	%
Net income available to common stockholders	$	39,078			$	54,678			(29	)	%
Diluted earnings per common share	$	0.76			$	1.08			(30	)	%
Diluted common shares	51,140				50,573				1		%
Return on average assets	0.47		%		0.59		%
Return on average common equity	5.41		%		8.24		%
BALANCE SHEET
Loans held for sale (“LHS”)	$	9,660			$	648,009			(99	)	%
LHI, mortgage finance	8,528,313				9,378,104				(9	)	%
LHI	15,221,404				15,789,958				(4	)	%
Total LHI	23,749,717				25,168,062				(6	)	%
Total assets	36,404,320				38,432,872				(5	)	%
Demand deposits	14,970,462				12,339,212				21		%
Total deposits	29,813,668				31,959,487				(7	)	%
Stockholders’ equity	3,147,752				2,800,404				12		%

DETAILED FINANCIALS

For the third quarter of 2021, net income was $43.4 million, compared to $73.5 million for the second quarter of 2021 and $57.1 million for the third quarter of 2020. On a fully diluted basis, earnings per common share were $0.76 for the quarter ended September 30, 2021, compared to $1.31 for the quarter ended June 30, 2021 and $1.08 for the quarter ended September 30, 2020.

We recorded a $5.0 million provision for credit losses for the third quarter of 2021, compared to a $19.0 million negative provision for credit losses for the second quarter of 2021 and a $30.0 million provision for credit losses for the third quarter of 2020. The $5.0 million provision for credit losses recorded in the third quarter of 2021 resulted from our view of the economic outlook remaining consistent as compared to the prior quarter and an increase in LHI, excluding mortgage finance. We recorded $3.1 million in net charge-offs during the third quarter of 2021, compared to $2.4 million during the second quarter of 2021 and $1.6 million during the third quarter of 2020. Criticized loans totaled $728.9 million at September 30, 2021, compared to $891.6 million at June 30, 2021 and $1.1 billion at September 30, 2020.

Non-performing assets (“NPAs”) totaled $87.5 million at September 30, 2021, compared to $86.6 million at June 30, 2021 and $161.9 million at September 30, 2020. The ratio of total LHI NPAs to total LHI plus other real estate owned for the third quarter of 2021 was 0.37%, compared to 0.36% for the second quarter of 2021 and 0.64% for the third quarter of 2020.

Net interest income was $194.1 million for the third quarter of 2021, compared to $197.0 million for the second quarter of 2021 and $207.6 million for the third quarter of 2020. The linked-quarter decrease in net interest income was primarily driven by a decline in loan fees, partially offset by a decrease in average interest-bearing deposits. The year-over-year decrease was primarily due to declines in total average loans and earning asset yields, partially offset by increases in average investment securities and loan fees, as well as declining cost of funds. Net interest margin for the third quarter of 2021 was 2.15%, an increase of 5 basis points from the second quarter of 2021 and a decrease of 7 basis points from the third quarter of 2020. LHI yields, excluding mortgage finance loans, decreased 18 basis points from the second quarter of 2021, and decreased 1 basis point compared to the third quarter of 2020. LHI, mortgage finance yields for the third quarter of 2021 decreased 16 basis points compared to the second quarter of 2021, and decreased 43 basis points compared to the third quarter of 2020. Additionally, total cost of deposits for the third quarter of 2021 decreased 1 basis point to 0.19% compared to 0.20% for the second quarter of 2021, and decreased 15 basis points from 0.34% for the third quarter of 2020.

Non-interest income for the third quarter of 2021 decreased $8.9 million, or 30%, compared to the second quarter of 2021, and decreased $39.1 million, or 65%, compared to the third quarter of 2020. The linked quarter decrease was primarily related to decreases in servicing income, due to the second quarter sale of our mortgage servicing rights (“MSR”) portfolio, and other non-interest income. The year-over-year decrease was primarily related to decreases in net gain/(loss) on sale of LHS, brokered loan fees and servicing income, all resulting from the second quarter 2021 sale of our MSR portfolio and transition of the mortgage correspondent aggregation MCA program to a third-party.

Non-interest expense for the third quarter of 2021 increased $3.9 million, or 3 percent, compared to the second quarter of 2021, and decreased $12.8 million, or 8%, compared to the third quarter of 2020. The linked quarter increase was primarily due to an increase in communications and technology expense, partially offset by a decrease in servicing-related expenses due to the second quarter sale of our MSR portfolio. The year-over-year decrease was primarily due to decreases in communications and technology expense and servicing-related expenses, partially offset by an increase in salaries and employee benefits. Included in communication and technology expense for the third quarter of 2021 was a $12.0 million write-off of certain software assets as discussed above, compared to none in the second quarter and $15.4 million in the third quarter of 2020.

All regulatory ratios continue to be in excess of “well-capitalized” requirements as of September 30, 2021. Our CET 1, tier 1 capital, total capital and leverage ratios were 10.7%, 12.2%, 14.9% and 9.0%, respectively, at September 30, 2021, compared to 10.5%, 12.1%, 14.8% and 8.4%, respectively, at June 30, 2021. At September 30, 2021, our ratio of tangible common equity to total tangible assets was 7.8% compared to 7.9% at June 30, 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,” “become,” “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 alternatives to 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)
	3rd Quarter			2nd Quarter				1st Quarter				4th Quarter			3rd Quarter
	2021			2021				2021				2020			2020
CONSOLIDATED STATEMENTS OF INCOME
Interest income	$	220,148		$	224,490			$	228,412			$	255,163		$	243,731
Interest expense	26,053			27,496				28,339				32,153			36,162
Net interest income	194,095			196,994				200,073				223,010			207,569
Provision for credit losses	5,000			(19,000		)		(6,000		)		32,000			30,000
Net interest income after provision for credit losses	189,095			215,994				206,073				191,010			177,569
Non-interest income	21,220			30,102				39,092				42,863			60,348
Non-interest expense	152,987			149,060				150,316				150,863			165,741
Income before income taxes	57,328			97,036				94,849				83,010			72,176
Income tax expense	13,938			23,555				22,911				22,834			15,060
Net income	43,390			73,481				71,938				60,176			57,116
Preferred stock dividends	4,312			6,317				3,779				2,437			2,438
Net income available to common stockholders	$	39,078		$	67,164			$	68,159			$	57,739		$	54,678
Diluted earnings per common share	$	0.76		$	1.31			$	1.33			$	1.14		$	1.08
Diluted common shares	51,139,555			51,093,660				51,069,511				50,794,421			50,573,073
CONSOLIDATED BALANCE SHEET DATA
Total assets	$	36,404,320		$	35,228,542			$	40,054,433			$	37,726,096		$	38,432,872
LHI	15,221,404			15,168,565				15,399,174				15,351,451			15,789,958
LHI, mortgage finance	8,528,313			8,772,799				9,009,081				9,079,409			9,378,104
LHS	9,660			63,747				176,286				283,165			648,009
Liquidity assets(1)	8,317,926			6,768,650				11,212,276				9,032,807			10,461,544
Investment securities	3,663,874			3,798,275				3,443,058				3,196,970			1,367,313
Demand deposits	14,970,462			14,228,038				15,174,642				12,740,947			12,339,212
Total deposits	29,813,668			28,839,563				33,391,970				30,996,589			31,959,487
Other borrowings	2,203,470			2,014,481				2,515,587				3,111,751			2,908,183
Long-term debt	928,062			927,386				664,968				395,896			395,806
Stockholders’ equity	3,147,752			3,114,957				3,159,482				2,871,224			2,800,404
End of period shares outstanding	50,605,626			50,592,201				50,557,767				50,470,450			50,455,552
Book value	$	56.27		$	55.64			$	53.59			$	53.92		$	52.53
Tangible book value(2)	$	55.93		$	55.29			$	53.24			$	53.57		$	52.18
SELECTED FINANCIAL RATIOS
Net interest margin	2.15		%	2.10			%	2.09			%	2.32		%	2.22		%
Return on average assets	0.47		%	0.76			%	0.73			%	0.61		%	0.59		%
Return on average common equity	5.41		%	9.74			%	10.08			%	8.50		%	8.24		%
Non-interest income to average earning assets	0.23		%	0.32			%	0.41			%	0.44		%	0.64		%
Efficiency ratio(3)	71.1		%	65.6			%	62.9			%	56.7		%	61.9		%
Non-interest expense to average earning assets	1.69		%	1.59			%	1.57			%	1.56		%	1.76		%
Tangible common equity to total tangible assets(4)	7.8		%	7.9			%	6.7			%	7.2		%	6.9		%
Common Equity Tier 1	10.7		%	10.5			%	10.2			%	9.4		%	9.1		%
Tier 1 capital	12.2		%	12.1			%	12.2			%	10.3		%	9.9		%
Total capital	14.9		%	14.8			%	14.0			%	12.1		%	11.8		%
Leverage	9.0		%	8.4			%	8.3			%	7.5		%	7.6		%

(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)
	September 30, 2021				September 30, 2020				% Change
Assets
Cash and due from banks	$	217,125			$	185,242			17		%
Interest-bearing deposits	8,317,926				10,461,544				(20	)	%
Securities, available-for-sale	3,663,874				1,367,313				N/M
LHS ($8.4 million and $639.0 million at September 30, 2021 and 2020, respectively, at fair value)	9,660				648,009				(99	)	%
LHI, mortgage finance	8,528,313				9,378,104				(9	)	%
LHI (net of unearned income)	15,221,404				15,789,958				(4	)	%
Less: Allowance for credit losses on loans	221,957				290,165				(24	)	%
LHI, net	23,527,760				24,877,897				(5	)	%
Mortgage servicing rights, net	1,158				95,323				(99	)	%
Premises and equipment, net	21,119				26,653				(21	)	%
Accrued interest receivable and other assets	628,335				753,123				(17	)	%
Goodwill and intangibles, net	17,363				17,768				(2	)	%
Total assets	$	36,404,320			$	38,432,872			(5	)	%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	14,970,462			$	12,339,212			21		%
Interest bearing	14,843,206				19,620,275				(24	)	%
Total deposits	29,813,668				31,959,487				(7	)	%
Accrued interest payable	8,920				14,674				(39	)	%
Other liabilities	302,448				354,318				(15	)	%
Federal funds purchased and repurchase agreements	3,470				208,183				(98	)	%
Other borrowings	2,200,000				2,700,000				(19	)	%
Long-term debt	928,062				395,806				134		%
Total liabilities	33,256,568				35,632,468				(7	)	%
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 September 30, 2021 and 2020, respectively	300,000				150,000				100		%
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 50,606,043 and 50,455,969 at September 30, 2021 and 2020, respectively	506				504				—		%
Additional paid-in capital	1,000,509				987,754				1		%
Retained earnings	1,887,457				1,655,317				14		%
Treasury stock (shares at cost: 417 at September 30, 2021 and 2020)	(8		)		(8		)		—		%
Accumulated other comprehensive income/(loss), net of taxes	(40,712		)		6,837				N/M
Total stockholders’ equity	3,147,752				2,800,404				12		%
Total liabilities and stockholders’ equity	$	36,404,320			$	38,432,872			(5	)	%

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands except per share data)
	Three Months Ended September 30,							Nine Months Ended September 30,
	2021				2020			2021				2020
Interest income
Interest and fees on loans	$	206,307			$	237,179		$	632,510			$	768,399
Investment securities	10,235				3,674			31,040				7,881
Federal funds sold and securities purchased under resale agreements	—				1			1				692
Interest-bearing deposits in other banks	3,606				2,877			9,499				24,777
Total interest income	220,148				243,731			673,050				801,749
Interest expense
Deposits	14,719				27,830			50,994				122,298
Federal funds purchased	5				128			131				973
Other borrowings	743				3,365			3,711				17,516
Long-term debt	10,586				4,839			27,052				15,146
Total interest expense	26,053				36,162			81,888				155,933
Net interest income	194,095				207,569			591,162				645,816
Provision for credit losses	5,000				30,000			(20,000		)		226,000
Net interest income after provision for credit losses	189,095				177,569			611,162				419,816
Non-interest income
Service charges on deposit accounts	4,622				2,864			13,972				8,616
Wealth management and trust fee income	3,382				2,502			9,380				7,317
Brokered loan fees	6,032				15,034			22,276				33,813
Servicing income	292				7,329			15,236				18,195
Swap fees	568				484			1,628				4,709
Net gain/(loss) on sale of LHS	(1,185		)		25,242			1,317				51,265
Other	7,509				6,893			26,605				18,698
Total non-interest income	21,220				60,348			90,414				142,613
Non-interest expense
Salaries and employee benefits	87,503				84,096			261,855				262,080
Net occupancy expense	8,324				8,736			24,463				26,582
Marketing	2,123				3,636			5,720				20,146
Legal and professional	11,055				11,207			28,479				40,003
Communications and technology	28,374				31,098			58,695				87,649
FDIC insurance assessment	4,500				6,374			16,339				19,363
Servicing-related expenses	2,396				12,287			27,740				48,741
Merger-related expenses	—				—			—				17,756
Other	8,712				8,307			29,072				31,173
Total non-interest expense	152,987				165,741			452,363				553,493
Income before income taxes	57,328				72,176			249,213				8,936
Income tax expense	13,938				15,060			60,404				2,823
Net income	43,390				57,116			188,809				6,113
Preferred stock dividends	4,312				2,438			14,408				7,313
Net income/(loss) available to common stockholders	$	39,078			$	54,678		$	174,401			$	(1,200	)
Basic earnings/(loss) per common share	$	0.77			$	1.08		$	3.45			$	(0.02	)
Diluted earnings/(loss) per common share	$	0.76			$	1.08		$	3.41			$	(0.02	)

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF CREDIT LOSS EXPERIENCE
(dollars in thousands)
	3rd Quarter			2nd Quarter				1st Quarter				4th Quarter			3rd Quarter
	2021			2021				2021				2020			2020
Allowance for credit losses on loans:
Beginning balance	$	221,511		$	242,484			$	254,615			$	290,165		$	264,722
Loans charged-off:
Commercial	4,348			1,412				2,451				37,984			2,436
Energy	—			686				5,732				33,283			141
Real estate	—			1,192				—				180			—
Total charge-offs	4,348			3,290				8,183				71,447			2,577
Recoveries:
Commercial	1,104			308				1,050				394			113
Energy	42			609				715				5,696			880
Real estate	112			—				—				—			—
Total recoveries	1,258			917				1,765				6,090			993
Net charge-offs	3,090			2,373				6,418				65,357			1,584
Provision for credit losses on loans	3,536			(18,600		)		(5,713		)		29,807			27,027
Ending balance	$	221,957		$	221,511			$	242,484			$	254,615		$	290,165
Allowance for off-balance sheet credit losses:
Beginning balance	$	16,747		$	17,147			$	17,434			$	15,241		$	12,268
Provision for off-balance sheet credit losses	1,464			(400		)		(287		)		2,193			2,973
Ending balance	$	18,211		$	16,747			$	17,147			$	17,434		$	15,241
Total allowance for credit losses	$	240,168		$	238,258			$	259,631			$	272,049		$	305,406
Total provision for credit losses	$	5,000		$	(19,000	)		$	(6,000	)		$	32,000		$	30,000
Allowance for credit losses on loans to LHI	0.93		%	0.93			%	0.99			%	1.04		%	1.15		%
Allowance for credit losses on loans to average LHI	0.95		%	0.98			%	1.03			%	1.01		%	1.14		%
Net charge-offs to average LHI(1)	0.05		%	0.04			%	0.11			%	1.03		%	0.02		%
Net charge-offs to average LHI for last twelve months(1)	0.33		%	0.31			%	0.59			%	0.80		%	0.59		%
Total provision for credit losses to average LHI(1)	0.09		%	(0.34		)	%	(0.10		)	%	0.51		%	0.47		%
Total allowance for credit losses to LHI	1.01		%	1.00			%	1.06			%	1.11		%	1.21		%

(1)  Interim period ratios are annualized.

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS
(dollars in thousands)
	3rd Quarter			2nd Quarter			1st Quarter			4th Quarter			3rd Quarter
	2021			2021			2021			2020			2020
Non-performing assets (NPAs):
Non-accrual loans	$	87,532		$	86,636		$	97,730		$	121,989		$	161,946
Other real estate owned (OREO)	—			—			—			—			—
Total LHI NPAs	$	87,532		$	86,636		$	97,730		$	121,989		$	161,946
Non-accrual loans to LHI	0.37		%	0.36		%	0.40		%	0.50		%	0.64		%
Total LHI NPAs to LHI plus OREO	0.37		%	0.36		%	0.40		%	0.50		%	0.64		%
Total LHI NPAs to earning assets	0.25		%	0.25		%	0.25		%	0.33		%	0.43		%
Allowance for credit losses on loans to non-accrual loans	2.5x			2.6x			2.5x			2.1x			1.8x
LHI past due 90 days and still accruing(1)	$	3,405		$	7,671		$	6,187		$	12,541		$	15,896
LHI past due 90 days to LHI	0.01		%	0.03		%	0.03		%	0.05		%	0.06		%
LHS non-accrual(2)	$	—		$	—		$	—		$	6,966		$	—
LHS past due 90 days and still accruing(3)	$	3,808		$	2,695		$	16,359		$	16,667		$	15,631

(1)	At September 30, 2021, loans past due 90 days and still accruing included premium finance loans of $2.3 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. The first quarter of 2021 and fourth and third quarters of 2020 also include 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)
	3rd Quarter				2nd Quarter				1st Quarter				4th Quarter			3rd Quarter
	2021				2021				2021				2020			2020
Interest income
Interest and fees on loans	$	206,307			$	210,611			$	215,592			$	242,776		$	237,179
Investment securities	10,235				10,918				9,887				9,594			3,674
Federal funds sold and securities purchased under resale agreements	—				—				1				1			1
Interest-bearing deposits in other banks	3,606				2,961				2,932				2,792			2,877
Total interest income	220,148				224,490				228,412				255,163			243,731
Interest expense
Deposits	14,719				16,271				20,004				23,819			27,830
Federal funds purchased	5				51				75				110			128
Other borrowings	743				451				2,517				3,407			3,365
Long-term debt	10,586				10,723				5,743				4,817			4,839
Total interest expense	26,053				27,496				28,339				32,153			36,162
Net interest income	194,095				196,994				200,073				223,010			207,569
Provision for credit losses	5,000				(19,000		)		(6,000		)		32,000			30,000
Net interest income after provision for credit losses	189,095				215,994				206,073				191,010			177,569
Non-interest income
Service charges on deposit accounts	4,622				4,634				4,716				3,004			2,864
Wealth management and trust fee income	3,382				3,143				2,855				2,681			2,502
Brokered loan fees	6,032				6,933				9,311				12,610			15,034
Servicing income	292				5,935				9,009				8,834			7,329
Swap fees	568				534				526				473			484
Net gain/(loss) on sale of LHS	(1,185		)		(3,070		)		5,572				6,761			25,242
Other	7,509				11,993				7,103				8,500			6,893
Total non-interest income	21,220				30,102				39,092				42,863			60,348
Non-interest expense
Salaries and employee benefits	87,503				86,830				87,522				78,449			84,096
Net occupancy expense	8,324				7,865				8,274				8,373			8,736
Marketing	2,123				1,900				1,697				3,435			3,636
Legal and professional	11,055				9,147				8,277				12,129			11,207
Communications and technology	28,374				14,352				15,969				15,405			31,098
FDIC insurance assessment	4,500				5,226				6,613				6,592			6,374
Servicing-related expenses	2,396				12,355				12,989				15,844			12,287
Other	8,712				11,385				8,975				10,636			8,307
Total non-interest expense	152,987				149,060				150,316				150,863			165,741
Income before income taxes	57,328				97,036				94,849				83,010			72,176
Income tax expense	13,938				23,555				22,911				22,834			15,060
Net income	43,390				73,481				71,938				60,176			57,116
Preferred stock dividends	4,312				6,317				3,779				2,437			2,438
Net income available to common shareholders	$	39,078			$	67,164			$	68,159			$	57,739		$	54,678

TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(dollars in thousands)
	3rd Quarter 2021									2nd Quarter 2021									1st Quarter 2021									4th Quarter 2020									3rd 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	$	3,590,591		$	8,546		0.94	%		$	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	%
Investment securities - non-taxable(2)	185,221			2,138			4.58	%		181,574			2,147			4.74	%		196,785			2,247			4.63	%		200,781			2,337			4.63	%		190,797			2,239			4.67	%
Federal funds sold and securities purchased under resale agreements	653			—			0.12	%		713			—			0.18	%		4,605			1			0.07	%		1,709			1			0.13	%		12,051			1			0.04	%
Interest-bearing deposits in other banks	9,045,442			3,606			0.16	%		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	%
LHS, at fair value	18,791			54			1.14	%		93,164			781			3.36	%		243,326			1,595			2.66	%		410,637			2,475			2.40	%		543,606			3,867			2.83	%
LHI, mortgage finance loans	7,987,521			58,913			2.93	%		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	%
LHI(1)(2)	15,266,167			147,423			3.83	%		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	%
Less allowance for credit losses on loans	220,984			—			—			241,676			—			—			254,697			—			—			290,189			—			—			264,769			—			—
LHI, net of allowance	23,032,704			206,336			3.55	%		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	%
Total earning assets	35,873,402			220,680			2.44	%		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	%
Cash and other assets	855,555									996,946									1,064,679									1,031,195									1,037,760
Total assets	$	36,728,957								$	38,680,661								$	39,957,073								$	39,470,691								$	38,421,576
Liabilities and Stockholders’ Equity
Transaction deposits	$	3,012,547		$	4,737		0.62	%		$	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	%
Savings deposits	10,044,995			8,262			0.33	%		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	%
Time deposits	1,640,562			1,720			0.42	%		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	%
Total interest bearing deposits	14,698,104			14,719			0.40	%		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	%
Other borrowings	2,299,692			748			0.13	%		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	%
Long-term debt	927,626			10,586			4.53	%		881,309			10,723			4.88	%		464,731			5,743			5.01	%		395,841			4,817			4.84	%		395,749			4,839			4.87	%
Total interest bearing liabilities	17,925,422			26,053			0.58	%		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	%
Demand deposits	15,363,568									15,139,546									14,421,505									13,174,114									12,202,065
Other liabilities	275,317									274,401									309,644									303,480									314,500
Stockholders’ equity	3,164,650									3,188,160									2,988,613									2,853,298									2,791,451
Total liabilities and stockholders’ equity	$	36,728,957								$	38,680,661								$	39,957,073								$	39,470,691								$	38,421,576
Net interest income(2)				$	194,627								$	197,531								$	200,686								$	223,856								$	208,421
Net interest margin							2.15	%								2.10	%								2.09	%								2.32	%								2.22	%

(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.