<PAGE> 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 September 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 (I.R.S. Employer
of incorporation or organization) 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 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 PRECEDING 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:
<TABLE>
<S> <C>
Common Stock:
Voting 9,009,022
Nonvoting 466,069
</TABLE>
<PAGE> 2
Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended September 30, 2000
Index
<TABLE>
<S> <C>
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
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Signature 19
</TABLE>
MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION
ASSESSMENT OF OPERATIONS
SUMMARY OF PERFORMANCE
Texas Capital Bancshares, Inc. (the "Company") recorded a net loss of $3.0
million or $(.32) per diluted common share for the third quarter of 2000
compared to $2.4 million or $(.31) per diluted common share for the third
quarter of 1999. Return on average assets was (1.54)% for the third quarter of
2000 compared to (4.00)% for the third quarter of 1999. Returns on average
equity were (13.15)% and (12.28)%, for the third quarter of 2000 and 1999,
respectively.
Net interest income for the third quarter of 2000 increased by $4.1 million or
184% from the third quarter of 1999. Non-interest income increased by $601,000
and non-interest expense increased $4.9 million or 116% compared to the third
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
<PAGE> 3
NET INTEREST INCOME
Net interest income was $6.4 million for the third quarter of 2000 compared to
$2.2 million for the third quarter of 1999. Average earning assets increased by
$508 million from the third quarter of 1999. The increase in average earning
assets from the third quarter of 1999 included a $367 million increase in
average net loans. Average interest bearing liabilities increased $476 million
from the third quarter of 1999 which included a $464 million increase in
interest bearing deposits and a $12 million increase in borrowings.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
TABLE 1 - VOLUME/RATE ANALYSIS
(In thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000/1999 SEPTEMBER 30, 2000/1999
---------------------------------------- ----------------------------------------
Change Due To Change Due To
-------------------------- -----------------------
Change Volume Yield/Rate Change Volume Yield/Rate
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities $ 2,393 $ 1,952 $ 441 $ 6,872 $ 5,515 $ 1,357
Loans 9,296 7,727 1,569 21,571 19,027 2,544
Federal funds sold 203 105 98 519 296 223
Deposits in other banks 13 9 4 72 102 (30)
------------------------------------------------------------------------------------------------------------------------
Total 11,905 9,793 2,112 29,034 24,940 4,094
------------------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction deposits 140 88 52 303 187 116
Savings deposits 3,805 3,027 778 9,789 8,055 1,734
Time deposits 3,603 2,770 833 8,053 6,694 1,359
Borrowed funds 212 (1,136) 1,348 773 593 180
------------------------------------------------------------------------------------------------------------------------
Total 7,760 4,749 3,011 18,918 15,529 3,389
------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 4,145 $ 5,044 $ (899) $10,116 $ 9,411 $ 705
========================================================================================================================
</TABLE>
Net interest margin, the ratio of net interest income to average earning assets,
was 3.44% for the third quarter of 2000 compared to 3.90% for the third quarter
of 1999. The decrease in the net interest margin during the third 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 $601,000 compared to the same quarter of 1999.
Service charges on deposit accounts increased $94,000. This increase was due to
the large increase in deposits, which resulted in a higher volume of
transactions. Trust fee income increased $92,000, due to the formation of the
trust department during 1999. Other non-interest income increased by $415,000
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.
3
<PAGE> 4
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
TABLE 2 - NON-INTEREST INCOME
(In thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 126 $ 32 $ 300 $ 68
Trust fee income 165 73 406 85
Gain on sale of securities -- -- 1 --
Other 440 25 924 39
-------------------------------------------------------------------------------------------------------------------------
Total non-interest income $ 731 $ 130 $1,631 $ 192
=========================================================================================================================
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 2000 increased $4.9 million or
116% compared to the third quarter of 1999. Salaries and employee benefits
increased by $2.0 million or 104%. The increase in salaries and employee
benefits was due to an increase in full time employees from 125 at September 30,
1999 to 233 at September 30, 2000. This increase was due to the continued
development of infrastructure for the traditional bank and BankDirect.
Net occupancy expense increased by $684,000 or 153% 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 $606,000 or 75%. Advertising included direct
marketing with print and on-line ads, and branding for the traditional bank and
BankDirect. In addition, the September 2000 quarter included approximately
$692,000 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 $293,000, or 83%, due
to audit and accounting fees, operations and system consulting and general legal
fees. Communications and data processing increased $387,000 or 235% due to the
strong growth in loans and deposits, which has created a significantly larger
volume of transactions.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
TABLE 3 - NON-INTEREST EXPENSE
(In thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 3,847 $ 1,886 $10,688 $ 4,872
Net occupancy expense 1,131 447 3,064 1,040
Advertising and affinity payments 1,417 811 3,707 1,538
Legal and professional 645 352 2,110 595
Communications and data processing 552 165 1,250 295
Franchise taxes 38 62 165 120
Other expense 1,445 474 3,464 1,106
---------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $ 9,075 $ 4,197 $24,448 $ 9,566
===========================================================================================================================
</TABLE>
4
<PAGE> 5
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 September 30, 2000 increased $310.4 million from
December 31, 1999 to $538.0 million. Commercial loans increased $165.1 million
and real estate loans increased $114.6 million.
<TABLE>
<CAPTION>
------------------------------------------------------------------
TABLE 4 - LOANS
(In thousands)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-----------------------------------
<S> <C> <C>
Commercial $317,855 $152,749
Construction 46,930 11,565
Real estate 131,001 51,779
Consumer 31,257 10,865
Leases receivable 10,979 642
------------------------------------------------------------------
Total $538,022 $227,600
==================================================================
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The reserve for loans losses, which is available to absorb losses inherent in
the loan portfolio, totaled $5.8 million at September 30, 2000, $2.8 million at
December 31, 1999 and $1.6 million at September 30, 1999. This represents 1.08%,
1.22% and 1.00% of total loans at September 30, 2000, December 31, 1999 and
September 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 $1,050 million for the quarter ended September 2000 and
$588,000 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.
5
<PAGE> 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>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
TABLE 5 - SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands)
NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $2,775 $ 100 $1,595
Loans charged-off:
Consumer -- -- 12
------------------------------------------------------------------------------------------------------------------------------
Total -- -- 12
------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 3,049 1,495 1,192
------------------------------------------------------------------------------------------------------------------------------
Ending balance $5,824 $1,595 $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 -- -- --
Provision for loan losses to average loans .83% 2.18% .64%
Recoveries to gross charge-offs -- -- --
Loans past due (90 days) -- -- 15
Nonaccrual -- -- --
Renegotiated -- -- --
</TABLE>
NON-PERFORMING ASSETS
The Company has no non-performing loans at September 30, 2000, December 31,
1999, and September 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
6
<PAGE> 7
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.
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>
<CAPTION>
---------------------------------------------------------------------------------------
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
September 2000 September 2000
------------------ ----------------
<S> <C> <C>
Change in net interest income $ 1,888 $(2,406)
</TABLE>
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>
<CAPTION>
--------------------------------------------------------------------
TABLE 7 - CAPITAL RATIOS
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------------------
<S> <C> <C>
Risk-based capital:
Tier 1 capital 11.9% 23.0%
Total capital 12.7% 23.8%
Leverage 11.4% 21.5%
</TABLE>
7
<PAGE> 8
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.
8
<PAGE> 9
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands except share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 11,930 $ 2,634 $ 25,894 $ 4,323
Securities 3,675 1,282 10,051 3,179
Federal funds sold 428 225 1,047 528
Deposits in other banks 17 4 94 22
------------------------------------------------------------------------------------------------------------------------
Total interest income 16,050 4,145 37,086 8,052
------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 9,460 1,912 20,843 2,698
Other borrowings 196 (16) 914 141
------------------------------------------------------------------------------------------------------------------------
Total interest expense 9,656 1,896 21,757 2,839
------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 6,394 2,249 15,329 5,213
PROVISION FOR LOAN LOSSES 1,050 588 3,049 1,495
------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 5,344 1,661 12,280 3,718
------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 126 32 300 68
Trust fee income 165 73 406 85
Gain (loss) on sale of securities -- -- 1 --
Other 440 25 924 39
------------------------------------------------------------------------------------------------------------------------
Total non-interest income 731 130 1,631 192
------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,847 1,886 10,688 4,872
Net occupancy expense 1,131 447 3,064 1,040
Advertising and affinity payments 1,417 811 3,707 1,538
Legal and professional 645 352 2,110 595
Communications and data processing 552 165 1,250 295
Franchise taxes 38 62 165 120
Other 1,445 474 3,464 1,106
------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 9,075 4,197 24,448 9,566
------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (3,000) (2,406) (10,537) (5,656)
Income tax expense (benefit) -- -- -- --
------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (3,000) $ (2,406) $(10,537) $ (5,656)
========================================================================================================================
EARNINGS PER SHARE:
------------------------------------------------------------------------------------------------------------------------
Basic and diluted $ (.32) $ (.31) $ (1.24) $ (.75)
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands except share data)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,141 $ 8,428
Federal funds sold 54,630 120
Securities available for sale 187,908 164,409
Securities held to maturity 28,315 --
Loans, net 530,093 224,795
Premises and equipment, net 7,106 4,411
Accrued interest receivable and other assets 8,120 4,671
Goodwill, net 1,652 1,745
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 835,965 $ 408,579
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 52,701 $ 25,666
Interest bearing 668,635 261,402
-----------------------------------------------------------------------------------------------------------------------------------
Total deposits 721,336 287,068
-----------------------------------------------------------------------------------------------------------------------------------
Accrued interest payable and other liabilities 5,504 2,332
Federal funds purchased 17,450 --
Short-term borrowings -- 46,267
Other borrowings 1,707 --
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 745,997 335,667
===================================================================================================================================
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 9,077,299 and 7,259,520 at September 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 September 30, 2000 and
December 31, 1999, respectively 4 4
Additional paid-in capital 113,780 86,917
Accumulated deficit (20,574) (10,037)
Treasury stock (shares at cost: 106,214 and 92,528 at September 30,
2000 and December 31, 1999, respectively) (1,363) (1,169)
Deferred compensation 509 322
Accumulated other comprehensive loss (2,479) (3,198)
-----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 89,968 72,912
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 835,965 $ 408,579
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1998 6,160,441 $61 474,870 $5 $73,863 $ (739)
Comprehensive income
(loss)
Net loss - - - - - (5,656)
Change in unrealized
loss on
available-for-sale
securities - - - - - -
Total comprehensive
income (loss)
Stock issued 1,026,016 11 - - 12,731 -
Transfers - - - - - -
Purchase of treasury - - - - - -
stock
Deferred compensation
arrangement - - - - - -
--------------------------------------------------------------
Balance at September
30, 1999 7,186,457 $72 474,870 $5 $86,594 $ (6,395)
========================================================================================
Balances at December
31, 1999 7,259,520 $73 426,694 $4 $86,917 $(10,037)
Comprehensive income
(loss):
Net loss - - - - - (10,537)
Change in unrealized
loss on
available-for-sale
securities - - - - - -
Total comprehensive
income (loss)
Stock issued 1,857,154 18 - - 26,863 -
Transfers (39,375) - 39,375 - - -
Purchase of treasury - - - - - -
stock
Sale of treasury stock - - - - - -
Deferred compensation
arrangement - - - - - -
--------------------------------------------------------------
Balance at September
30, 2000 9,077,299 $91 466,069 $4 $113,780 $(20,574)
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
(In thousands, except share data)
ACCUMU-
LATED OTHER
TREASURY STOCK COMPRE-
--------------------- DEFERRED HENSIVE
COMPEN- INCOME
SHARES AMOUNT SATION (LOSS) TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December
31, 1998 - $ - $ - $ (4) $73,186
Comprehensive income
(loss)
Net loss - - - - (5,656)
Change in unrealized
loss on
available-for-sale
securities - - - (1,933) (1,933)
--------
Total comprehensive
income (loss) (7,589)
Stock issued - - - - 12,742
Transfers - - - - -
Purchase of treasury (23,221) (290) - - (290)
stock
Deferred compensation
arrangement - - - - -
------------------------------------------------------------
Balance at September
30, 1999 (23,221) $ (290) $ - $(1,937) $78,049
=====================================================================================
Balances at December
31, 1999 (92,528) $(1,169) $322 $(3,198) $72,912
Comprehensive income
(loss):
Net loss - - - - (10,537)
Change in unrealized
loss on
available-for-sale
securities - - - 719 719
--------
Total comprehensive
income (loss) (9,818)
Stock issued - - - - 26,881
Transfers - - - - -
Purchase of treasury (11,556) (144) - - (144)
stock
Sale of treasury stock 11,000 137 - - 137
Deferred compensation
arrangement (13,130) (187) 187 - -
------------------------------------------------------------
Balance at September
30, 2000 (106,214) $(1,363) $509 $(2,479) $89,968
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 12
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (10,537) $ (5,656)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for loan losses 3,049 1,495
Depreciation and amortization 1,328 420
Gain (loss) on sale of securities (1) -
Amortization and accretion on securities (327) 2
Changes in operating assets and liabilities:
Accrued interest receivable and other assets (3,449) (3,057)
Accrued interest payable and other liabilities 3,172 1,185
--------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (6,765) (5,611)
--------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (45,359) (126,424)
Proceeds from sale of available-for-sale securities 10,078 -
Purchases of held-to-maturity securities (28,226) -
Principal payments received on securities 12,740 1,547
Net increase in loans (308,347) (148,878)
Purchase of premises and equipment, net (3,930) (2,330)
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (363,044) (276,085)
--------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in checking, money market and savings accounts 244,526 125,965
Net increase in certificates of deposit 189,742 70,658
Sale of common stock 26,881 12,741
Net borrowings from FHLB (44,560) 5,000
Increase in federal funds purchased 17,450 -
Sale of treasury stock 137 -
Purchase of treasury stock (144) (290)
--------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 434,032 214,074
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 64,223 (67,622)
Cash and cash equivalents at beginning of period 8,548 72,521
--------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,771 $ 4,899
==============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 20,091 $ 2,142
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted per
share -- net loss $(3,000) $(2,406) $(10,537) $(5,656)
Denominator for basic and diluted
earnings per share -- weighted
average shares 9,437,154 7,651,663 8,476,838 7,542,941
Basic and diluted earnings per share (.32) (.31) (1.24) (.75)
</TABLE>
(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. The Company has changed its method of reporting operating
results for BankDirect and the traditional bank from prior quarters. Previously,
the Company allocated earning assets held by the traditional bank to BankDirect
in amounts equal to BankDirect liabilities, less any non-earning assets. The
change in reporting involves using a multiple pool funds transfer pricing rate.
In order to provide a consistent measure of the net interest margin for
BankDirect, a multiple pool funds transfer pricing method was used to calculate
credit for funds provided. This method takes into consideration the current
market conditions during the reporting period. This method has been
retroactively applied to prior quarters and prior year results.
13
<PAGE> 14
TRADITIONAL BANKING
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
TRADITIONAL BANKING
(In thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 5,628 $ 2,145 $ 13,636 $ 5,091
Provision for loan losses 1,050 588 3,049 1,495
Non-interest income 729 130 1,617 192
Non-interest expense 5,830 2,986 15,772 7,607
--------------------------------------------------------------------
Net loss (523) (1,299) (3,568) (3,819)
Average assets 772,287 238,434 614,885 161,914
Total assets 835,947 296,963 835,947 296,963
</TABLE>
BANKDIRECT
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
BANKDIRECT
(In thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 757 $ 104 $ 1,615 $ 107
Non-interest income 2 - 14 -
Non-interest expense 2,775 875 6,802 1,246
---------------------------------------------------------------------
Net loss (2,016) (771) (5,173) (1,139)
</TABLE>
14
<PAGE> 15
Reportable segments reconciliations to the Consolidated Financial Statements for
the three month and nine month periods ended September 30, 2000 are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Total reportable lines of business $6,385 $1,050 $ 731 $8,605
Unallocated items:
Holding company 9 -- -- 470
---------------------------------------------------------------
The Company consolidated $6,394 $1,050 $ 731 $9,075
===============================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Total reportable lines of business $15,251 $ 3,049 $ 1,631 $22,574
Unallocated items:
Holding company 78 -- -- 1,874
---------------------------------------------------------------
The Company consolidated $15,329 $ 3,049 $ 1,631 $24,448
===============================================================
</TABLE>
Reportable segments reconciliations to the Consolidated Financial Statements for
the three month and nine month periods ended September 30, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Total reportable lines of business $2,249 $ 588 $ 130 $3,861
Unallocated items:
Holding company -- -- -- 336
---------------------------------------------------------------
The Company consolidated $2,249 $ 588 $ 130 $4,197
===============================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
NET INTEREST PROVISION FOR NON-INTEREST NON-INTEREST
INCOME LOAN LOSSES INCOME EXPENSE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Total reportable lines of business $5,198 $1,495 $ 192 $8,853
Unallocated items:
Holding company 15 -- -- 713
---------------------------------------------------------------
The Company consolidated $5,213 $1,495 $ 192 $9,566
===============================================================
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
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
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------------------- -----------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE (1)(2) RATE BALANCE EXPENSE (1)(2) RATE
----------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Taxable securities $218,253 $3,675 6.68% $85,566 $1,282 5.94%
Federal funds sold 25,985 428 6.53% 17,547 225 5.09%
Deposits in other banks 381 17 17.70% 117 4 13.56%
Loans (1) 497,566 11,930 9.51% 126,497 2,634 8.26%
Less reserve for loan losses 5,152 - - 1,164 - -
----------------------------------------------------------------------------- -----------------------------------------
Loans, net of reserve 492,414 11,930 9.61% 125,333 2,634 8.34%
----------------------------------------------------------------------------- -----------------------------------------
Total earning assets 737,033 16,050 8.64% 228,563 4,145 7.20%
----------------------------------------------------------------------------- -----------------------------------------
Cash and other assets 35,139 9,871
--------------------------------------------------- ------------
Total assets $772,172 $238,434
=================================================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits $22,214 $162 2.89% $4,386 $22 1.99%
Savings deposits 314,107 4,683 5.92% 69,850 878 4.99%
Time deposits 274,381 4,615 6.67% 72,630 1,012 5.53%
----------------------------------------------------------------------------- -----------------------------------------
Total interest-bearing deposits 610,702 9,460 6.15% 146,866 1,912 5.17%
----------------------------------------------------------------------------- -----------------------------------------
Other borrowings 11,865 196 6.55% 163 (16) (38.94)%
----------------------------------------------------------------------------- -----------------------------------------
Total interest-bearing liabilities 622,567 9,656 6.15% 147,029 1,896 5.12%
----------------------------------------------------------------------------- -----------------------------------------
Demand deposits 54,551 12,710
Other liabilities 4,569 983
Shareholders' equity 90,485 77,712
--------------------------------------------------- ------------
Total liabilities and shareholders'
equity $772,172 $238,434
=================================================== ============
Net interest income $6,394 $2,249
Net interest income to earning assets 3.44% 3.90%
------------------------------------- ------- --------
Provision for loan losses 1,050 588
Non-interest income 731 130
Non-interest expense 9,075 4,197
------------------------------------- --------- ----------
LOSS BEFORE TAXES (3,000) (2,406)
Federal and state income tax - -
------------------------------------- --------- ----------
NET LOSS $(3,000) $(2,406)
===================================== ========= ==========
EARNINGS PER SHARE:
NET INCOME
Basic and diluted $(.32) $(.31)
------------------------------------- --------- ----------
Return on average equity (13.15)% (12.28)%
------------------------------------- --------- ----------
Return on average assets (1.54)% (4.00)%
------------------------------------- --------- ----------
Equity to assets 11.72% 32.59%
===================================== ========= ==========
</TABLE>
(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
<PAGE> 17
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands Except Share)
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------------------- --------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE (1)(2) RATE BALANCE EXPENSE (1)(2) RATE
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Taxable securities $198,853 $10,051 6.73% $72,979 $3,179 5.82%
Federal funds sold 22,562 1,047 6.18% 14,515 528 4.86%
Deposits in other banks 306 94 40.92% 54 22 54.04%
Loans (1) 369,666 25,894 9.33% 68,689 4,323 8.41%
Less reserve for loan losses 4,076 - - 536 - -
------------------------------------------------------------------------------- ---------------------------------------
Loans, net of reserve 365,590 25,894 9.44% 68,153 4,323 8.48%
------------------------------------------------------------------------------- ---------------------------------------
Total earning assets 587,311 37,086 8.41% 155,701 8,052 6.91%
------------------------------------------------------------------------------- ---------------------------------------
Cash and other assets 27,253 6,213
--------------------------------------------------- --------
Total assets $614,564 $161,914
=================================================== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits $15,912 $336 2.81% $2,398 $33 1.84%
Savings deposits 254,003 10,943 5.74% 31,947 1,154 4.83%
Time deposits 198,500 9,564 6.42% 36,688 1,511 5.51%
------------------------------------------------------------------------------- ---------------------------------------
Total interest-bearing deposits 468,415 20,843 5.93% 71,033 2,698 5.08%
------------------------------------------------------------------------------- ---------------------------------------
Other borrowings 19,931 914 6.11% 3,844 141 4.90%
------------------------------------------------------------------------------- ---------------------------------------
Total interest-bearing liabilities 488,346 21,757 5.94% 74,877 2,839 5.07%
------------------------------------------------------------------------------- ---------------------------------------
Demand deposits 43,317 9,189
Other liabilities 3,630 452
Shareholders' equity 79,271 77,396
--------------------------------------------------- --------
Total liabilities and shareholders'
equity $614,564 $161,914
=================================================== ========
Net interest income $15,329 $5,213
Net interest income to earning assets 3.48% 4.48%
------------------------------------- -------- -------
Provision for loan losses 3,049 1,495
Non-interest income 1,629 193
Non-interest expense 24,446 9,567
------------------------------------- --------- --------
LOSS BEFORE TAXES (10,537) (5,656)
Federal and state income tax - -
------------------------------------- --------- --------
NET LOSS $(10,537) $(5,656)
===================================== ========= ========
EARNINGS PER SHARE:
NET INCOME
Basic and diluted $(1.24) $(.75)
------------------------------------- --------- --------
Return on average equity (17.71)% (9.77)%
------------------------------------- --------- --------
Return on average assets (2.28)% (4.67)%
------------------------------------- --------- --------
Equity to assets 12.90% 47.81%
===================================== ========= ========
</TABLE>
(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
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 18, 2000, the Company held its annual meeting of stockholders
(the "Annual Meeting"). At the Annual Meeting, each nominee for director
discussed in the Company's Proxy Statement dated June 16, 2000 regarding the
Annual Meeting, was elected a director of the Company. The votes received by
each nominee for director are set forth below:
<TABLE>
<CAPTION>
NOMINEE VOTES RECEIVED
<S> <C>
Gregg L. Engles ............................................................... 6,684,125
John C. Goff .................................................................. 6,684,125
Joseph M. Grant ............................................................... 6,684,125
Frederick B. Hegi, Jr. ........................................................ 6,684,125
James R. Holland, Jr. ......................................................... 6,684,125
Raleigh Hortenstine III ....................................................... 6,684,125
George F. Jones, Jr. .......................................................... 6,684,125
Walter W. McAllister III ...................................................... 6,684,125
R. Drayton McLane, Jr. ........................................................ 6,684,125
Lee Roy Mitchell .............................................................. 6,684,125
Marshall B. Payne ............................................................. 6,684,125
John C. Snyder ................................................................ 6,684,125
Theodore H. Strauss ........................................................... 6,684,125
</TABLE>
In addition, one proposal was submitted for a vote of the Company's
stockholders. A brief description of this proposal, as well as the votes cast
for, against and abstained with respect to the proposal, is set forth below:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
PROPOSAL FOR AGAINST ABSTAINED
<S> <C> <C> <C>
Proposal #1, which adopted a new stock plan, the 2000 Employee Stock
Purchase Plan, to allow the Company's employees to purchase shares of
the Company's common stock ............................ 6,631,032 8,010 45,083
</TABLE>
18
<PAGE> 19
SIGNATURE
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: November 13, 2000 /s/ Gregory B. Hultgren
------------------------------
Gregory B. Hultgren
Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
