1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ________________ to ________________
Commission file number 0-30533
TEXAS CAPITAL BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2671109
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
2100 MCKINNEY AVENUE, SUITE 900, DALLAS, TEXAS, U.S.A. 75201
(Address of principal executive officers) (Zip Code)
214/932-6600
(Registrant's telephone number,
including area code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
Indicate by check whether the issuer has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock:
Voting 9,004,722
Nonvoting 466,069
2
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended June 30, 2000
Index
Part I. Financial Information
Management's Discussion and Analysis 2
Consolidated Statements of Operations - Unaudited 9
Consolidated Balance Sheets - Unaudited 10
Consolidated Statements of Changes in Shareholders' Equity - Unaudited 11
Consolidated Statements of Cash Flows - Unaudited 12
Notes to Consolidated Financial Statements - Unaudited 13
Financial Summaries - Unaudited 16
Signature 18
MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION
ASSESSMENT OF OPERATIONS
SUMMARY OF PERFORMANCE
Texas Capital Bancshares, Inc. (the "Company") recorded net loss of $4.6 million
or $(.54) per diluted common share for the second quarter of 2000 compared to
$2.2 million or $(.29) per diluted common share for the second quarter of 1999.
Return on average assets was (2.99)% for the second quarter of 2000 compared to
(6.09)% for the second quarter of 1999. Returns on average equity were (23.64)%
and (11.30)%, for the second quarter of 2000 and 1999, respectively.
Net interest income for the second quarter of 2000 increased by $3.6 million or
210%. Non-interest income increased by $517,000 and non-interest expense
increased $5.8 million or 177% compared to the second quarter of 1999.
The Company operates two principal lines of business under Texas Capital Bank
(the "Bank"): the traditional bank and BankDirect, an internet only bank.
2
3
NET INTEREST INCOME
Net interest income was $5.3 million for the second quarter of 2000 compared to
$1.7 million for the second quarter of 1999. Average earning assets increased by
$444.4 million from the second quarter of 1999. The increase in average earning
assets from the second quarter of 1999 included a $294.2 million increase in
average loans. Average interest bearing liabilities increased $429.3 million
from the second quarter of 1999 which included a $422.1 million increase in
interest bearing deposits and a $7.1 million increase in borrowings.
================================================================================
TABLE 1 - VOLUME/RATE ANALYSIS
(In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000/1999 JUNE 30, 2000/1999
------------------------------------ ------------------------------------
Change Due To Change Due To
------------------------ ------------------------
Change Volume Yield/Rate Change Volume Yield/Rate
--------- ---------- ------------- ---------- --------- -------------
Interest income:
Securities $ 2,454 $ 1,894 $ 560 $ 4,479 $ 3,519 $ 960
Loans 7,211 6,157 1,054 12,275 11,490 785
Federal funds sold 285 217 68 316 186 130
Deposits in other banks 65 37 28 59 193 (134)
---------- ---------- ---------- ---------- ---------- -----------
Total 10,015 8,305 1,710 17,129 15,388 1,741
---------- ---------- ---------- ---------- ---------- -----------
Interest expense:
Transaction deposits 102 53 49 163 90 73
Savings deposits 3,501 2,654 847 5,984 4,618 1,366
Time deposits 2,716 2,275 441 4,450 3,863 587
Borrowed funds 138 99 39 561 506 55
---------- ---------- ---------- ---------- ---------- -----------
Total 6,457 5,081 1,376 11,158 9,077 2,081
---------- ---------- ---------- ---------- ---------- -----------
NET INTEREST INCOME $ 3,558 $ 3,224 $ 334 $ 5,971 $ 6,311 $ (340)
========== ========== ========== ========== ========== ===========
Net interest margin, the ratio of net interest income to average earning assets,
was 3.60% for the second quarter of 2000 compared to 4.81% for the second
quarter of 1999. The decrease in the net interest margin during the second
quarter of 2000 was due to the continued higher cost of funds mainly due to
interest rates offered by BankDirect.
NON-INTEREST INCOME
Non-interest income increased $517,000 compared to the same quarter of 1999.
Service charges on deposit accounts increased $72,000. This increase was due to
the large increase in deposits, which resulted in a higher volume of
transactions. Trust fee income increased $123,000, due to the formation of the
trust department during 1999. Other non-interest income increased by $321,000
due to increases in investment fees, letter of credit fees and merchant fee
income, which are primarily related to the significant increase in deposits.
Also, rental income related to leased equipment contributed to the increase as a
leasing division was formed during 1999.
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4
================================================================================
TABLE 2 - NON-INTEREST INCOME
(In thousands)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
------------ ------------- ---------- -------------
Service charges on deposit accounts $ 95 $ 23 $174 $ 36
Trust fee income 135 12 241 12
Gain on loss of securities 1 -- 1 --
Other 332 11 484 14
---- ---- ---- ----
Total non-interest income $563 $ 46 $900 $ 62
==== ==== ==== ====
NON-INTEREST EXPENSE
Non-interest expense for the second quarter of 2000 increased $5.8 million or
177% compared to the second quarter of 1999. Salaries and employee benefits
increased by $2.1 million or 135%. The increase in salaries and employee
benefits was due to an increase in full time employees from 94 at June 30, 1999
to 223 at June 30, 2000. This increase was due to the continued development of
infrastructure for the traditional bank and BankDirect.
Net occupancy expense increased by $664,000 or 162% due to three additional full
service branch locations in the Dallas/Fort Worth area. These included an
additional location in Dallas which serves as the Company's corporate
headquarters, one in Plano, which is a suburban area of Dallas, and one in Fort
Worth, all of which were opened in the last nine months of 1999. Also, during
1999, loan production offices in Santa Fe, New Mexico and Tulsa, Oklahoma were
opened. In addition, two full service branch locations were opened outside of
the DFW area during the first quarter of 2000, one in Austin and one in San
Antonio.
Advertising expense increased $1.0 million or 169%. Advertising included direct
marketing with print and on-line ads, and branding for the traditional bank and
BankDirect. In addition, the June 2000 quarter included approximately $568,000
of expenses related to the American Advantage program. The amount included
mileage payments, as well as some co-marketing with American which promoted the
new program. Legal and professional increased $871,000, or 512%, due to lease
negotiations, costs associated with the Company's private placement offering,
and the continued efforts to obtain regulatory approval for the formation of a
state chartered savings bank. Communications and data processing increased
$364,000 or 439% due to the strong growth in loans and deposits, which has
created significantly more transactions volume.
================================================================================
TABLE 3 -NON-INTEREST EXPENSE
(In thousands)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
----------- ----------- ---------- ----------
Salaries and employee benefits $ 3,596 $ 1,530 $ 6,841 $ 2,986
Net occupancy expense 1,074 410 1,933 593
Advertising and affinity payments 1,668 619 2,290 727
Legal and professional 1,041 170 1,465 243
Communications and data processing 447 83 698 130
Franchise taxes 84 46 127 58
Other expense 1,177 418 2,019 632
----------- ----------- ---------- ----------
Total non-interest expense $ 9,087 $ 3,276 $ 15,373 $ 5,369
=========== =========== ========== ==========
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INCOME TAXES
As the Company incurred net operating losses for each period presented, there
were no current or deferred provisions for income taxes.
ASSESSMENT OF FINANCIAL CONDITION
The aggregate loan portfolio at June 30, 2000 increased $215.4 million from
December 31, 1999 to $443.0 million. Commercial loans increased $122.1 million
and real estate loans increased $77.5 million.
================================================================================
TABLE 4 - LOANS
(In thousands)
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Commercial $274,845 $152,749
Construction 34,653 11,565
Real estate 106,140 51,779
Consumer 20,876 11,507
Leases receivable 6,445 --
-------- --------
Total $442,959 $227,600
======== ========
SUMMARY OF LOAN LOSS EXPERIENCE
The reserve for loans losses, which is available to absorb losses inherent in
the loan portfolio, totaled $4.8 million at June 30, 2000, $2.8 million at
December 31, 1999 and $1.0 million at June 30, 1999. This represents 1.08% 1.22%
and 1.00% of total loans at June 30, 2000, December 31, 1999 and June 30, 1999,
respectively.
The provision for loan losses is a charge to earnings to maintain the reserve
for loan losses at a level consistent with management's assessment of the loan
portfolio in light of current economic conditions and market trends. The Company
recorded a provision of $1.3 million for the quarter ended June 2000 and
$701,000 for the same quarter in 1999. These provisions were made to reflect
management's assessment of the risk of loan losses due to the continued growth
in the loan portfolio and the unseasoned nature of the current portfolio.
The reserve for loan losses is comprised of specific reserves assigned to
criticized loans and general reserves. The Company continuously evaluates its
reserve for loan losses to maintain an adequate level to absorb losses inherent
in the loan portfolio. Factors contributing to the determination of specific
reserves include the credit worthiness of the borrower, changes in the value of
pledged collateral, and general economic conditions. All loans rated substandard
or worse and greater than $250,000 are specifically reviewed and a specific
allocation is assigned based on the expected losses of the loans. The expected
future cash flows of principal and interest, discounted at the contractual
interest rate, are compared to the current carrying value of the asset. For
purposes of determining the general reserve, the portfolio is segregated by
product types consistent with regulatory reporting categories, and then further
segregated by credit grades. Credit grades are assigned to all loans greater
than $50,000. Each credit grade is assigned a risk factor, or reserve allocation
percentage. These risk factors are multiplied by the outstanding principal
balance and risk-weighted by product type and credit grade to calculate the
required reserve.
The reserve allocation percentages assigned to each credit grade have been
developed based on industry averages and the prior experience of executive
management. The unallocated portion of the general reserve serves to compensate
for the uncertainty in estimating loan losses, including the possibility of
improper risk ratings and specific reserve allocations. In addition, the reserve
considers the trends in peer banks, since Texas Capital Bank is relatively new
with no historical loss experience. The results of reviews performed by an
independent third party are also considered.
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6
The methodology used in the periodic review of reserve adequacy, which is
performed at least quarterly, is designed to be dynamic and responsive to
changes in actual credit losses. The changes are reflected in the general
reserve. As the Company begins to have loss experience, historical loss ratios
will be utilized. Currently, the review of reserve adequacy is performed by
executive management and presented to the Board of Directors for their review,
consideration and ratification on a quarterly basis.
================================================================================
TABLE 5 - SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands)
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- ------------
Beginning balance $2,775 $ 100 $1,595
Loans charged-off:
Consumer -- -- 12
------ ------ ------
Total -- -- 12
------ ------ ------
Provision for loan losses 1,999 907 1,192
------ ------ ------
Ending balance $4,774 $1,007 $2,775
====== ====== ======
Reserve for loan losses to loans
outstanding at end of period 1.08% 1.00% 1.22%
Net charge-offs to average loans 0.00% 0.00% 0.00%
Provision for loan losses to average loans 0.66% 2.31% .64%
Recoveries to gross charge-offs -- -- --
Loans past due (90 days) -- -- 15
Nonaccrual 208 -- --
Renegotiated -- -- --
NON-PERFORMING ASSETS
The Company has one non-performing loan at June 30, 2000 and no non-performing
loans or other real estate at December 31, 1999 and June 30, 1999.
MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes
in the fair value of a financial instrument. These changes may be the result of
various factors, including interest rates, foreign exchange rates, commodity
prices, or equity prices. Additionally, the financial instruments subject to
market risk can be classified either as held for trading purposes or held for
other than trading.
The Company is subject to market risk primarily through the effect of changes in
interest rates on its portfolio of assets held for purposes other than trading.
The effect of other changes, such as foreign exchange rates, commodity prices,
and/or equity prices do not pose significant market risk to the Company.
The responsibility for managing market risk rests with the Balance Sheet
Management Committee (BSMC), which operates under policy guidelines established
by the Board of Directors. The negative acceptable variation in net interest
revenue due to a 200 basis point increase or decrease in interest rates is
generally limited by these guidelines to +/- 10%. These guidelines also
establish maximum levels for short-term borrowings, short-term assets, and
public and brokered deposits. They also establish minimum levels for unpledged
assets, among other things. Compliance with these guidelines is the ongoing
responsibility of the BSMC, with exceptions reported to the full Board on a
quarterly basis.
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INTEREST RATE RISK MANAGEMENT
The Company performs a sensitivity analysis to identify interest rate risk
exposure on net interest revenue. Currently, gap analysis is used to estimate
the effect of changes in interest rates over the next 12 months based on three
interest rate scenarios. These are a "most likely" rate scenario and two "shock
test" scenarios. The first scenario assumes a sustained parallel 200 basis point
increase and the second a sustained parallel 200 basis point decrease in
interest rates.
An independent source is used to determine the most likely interest rates for
the next year. The Federal Reserve's Federal Funds target affects short-term
borrowing; the prime lending rate and the London Interbank Offering Rate (LIBOR)
are the basis for most of the variable-rate loan pricing. The 30-year mortgage
rate is also monitored because of its effect on prepayment speeds for
mortgage-backed securities. These are the Company's primary interest rate
exposures. The Company is currently not using derivatives and other financial
instruments, but if they were used, they would be included in this analysis.
================================================================================
TABLE 6 - INTEREST RATE SENSITIVITY
(In thousands)
Anticipated Impact Over the Next Twelve Months
as Compared to Most Likely Scenario
----------------------------------------------
200 bp Increase 200 bp Decrease
June 2000 June 2000
---------------- ----------------
Change in net interest income $ 150 $ (189)
The estimated changes in interest rates on net interest revenue are within
guidelines established by the Board of Directors for all interest rate
scenarios.
The simulations used to manage market risk are based on numerous assumptions
regarding the effect of changes in interest rates on the timing and extent of
repricing characteristics, future cash flows, and customer behavior. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest revenue or precisely predict the impact of
higher or lower interest rates on net interest revenue. Actual results will
differ from simulated results due to timing, magnitude and frequency of interest
rate changes and changes in market conditions and management strategies, among
other factors.
================================================================================
TABLE 7 - CAPITAL RATIOS
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Risk-based capital:
Tier 1 capital 15.05% 23.0%
Total capital 15.82% 23.8%
Leverage 15.31% 21.5%
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NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board adopted Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
effective date for SFAS 133 has been deferred until fiscal years beginning after
June 15, 2000. The Company expects to adopt SFAS 133 effective January 1, 2001.
SFAS 133 will require the recognition of all derivatives on the balance sheet at
fair value. Derivatives that do not qualify for special hedge accounting
treatment must be adjusted to fair value through income. If the derivative
qualifies for hedge accounting, depending on the nature of the hedge, changes in
the fair value of the derivatives will either be offset against changes in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Adoption of SFAS 133 is not expected to have
a material impact on the Company's financial statements.
FORWARD LOOKING STATEMENTS
Statements and financial analysis contained in this document that are not
historical facts are forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward
looking statements describe our future plans, strategies and expectations and
are based on certain assumptions. As a result, these forward looking statements
involve substantial risks and uncertainties, many of which are beyond our
control. The important factors that could cause actual results to differ
materially from the forward looking statements include the following:
(1) Changes in interest rates
(2) Changes in the levels of loan prepayments, which could affect the value
of our loans
(3) Changes in general economic and business conditions in areas or markets
where we compete
(4) Competition from banks and other financial institutions for loans and
customer deposits
(5) The failure of assumptions underlying the establishment of and provisions
made to the allowance for credit losses
(6) The loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels
(7) Changes in government regulations
We have no obligation to update or revise any forward looking statements as a
result of new information or future events. In light of these assumptions, risks
and uncertainties, the events discussed in any forward looking statements in
this memorandum might not occur.
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================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
--------- --------- --------- ---------
INTEREST INCOME
Interest and fees on loans $ 8,501 $ 1,290 $ 13,964 $ 1,689
Securities 3,563 1,109 6,376 1,897
Federal funds sold 313 28 619 303
Deposits in other banks 73 8 77 18
-------- -------- -------- --------
Total interest income 12,450 2,435 21,036 3,907
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 6,899 580 11,383 786
Other borrowings 295 157 718 157
-------- -------- -------- --------
Total interest expense 7,194 737 12,101 943
-------- -------- -------- --------
NET INTEREST INCOME 5,256 1,698 8,935 2,964
PROVISION FOR LOAN LOSSES 1,299 701 1,999 907
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 3,957 997 6,936 2,057
-------- -------- -------- --------
NON-INTEREST INCOME
Service charges on deposit accounts 95 23 174 36
Trust fee income 135 12 241 12
Gain (loss) on sale of securities 1 -- 1 --
Other 332 11 484 14
-------- -------- -------- --------
Total non-interest income 563 46 900 62
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,596 1,530 6,841 2,986
Net occupancy expense 1,074 410 1,933 593
Advertising and affinity payments 1,668 619 2,290 727
Legal and professional 1,041 170 1,465 243
Communications and data processing 447 83 698 130
Franchise taxes 84 46 127 58
Other 1,177 418 2,019 632
-------- -------- -------- --------
Total non-interest expense 9,087 3,276 15,373 5,369
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (4,567) (2,233) (7,537) (3,250)
Income tax expense (benefit) -- -- -- --
-------- -------- -------- --------
NET LOSS $ (4,567) $ (2,233) $ (7,537) $ (3,250)
======== ======== ======== ========
EARNINGS PER SHARE:
-------- -------- -------- --------
Basic and diluted $ (.54) $ (.29) $ (.94) $ (.43)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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================================================================================
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands except share data)
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
ASSETS
Cash and due from banks $ 19,634 $ 8,428
Federal funds sold 6,620 120
Securities available for sale 192,316 164,409
Securities held to maturity 28,264 -
Loans, net 436,960 224,795
Premises and equipment, net 6,687 4,411
Accrued interest receivable and other assets 7,406 4,671
Goodwill, net 1,683 1,745
------------ -------------
Total assets $ 699,570 $ 408,579
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 48,488 $ 25,666
Interest bearing 532,067 261,402
------------ -------------
Total deposits 580,555 287,068
------------ -------------
Accrued interest payable and other liabilities 3,360 2,332
Federal funds purchased 2,000 -
Short-term borrowings 20,550 46,267
Other borrowings 1,899 -
------------ -------------
Total liabilities 608,364 335,667
------------ -------------
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 9,072,999 and 7,259,520 at June 30, 2000 and
December 31, 1999, respectively 91 73
Series A-1 Nonvoting common stock, $.01 par value:
Issued shares - 466,069 and 426,694 at June 30, 2000 and
December 31, 1999, respectively 4 4
Additional paid-in capital 113,716 86,917
Accumulated deficit (17,574) (10,037)
Treasury stock (shares at cost: 101,914 and 92,528 at June 30, 2000
and December 31, 1999, respectively) (1,299) (1,169)
Deferred compensation 445 322
Accumulated other comprehensive loss (4,177) (3,198)
------------ -------------
Total shareholders' equity 91,206 72,912
------------ -------------
Total liabilities and shareholders' equity $ 699,570 $ 408,579
============ =============
See accompanying notes to consolidated financial statements.
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================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
(In thousands, except share data)
SERIES A-1
NONVOTING
COMMON STOCK COMMON STOCK ADDITIONAL ACCUMU-
------------------------- ---------------------- PAID-IN LATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ---------- ------- ---------- ---------- -----------
Balances at December
31, 1998 6,160,441 $ 61 474,870 $ 5 $ 73,863 $ (739)
Comprehensive income
(loss)
Net loss -- -- -- -- -- (3,250)
Change in unrealized
loss on
available-for-sale
securities -- -- -- -- -- --
Total comprehensive
income (loss)
Stock issued 1,025,936 11 -- -- 12,730 --
Transfers -- -- -- -- -- --
Purchase of treasury -- -- -- -- -- --
stock
Deferred compensation
arrangement -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------
Balance at June 30, 1999 7,186,377 $ 72 474,870 $ 5 $ 86,593 $ (3,989)
========= ========== ======= ========== ========== ==========
Balances at December
31, 1999 7,259,520 $ 73 426,694 $ 4 $ 86,917 $ (10,037)
Comprehensive income
(loss):
Net loss -- -- -- -- -- (7,537)
Change in unrealized
loss on
available-for-sale
securities -- -- -- -- -- --
Total comprehensive
income (loss)
Stock issued 1,852,854 18 -- -- 26,799 --
Transfers (39,375) -- 39,375 -- -- --
Purchase of treasury -- -- -- -- -- --
stock
Sale of treasury stock -- -- -- -- -- --
Deferred compensation
arrangement -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------
Balance at June 30, 2000 9,072,999 $ 91 466,069 $ 4 $ 113,716 $ (17,574)
========= ========== ======= ========== ========== ==========
ACCUMU-
LATED OTHER
COMPRE-
TREASURY STOCK DEFERRED HENSIVE
--------------------------- COMPEN- INCOME
SHARES AMOUNT SATION (LOSS) TOTAL
---------- ----------- ---------- ----------- -----------
Balances at December
31, 1998 -- $ -- $ -- $ (4) $ 73,186
Comprehensive income
(loss)
Net loss -- -- -- -- (3,250)
Change in unrealized
loss on
available-for-sale
securities -- -- -- (1,556) (1,556)
----------
Total comprehensive
income (loss) (4,806)
Stock issued -- -- -- -- 12,741
Transfers -- -- -- -- --
Purchase of treasury -- -- -- -- --
stock
Deferred compensation
arrangement -- -- -- -- --
-------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 -- $ -- $ -- $ (1,560) $ 81,121
======== ========== ========== ========== ==========
Balances at December
31, 1999 (92,528) $ (1,169) $ 322 $ (3,198) $ 72,912
Comprehensive income
(loss):
Net loss -- -- -- -- (7,537)
Change in unrealized
loss on
available-for-sale
securities -- -- -- (979) (979)
----------
Total comprehensive
income (loss) (8,516)
Stock issued -- -- -- -- 26,817
Transfers -- -- -- -- --
Purchase of treasury (11,556) (144) -- -- (144)
stock
Sale of treasury stock 11,000 137 -- -- 137
Deferred compensation
arrangement (8,830) (123) 123 -- --
-------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 (101,914) $ (1,299) $ 445 $ (4,177) $ 91,206
======== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
SIX MONTHS ENDED JUNE 30
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net loss $ (7,537) $ (3,250)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for loan losses 1,999 907
Depreciation and amortization 813 219
Gain on sale of securities (1) --
Amortization and accretion on securities (203) 16
Changes in operating assets and liabilities:
Accrued interest receivable and other assets (2,735) (2,034)
Accrued interest payable and other liabilities 1,028 569
--------- ---------
Net cash used in operating activities (6,636) (3,573)
--------- ---------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (45,313) (75,279)
Proceeds from sale of available-for-sale securities 9,997 --
Purchases of held-to-maturity securities (28,226) --
Principal payments received on securities 6,596 852
Net increase in loans (214,164) (89,451)
Purchase of premises and equipment, net (3,027) (1,630)
--------- ---------
Net cash used in investing activities (274,137) (165,508)
--------- ---------
FINANCING ACTIVITIES
Net increase in checking, money market and savings accounts 162,655 52,157
Net increase in certificates of deposit 130,831 51,850
Sale of common stock 26,817 12,741
Net borrowings from FHLB (21,818) 5,000
Sale of treasury stock 138 --
Purchase of treasury stock (144) --
--------- ---------
Net cash provided by financing activities 298,479 121,748
--------- ---------
Net increase (decrease) in cash and cash equivalents 17,706 (47,333)
Cash and cash equivalents at beginning of period 8,548 72,521
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,254 $ 25,188
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 11,656 $ 770
========= =========
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(1) ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of Texas Capital Bancshares, Inc. conform
to generally accepted accounting principles in the United States and to
generally accepted practices within the banking industry. The Consolidated
Financial Statements of the Company include the accounts of the Company and its
subsidiary, Texas Capital Bank, National Association. Certain prior period
balances have been reclassified to conform with the current period presentation.
The consolidated interim financial statements have been prepared without audit.
Certain information and footnote disclosures presented in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted. In the opinion of management, the interim financial
statements include all normal and recurring adjustments and the disclosures made
are adequate to make interim financial information not misleading.
(2) EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per
share (dollars in thousands except share data):
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Numerator for basic and diluted per
share--loss allocated common
shareholders $ (4,567) $ (2,233) $ (7,537) $ (3,250)
Denominator for basic and diluted
earnings per share--weighted
average shares 8,391,062 7,661,247 7,991,404 7,487,679
Basic and diluted earnings per share (.54) (.29) (.94) (.43)
(3) REPORTABLE SEGMENTS
The Company operates two principal lines of business under Texas Capital Bank
(the "Bank"): the traditional bank and BankDirect, an internet only bank.
BankDirect has been a net provider of funds and the traditional bank has been a
net user of funds. In order to present the operating results separately for
BankDirect and the traditional bank, it was necessary to allocate earning assets
held by the traditional bank to BankDirect. Currently, earning assets are
allocated to BankDirect on a monthly basis in amounts equal to total BankDirect
liabilities, less any non-earning assets of BankDirect.
13
14
TRADITIONAL BANKING
Traditional banking contributed $1.0 million of consolidated net loss for the
second quarter of 2000.
================================================================================
TRADITIONAL BANKING
(In thousands)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
-------------- --------------- --------------- ---------------
Net interest income $ 4,632 $ 1,690 $ 8,226 $ 2,947
Provision for loan losses 999 701 1,699 907
Non-interest income 559 46 888 62
Non-interest expense 5,222 2,672 9,942 4,621
------------- ------------- ------------- -------------
Net loss (1,030) (1,637) (2,527) (2,519)
Average assets 405,271 146,791 388,894 122,893
Total assets 403,007 205,206 403,007 205,206
Return on average assets (1.02)% (4.54)% (1.30)% (4.11)%
BANKDIRECT
BankDirect contributed $2.6 million of consolidated net loss for the second
quarter of 2000.
================================================================================
BANKDIRECT
(In thousands)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net interest income $ 555 $ 2 $ 640 $ 2
Provision for loan losses 300 -- 300 --
Non-interest income 4 -- 12 --
Non-interest expense 2,886 371 4,027 371
--------- --------- --------- ---------
Net loss (2,627) (369) (3,675) (369)
Average assets 206,591 253 144,425 127
Total assets 296,545 1,596 296,545 1,596
Return on average assets (5.10)% (585.00)% (5.10)% (585.92)%
14
15
Reportable segments reconciliations to the Consolidated Financial Statements for
the three month and six month periods ended June 30, 2000 are as follows (in
thousands):
THREE MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
------------ ------------- ------------ ------------
Total reportable lines of business $ 5,187 $ 1,299 $ 563 $ 8,108
Unallocated items:
Holding company 69 -- -- 979
------------ ------------- ------------ ------------
The Company consolidated $ 5,256 $ 1,299 $ 563 $ 9,087
============ ============= ============ ============
SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
------------ ------------- ------------ ------------
Total reportable lines of business $ 8,866 $ 1,999 $ 900 $ 13,969
Unallocated items:
Holding company 69 -- -- 1,404
------------ ------------- ------------ ------------
The Company consolidated $ 8,935 $ 1,999 $ 900 $ 15,373
============ ============= ============ ============
Reportable segments reconciliations to the Consolidated Financial Statements for
the three month and six month periods ended June 30, 1999 are as follows (in
thousands):
THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
------------ ------------- ------------ ------------
Total reportable lines of business $ 1,692 $ 701 $ 46 $ 3,043
Unallocated items:
Holding company 6 -- -- 233
------------ ------------- ------------ ------------
The Company consolidated $ 1,698 $ 701 $ 46 $ 3,276
============ ============= ============ ============
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
------------ ------------- ------------ ------------
Total reportable lines of business $ 2,949 $ 907 $ 62 $ 4,992
Unallocated items:
Holding company 15 -- -- 377
------------ ------------- ------------ ------------
The Company consolidated $ 2,964 $ 907 $ 62 $ 5,369
============ ============= ============ ============
15
16
================================================================================
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands Except Share)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
---------------------------------- --------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE (1)(2) RATE BALANCE EXPENSE (1)(2) RATE
-------- -------------- ------- -------- -------------- -------
ASSETS
Taxable securities $209,019 $ 3,563 6.84% $ 77,182 $ 1,109 5.76%
Federal funds sold 20,401 313 6.15% 2,328 28 4.82%
Deposits in other banks 254 73 115.28% 45 8 71.31%
Loans (1) 360,323 8,501 9.46% 62,414 1,290 8.29%
Less reserve for loan losses 3,988 -- -- 325 -- --
-------- -------- ------ -------- -------- -----
Loans, net of reserve 356,335 8,501 9.57% 62,089 1,290 8.33%
-------- -------- ------ -------- -------- -----
Total earning assets 586,009 12,450 8.52% 141,644 2,435 6.90%
-------- -------- ------ -------- -------- -----
Cash and other assets 25,853 5,400
-------- --------
Total assets $611,862 $147,044
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Transaction deposits $ 15,357 $ 109 2.85% $ 1,788 $ 7 1.57%
Savings deposits 260,875 3,718 5.72% 19,718 217 4.41%
Time deposits 193,610 3,072 6.36% 26,195 356 5.45%
-------- -------- ------ -------- -------- -----
Total interest-bearing deposits 469,842 6,899 5.89% 47,701 580 4.88%
-------- -------- ------ -------- -------- -----
Other borrowings 18,454 295 6.41% 11,325 157 5.56%
-------- -------- ------ -------- -------- -----
Total interest-bearing liabilities 488,296 7,194 5.91% 59,026 737 5.01%
-------- -------- ------ -------- -------- -----
Demand deposits 42,506 8,497
Other liabilities 3,545 243
Shareholders' equity 77,515 79,278
-------- --------
Total liabilities and shareholders'
equity $611,862 $147,044
======== ========
Net interest income $ 5,256 $ 1,698
Net interest income to earning
assets 3.60% 4.81%
------ -----
Provision for loan losses 1,299 701
Non-interest income 563 46
Non-interest expense 9,087 3,276
-------- --------
LOSS BEFORE TAXES (4,567) (2,233)
Federal and state income tax -- --
-------- --------
NET LOSS $ (4,567) $ (2,233)
======== ========
EARNINGS PER SHARE:
NET INCOME
Basic and diluted $ (.54) $ (.29)
-------- --------
Return on average equity (23.64)% (11.30)%
-------- --------
Return on average assets (2.99)% (6.09)%
-------- --------
Equity to assets 12.67% 53.91%
======== ========
(1) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(2) Revenue from deposits in other banks includes interest earned on capital
while held in an escrow account.
16
17
================================================================================
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands Except Share)
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------------------------------- -----------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE (1)(2) RATE BALANCE EXPENSE (1)(2) RATE
-------- -------------- -------- -------- -------------- ---------
ASSETS
Taxable securities $189,046 $ 6,376 6.76% $ 66,582 $ 1,897 5.75%
Federal funds sold 20,831 619 5.96% 12,973 303 4.71%
Deposits in other banks 268 77 57.62% 23 18 157.82%
Loans (1) 305,014 13,964 9.18% 39,306 1,689 8.67%
Less reserve for loan losses 3,532 -- -- 217 -- --
-------- -------- ---- -------- -------- ------
Loans, net of reserve 301,482 13,964 9.29% 39,089 1,689 8.71%
-------- -------- ---- -------- -------- ------
Total earning assets 511,627 21,036 8.25% 118,667 3,907 6.64%
-------- -------- ---- -------- -------- ------
Cash and other assets 23,268 4,353
-------- --------
Total assets $534,895 $123,020
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits $ 12,727 $ 174 2.74% $ 1,387 $ 11 1.60%
Savings deposits 223,621 6,260 5.61% 12,682 276 4.39%
Time deposits 160,143 4,949 6.20% 18,420 499 5.46%
-------- -------- ---- -------- -------- ------
Total interest-bearing deposits 396,491 11,383 5.76% 32,489 786 4.88%
-------- -------- ---- -------- -------- ------
Other borrowings 24,009 718 6.00% 5,715 157 5.54%
-------- -------- ---- -------- -------- ------
Total interest-bearing liabilities 420,500 12,101 5.77% 38,204 943 4.98%
-------- --------
Demand deposits 37,637 7,399
Other liabilities 3,155 182
Shareholders' equity 73,603 77,235
-------- --------
Total liabilities and shareholders'
equity $534,895 $123,020
======== ========
Net interest income $ 8,935 $ 2,964
Net interest income to earning
assets 3.50% 5.04%
---- ------
Provision for loan losses 1,999 907
Non-interest income 900 62
Non-interest expense 15,373 5,369
-------- --------
LOSS BEFORE TAXES (7,537) (3,250)
Federal and state income tax -- -
-------- --------
NET LOSS $ (7,537) $ (3,250)
======== ========
EARNINGS PER SHARE:
NET INCOME
Basic and diluted $ (.94) (.43)
-------- --------
Return on average equity (20.54)% (8.49)%
-------- --------
Return on average assets (2.83)% (5.33)%
-------- --------
Equity to assets 13.76% 62.78%
======== ========
(1) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(2) Revenue from deposits in other banks includes interest earned on capital
while held in an escrow account.
17
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXAS CAPITAL BANCSHARES, INC.
------------------------------
(Registrant)
Date: August 11, 2000 /s/ Gregory B. Hultgren
----------------- ------------------------------
Gregory B. Hultgren
Chief Financial Officer
18
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule