UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 September 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.
| 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 October 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
|
25,323,489 | |||
Series A-1 Non-voting Common Stock
|
– |
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended September 30, 2004
Index
Part I. Financial Information |
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| 7 | ||||||||
| 10 | ||||||||
| 12 | ||||||||
| 24 | ||||||||
| 25 | ||||||||
| 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
ITEM 1. FINANCIAL STATEMENTS
TEXAS CAPITAL BANCSHARES, INC.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 |
September 30 |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Interest income |
||||||||||||||||
Interest and fees on loans |
$ | 20,455 | $ | 16,114 | $ | 54,659 | $ | 46,791 | ||||||||
Securities |
8,546 | 4,839 | 23,633 | 15,534 | ||||||||||||
Federal funds sold |
15 | 20 | 48 | 150 | ||||||||||||
Deposits in other banks |
3 | 4 | 9 | 11 | ||||||||||||
Total interest income |
29,019 | 20,977 | 78,349 | 62,486 | ||||||||||||
Interest expense |
||||||||||||||||
Deposits |
6,231 | 5,041 | 15,922 | 16,020 | ||||||||||||
Federal funds purchased |
437 | 348 | 1,051 | 1,257 | ||||||||||||
Repurchase agreements |
2,572 | 1,835 | 6,907 | 6,514 | ||||||||||||
Other borrowings |
112 | 145 | 394 | 291 | ||||||||||||
Long-term debt |
281 | 257 | 793 | 647 | ||||||||||||
Total interest expense |
9,633 | 7,626 | 25,067 | 24,729 | ||||||||||||
Net interest income |
19,386 | 13,351 | 53,282 | 37,757 | ||||||||||||
Provision for loan losses |
375 | 475 | 1,488 | 3,325 | ||||||||||||
Net interest income after
provision for loan losses |
19,011 | 12,876 | 51,794 | 34,432 | ||||||||||||
Non-interest income |
||||||||||||||||
Service charges on deposit accounts |
825 | 856 | 2,573 | 2,596 | ||||||||||||
Trust fee income |
482 | 350 | 1,373 | 937 | ||||||||||||
Gain on sale of securities |
— | — | — | 686 | ||||||||||||
Cash processing fees |
— | — | 587 | 973 | ||||||||||||
Bank owned life insurance (BOLI)
income |
346 | 451 | 996 | 1,293 | ||||||||||||
Mortgage warehouse fees |
241 | 545 | 753 | 1,248 | ||||||||||||
Gain on sale of mortgage loans |
1,083 | 14 | 2,275 | 14 | ||||||||||||
Other |
486 | 296 | 1,337 | 910 | ||||||||||||
Total non-interest income |
3,463 | 2,512 | 9,894 | 8,657 | ||||||||||||
Non-interest expense |
||||||||||||||||
Salaries and employee benefits |
8,914 | 5,754 | 25,008 | 16,990 | ||||||||||||
Net occupancy expense |
1,443 | 1,265 | 4,118 | 3,651 | ||||||||||||
Advertising and affinity payments |
302 | 213 | 883 | 605 | ||||||||||||
Legal and professional |
755 | 744 | 2,327 | 2,253 | ||||||||||||
Communications and data processing |
764 | 767 | 2,618 | 2,223 | ||||||||||||
Franchise taxes |
52 | 37 | 205 | 111 | ||||||||||||
Repurchase agreement penalties |
— | — | — | 6,262 | ||||||||||||
Other |
2,365 | 1,703 | 6,264 | 4,667 | ||||||||||||
Total non-interest expense |
14,595 | 10,483 | 41,423 | 36,762 | ||||||||||||
Income before income taxes |
7,879 | 4,905 | 20,265 | 6,327 | ||||||||||||
Income tax expense (benefit) |
2,643 | 1,573 | 6,732 | (3,893 | ) | |||||||||||
Net income |
5,236 | 3,332 | 13,533 | 10,220 | ||||||||||||
Preferred stock dividends |
— | (149 | ) | — | (699 | ) | ||||||||||
Income available to common
stockholders |
$ | 5,236 | $ | 3,183 | $ | 13,533 | $ | 9,521 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | .21 | $ | .15 | $ | .54 | $ | .47 | ||||||||
Diluted |
$ | .20 | $ | .14 | $ | .52 | $ | .46 | ||||||||
See accompanying notes to consolidated financial statements.
3
TEXAS CAPITAL BANCSHARES, INC.
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
Assets |
||||||||
Cash and due from banks |
$ | 62,506 | $ | 69,551 | ||||
Securities, available-for-sale |
820,661 | 775,338 | ||||||
Loans held for sale |
79,010 | 80,780 | ||||||
Loans held for investment (net of unearned income) |
1,485,156 | 1,229,773 | ||||||
Less: Allowance for loan losses |
(18,731 | ) | (17,727 | ) | ||||
Loans held for investment, net |
1,466,425 | 1,212,046 | ||||||
Premises and equipment, net |
4,697 | 4,672 | ||||||
Accrued interest receivable and other assets |
52,576 | 48,992 | ||||||
Goodwill, net |
1,496 | 1,496 | ||||||
Total assets |
$ | 2,487,371 | $ | 2,192,875 | ||||
Liabilities and Stockholders’ Equity |
||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Non-interest bearing |
$ | 324,292 | $ | 301,886 | ||||
Interest bearing |
1,160,118 | 1,094,534 | ||||||
Interest bearing in foreign branches |
128,352 | 48,610 | ||||||
Total deposits |
1,612,762 | 1,445,030 | ||||||
Accrued interest payable |
2,660 | 3,468 | ||||||
Other liabilities |
7,847 | 6,247 | ||||||
Federal funds purchased |
146,342 | 78,961 | ||||||
Repurchase agreements |
478,581 | 432,255 | ||||||
Other borrowings |
28,245 | 34,538 | ||||||
Long-term debt |
20,620 | 20,620 | ||||||
Total liabilities |
2,297,057 | 2,021,119 | ||||||
Stockholders’ equity: |
||||||||
Common stock, $.01 par value: |
||||||||
Authorized shares – 100,000,000 |
||||||||
Issued shares – 25,292,206 and 24,715,607 at
September 30, 2004 and December 31, 2003,
respectively |
253 | 247 | ||||||
Series A-1 non-voting common stock, $.01 par value: |
||||||||
Issued shares – 293,918 at December 31, 2003 |
— | 3 | ||||||
Additional paid-in capital |
170,650 | 167,751 | ||||||
Retained earnings |
14,020 | 487 | ||||||
Treasury stock (shares at cost: 84,274 at
September 30, 2004 and December 31, 2003) |
(573 | ) | (573 | ) | ||||
Deferred compensation |
573 | 573 | ||||||
Accumulated other comprehensive income |
5,391 | 3,268 | ||||||
Total stockholders’ equity |
190,314 | 171,756 | ||||||
Total liabilities and stockholders’ equity |
$ | 2,487,371 | $ | 2,192,875 | ||||
See accompanying notes to consolidated financial statements.
4
TEXAS CAPITAL BANCSHARES, INC.
| 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) |
— | — | 282,681 | 3 | — | — | ||||||||||||||||||
Transfers (unaudited) |
— | — | 293,918 | 3 | (293,918 | ) | (3 | ) | ||||||||||||||||
Balance at September 30,
2004 (unaudited) |
— | $ | — | 25,292,206 | $ | 253 | — | $ | — | |||||||||||||||
[Continued from above table, first column(s) repeated]
| Accumulated | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Retained | Compre- | |||||||||||||||||||||||||||
| Additional Paid-in |
Earnings (Accumulated |
Treasury Stock |
Deferred | hensive 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) |
— | 13,533 | — | — | — | — | 13,533 | |||||||||||||||||||||
Change in unrealized gain
(loss) on
available-for-sale
securities, net of taxes
of ($4,375) (unaudited) |
— | — | — | — | — | 2,123 | 2,123 | |||||||||||||||||||||
Total comprehensive income |
15,656 | |||||||||||||||||||||||||||
Tax benefit related to
exercise of stock options
(unaudited) |
920 | — | — | — | — | — | 920 | |||||||||||||||||||||
Issuance of common stock
(unaudited) |
1,979 | — | — | — | — | — | 1,982 | |||||||||||||||||||||
Transfers (unaudited) |
— | — | — | — | — | — | — | |||||||||||||||||||||
Balance at September 30,
2004 (unaudited) |
$ | 170,650 | $ | 14,020 | (84,274 | ) | $ | (573 | ) | $ | 573 | $ | 5,391 | $ | 190,314 | |||||||||||||
See accompanying notes to consolidated financial statements.
5
TEXAS CAPITAL BANCSHARES, INC.
| Nine Months Ended | ||||||||
| September 30 |
||||||||
| 2004 |
2003 |
|||||||
Operating activities |
||||||||
Net income |
$ | 13,533 | $ | 10,220 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Provision for loan losses |
1,488 | 3,325 | ||||||
Depreciation and amortization |
1,191 | 1,060 | ||||||
Amortization and accretion on securities |
3,651 | 7,803 | ||||||
Bank owned life insurance (BOLI) income |
(959 | ) | (1,293 | ) | ||||
Gain on sale of securities |
— | (686 | ) | |||||
Originations of loans held for sale |
(1,192,096 | ) | (1,899,622 | ) | ||||
Proceeds from sales of loans held for sale |
1,194,061 | 1,924,496 | ||||||
Impact of reversing tax valuation allowance |
— | (5,929 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accrued interest receivable and other assets |
(2,212 | ) | (4,840 | ) | ||||
Accrued interest payable and other liabilities |
568 | 961 | ||||||
Net cash provided by operating activities |
19,225 | 35,495 | ||||||
Investing activities |
||||||||
Purchases of available-for-sale securities |
(209,143 | ) | (609,127 | ) | ||||
Proceeds from sales of available-for-sale securities |
— | 42,914 | ||||||
Maturities and calls of available-for-sale securities |
12,102 | 9,700 | ||||||
Principal payments received on securities |
151,334 | 283,782 | ||||||
Net increase in loans |
(256,748 | ) | (124,701 | ) | ||||
Purchase of premises and equipment, net |
(943 | ) | (768 | ) | ||||
Net cash used in investing activities |
(303,398 | ) | (398,200 | ) | ||||
Financing activities |
||||||||
Net increase in checking, money market and savings accounts |
148,867 | 200,619 | ||||||
Net increase in certificates of deposit |
18,865 | 29,953 | ||||||
Sale of common stock |
1,982 | 34,835 | ||||||
Net other borrowings |
40,033 | 58,056 | ||||||
Net federal funds purchased |
67,381 | 20,097 | ||||||
Trust preferred |
— | 10,000 | ||||||
Dividends paid |
— | (699 | ) | |||||
Net cash provided by financing activities |
277,128 | 352,861 | ||||||
Net decrease in cash and cash equivalents |
(7,045 | ) | (9,844 | ) | ||||
Cash and cash equivalents at beginning of period |
69,551 | 88,744 | ||||||
Cash and cash equivalents at end of period |
$ | 62,506 | $ | 78,900 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | 25,776 | $ | 25,919 | ||||
Cash paid during the period for income taxes |
7,250 | 5,720 | ||||||
Non-cash transactions: |
||||||||
Transfers from loans/leases to other repossessed assets |
413 | 230 | ||||||
Transfers from loans/leases to premises and equipment |
273 | 158 | ||||||
See accompanying notes to consolidated financial statements.
6
TEXAS CAPITAL BANCSHARES, INC.
(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 September 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 | Nine Months Ended | |||||||||||||||
| September 30 |
September 30 |
|||||||||||||||
| (Dollars in thousands except per share data) | 2004 |
2003 |
2004 |
2003 |
||||||||||||
Net income: |
||||||||||||||||
Net income as reported |
$ | 5,236 | $ | 3,332 | $ | 13,533 | $ | 10,220 | ||||||||
Add: Total stock-based employee
compensation recorded net of tax |
& | |||||||||||||||