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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 and Exchange Act of 1934.

For the quarterly period ended June 30, 2004

     
o
  Transition Report pursuant to Section 13 or 15(d) of the Securities and 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   75-2679109
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
     
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 checkmark 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   x   No   o

     Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes   x   No   o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     On July 31, 2004, the number of shares set forth below was outstanding with respect to each of the issuer’s classes of common stock:

     
Common Stock   24,978,618
Series A-1 Non-voting Common Stock   281,056

 

Table of Contents

Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended June 30, 2004

Index

         
Part I. Financial Information
        
       
    3  
    4  
    5  
    6  
    7  
    10  
    12  
    24  
    25  
       
    26  
    26  
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906

2

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(In thousands except share data)
                                 
    Three Months Ended June 30   Six Months Ended June 30
    2004
   2003
   2004
   2003
Interest income
                                
Interest and fees on loans
   $ 17,498     $ 15,981     $ 34,204     $ 30,677  
Securities
     7,536       5,335       15,087       10,695  
Federal funds sold
     18       43       33       130  
Deposits in other banks
     4       4       6       7  
 
    
 		      
 		      
 		      
 		  
Total interest income
     25,056       21,363       49,330       41,509  
Interest expense
                                
Deposits
     4,948       5,597       9,691       10,979  
Federal funds purchased
     294       469       614       909  
Repurchase agreements
     2,250       2,320       4,335       4,679  
Other borrowings
     56       60       282       146  
Long-term debt
     256       253       512       390  
 
    
 		      
 		      
 		      
 		  
Total interest expense
     7,804       8,699       15,434       17,103  
 
    
 		      
 		      
 		      
 		  
Net interest income
     17,252       12,664       33,896       24,406  
Provision for loan losses
     363       1,600       1,113       2,850  
 
    
 		      
 		      
 		      
 		  
Net interest income after provision for loan losses
     16,889       11,064       32,783       21,556  
Non-interest income
                                
Service charges on deposit accounts
     891       897       1,748       1,740  
Trust fee income
     454       306       891       587  
Gain on sale of securities
     –       345       –       686  
Cash processing fees
     –       73       587       973  
Bank owned life insurance (BOLI) income
     329       428       650       842  
Mortgage warehouse fees
     274       424       512       703  
Gain on sale of mortgage loans
     729       –       1,192       –  
Other
     439       345       851       614  
 
    
 		      
 		      
 		      
 		  
Total non-interest income
     3,116       2,818       6,431       6,145  
Non-interest expense
                                
Salaries and employee benefits
     7,964       5,857       16,094       11,236  
Net occupancy expense
     1,341       1,199       2,675       2,386  
Advertising and affinity payments
     296       199       581       392  
Legal and professional
     779       930       1,572       1,509  
Communications and data processing
     995       736       1,854       1,456  
Franchise taxes
     56       37       153       74  
Repurchase agreement penalties
     –       6,262       –       6,262  
Other
     2,065       1,681       3,899       2,964  
 
    
 		      
 		      
 		      
 		  
Total non-interest expense
     13,496       16,901       26,828       26,279  
 
    
 		      
 		      
 		      
 		  
Income (loss) before income taxes
     6,509       (3,019 )     12,386       1,422  
Income tax expense (benefit)
     2,149       (6,876 )     4,089       (5,466 )
 
    
 		      
 		      
 		      
 		  
Net income
     4,360       3,857       8,297       6,888  
Preferred stock dividends
     –       (276 )     –       (550 )
 
    
 		      
 		      
 		      
 		  
Income available to common stockholders
   $ 4,360     $ 3,581     $ 8,297     $ 6,338  
 
    
 		      
 		      
 		      
 		  
Earnings per share:
                                
Basic
   $ .17     $ .19     $ .33     $ .33  
Diluted
   $ .17     $ .18     $ .32     $ .32  

See accompanying notes to consolidated financial statements.

3

Table of Contents

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
                 
    June 30,   December 31,
    2004
   2003
    (Unaudited)    
Assets
                
Cash and due from banks
   $ 90,754     $ 69,551  
Federal funds sold
     59,970       –  
Securities, available-for-sale
     783,234       775,338  
Loans held for sale
     58,058       80,780  
Loans held for investment (net of unearned income)
     1,364,106       1,229,773  
Less: Allowance for loan losses
     (18,278 )     (17,727 )
 
    
 		      
 		  
Loans held for investment, net
     1,345,828       1,212,046  
Premises and equipment, net
     4,719       4,672  
Accrued interest receivable and other assets
     55,544       48,992  
Goodwill, net
     1,496       1,496  
 
    
 		      
 		  
Total assets
   $ 2,399,603     $ 2,192,875  
 
    
 		      
 		  
Liabilities and Stockholders’ Equity
                
Liabilities:
                
Deposits:
                
Non-interest bearing
   $ 359,628     $ 301,886  
Interest bearing
     1,174,284       1,094,534  
Interest bearing in foreign branches
     94,485       48,610  
 
    
 		      
 		  
Total deposits
     1,628,397       1,445,030  
Accrued interest payable
     2,832       3,468  
Other liabilities
     4,023       6,247  
Federal funds purchased
     97,972       78,961  
Repurchase agreements
     467,686       432,255  
Other borrowings
     3,746       34,538  
Long-term debt
     20,620       20,620  
 
    
 		      
 		  
Total liabilities
     2,225,276       2,021,119  
Stockholders’ equity:
                
Common stock, $.01 par value:
                
Authorized shares – 100,000,000
               
Issued shares – 24,978,518 and 24,715,607 at June 30, 2004 and December 31, 2003, respectively
     250       247  
Series A-1 non-voting common stock, $.01 par value:
                
Issued shares – 281,056 and 293,918 at June 30, 2004 and December 31, 2003, respectively
     3       3  
Additional paid-in capital
     170,147       167,751  
Retained earnings
     8,784       487  
Treasury stock (shares at cost: 84,274 at June 30, 2004 and December 31, 2003)
     (573 )     (573 )
Deferred compensation
     573       573  
Accumulated other comprehensive income (loss)
     (4,857 )     3,268  
 
    
 		      
 		  
Total stockholders’ equity
     174,327       171,756  
 
    
 		      
 		  
Total liabilities and stockholders’ equity
   $ 2,399,603     $ 2,192,875  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

4

Table of Contents

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands except share data)
                                                 
    Series A                   Series A-1
    Convertible                   Non-voting
    Preferred Stock
   Common Stock
   Common Stock
    Shares
   Amount
   Shares
   Amount
   Shares
   Amount
Balance at December 31, 2002
     1,057,142     $ 11       18,500,812     $ 185       695,516     $ 7  
Comprehensive income:
                                                
Net income
     –       –       –       –       –       –  
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,760, net of reclassification amount of $666
     –       –       –       –       –       –  
Total comprehensive income Tax benefit related to exercise of stock options
     –       –       –       –       –       –  
Issuance of common stock
     –       –       3,698,913       37       –       –  
Conversion of preferred stock
     (1,057,142 )     (11 )     2,114,284       21       –       –  
Preferred dividends
     –       –       –       –       –       –  
Transfers
     –       –       401,598       4       (401,598 )     (4 )
Sale of treasury stock
     –       –       –       –       –       –  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2003
     –       –       24,715,607       247       293,918       3  
Comprehensive income:
                                                
Net income (unaudited)
     –       –       –       –       –       –  
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of ($4,375) (unaudited)
     –       –       –       –       –       –  
Total comprehensive income Tax benefit related to exercise of stock options (unaudited)
     –       –       –       –       –       –  
Issuance of common stock (unaudited)
     –       –       250,049       3       –       –  
Transfers (unaudited)
     –       –       12,862       –       (12,862 )     –  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance at June 30, 2004 (unaudited)
     –     $ –       24,978,518     $ 250       281,056     $ 3  
 
    
 		      
 		      
 		      
 		      
 		      
 		  

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                         
                                            Accumulated    
                                            Other    
            Retained                           Compre-    
    Additional   Earnings   Treasury Stock           hensive    
    Paid-in   (Accumulated  
  Deferred   Income    
    Capital
   Deficit)
   Shares
   Amount
   Compensation
   (Loss)
   Total
Balance at December 31, 2002
   $ 131,881     $ (13,347 )     (97,246 )   $ (668 )   $ 573     $ 6,334     $ 124,976  
Comprehensive income:
                                                        
Net income
     –       13,834       –       –       –       –       13,834  
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,760, net of reclassification amount of $666
     –       –       –       –       –       (3,066 )     (3,066 )
 
                                                    
 		  
Total comprehensive income
                                                     10,768  
Tax benefit related to exercise of stock options
     412       –       –       –       –       –       412  
Issuance of common stock
     36,167       –       –       –       –       –       36,204  
Conversion of preferred stock
     (10 )     –       –       –       –       –       –  
Preferred dividends
     (699 )     –       –       –       –       –       (699 )
Transfers
     –       –       –       –       –       –       –  
Sale of treasury stock
     –       –       12,972       95       –       –       95  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2003
     167,751       487       (84,274 )     (573 )     573       3,268       171,756  
Comprehensive income:
                                                        
Net income (unaudited)
     –       8,297       –       –       –       –       8,297  
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of ($4,375) (unaudited)
     –       –       –       –       –       (8,125 )     (8,125 )
 
                                                    
 		  
Total comprehensive income
                                                     172  
Tax benefit related to exercise of stock options (unaudited)
     657       –       –       –       –       –       657  
Issuance of common stock (unaudited)
     1,739       –       –       –       –       –       1,742  
Transfers (unaudited)
     –       –       –       –       –       –       –  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at June 30, 2004 (unaudited)
   $ 170,147     $ 8,784       (84,274 )   $ (573 )   $ 573     $ (4,857 )   $ 174,327  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		  

See accompanying notes to consolidated financial statements.

5

Table of Contents

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
                 
    Six Months Ended June 30
    2004
   2003
Operating activities
                
Net income
   $ 8,297     $ 6,888  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                
Provision for loan losses
     1,113       2,850  
Depreciation and amortization
     788       710  
Amortization and accretion on securities
     2,820       4,580  
Bank owned life insurance (BOLI) income
     (650 )     (842 )
Gain on sale of securities
     –       (686 )
Originations of loans held for sale
     (802,676 )     (1,152,374 )
Proceeds from sales of loans held for sale
     825,812       1,111,305  
Impact of reversing tax valuation allowance
     –       (5,929 )
Changes in operating assets and liabilities:
                
Accrued interest receivable and other assets
     (5,574 )     (3,984 )
Accrued interest payable and other liabilities
     2,172       (4,499 )
 
    
 		      
 		  
Net cash provided by (used in) operating activities
     32,102       (41,981 )
Investing activities
                
Purchases of available-for-sale securities
     (136,661 )     (304,700 )
Proceeds from sales of available-for-sale securities
     –       42,914  
Maturities and calls of available-for-sale securities
     6,345       6,900  
Principal payments received on securities
     107,100       154,955  
Net increase in loans
     (135,827 )     (88,366 )
Purchase of premises and equipment, net
     (645 )     (371 )
 
    
 		      
 		  
Net cash used in investing activities
     (159,688 )     (188,668 )
Financing activities
                
Net increase in checking, money market and savings accounts
     181,878       124,009  
Net increase in certificates of deposit
     1,489       19,778  
Sale of common stock
     1,742       470  
Issuance of long-term debt
     –       10,310  
Net other borrowings
     4,639       (19,058 )
Net federal funds purchased
     19,011       72,565  
Dividends paid
     –       (554 )
 
    
 		      
 		  
Net cash provided by financing activities
     208,759       207,520  
 
    
 		      
 		  
Net increase (decrease) in cash and cash equivalents
     81,173       (23,129 )
Cash and cash equivalents at beginning of period
     69,551       88,744  
 
    
 		      
 		  
Cash and cash equivalents at end of period
   $ 150,724     $ 65,615  
 
    
 		      
 		  
Supplemental disclosures of cash flow information:
                
Cash paid during the period for interest
   $ 16,070     $ 17,526  
Cash paid during the period for income taxes
     3,900       5,720  
Non-cash transactions:
                
Transfers from loans/leases to other repossessed assets
     328       52  
Transfers from loans/leases to premises and equipment
     190       91  

See accompanying notes to consolidated financial statements.

6

Table of Contents

TEXAS CAPITAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(1) ACCOUNTING POLICIES

Basis of Presentation

The accounting and reporting policies of Texas Capital Bancshares, Inc. (the “Company”) conform to accounting principles generally accepted 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 (the “Bank”). 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.

Stock-Based Compensation

At June 30, 2004, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost for options is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

                                 
    Three Months Ended June 30   Six Months Ended June 30
    2004
   2003
   2004
   2003
Net income:
                                
Net income as reported
   $ 4,360     $ 3,857     $ 8,297     $ 6,888  
Add: Total stock-based employee compensation re