TEXAS CAPITAL BANCSHARES INCTX

Selected income statement data and key performance indicators are presented in the table below:

(1) Non-interest expense divided by the sum of net interest income and non-interest income.

Three months ended March 31, 2025 compared to three months ended March 31, 2024

The Company reported net income of $47.0 million and net income available to common stockholders of $42.7 million for the three months ended March 31, 2025, compared to net income of $26.1 million and net income available to common stockholders of $21.8 million for the same period in 2024. On a fully diluted basis, earnings per common share was $0.92 for the three months ended March 31, 2025, compared to $0.46 for the same period in 2024. ROE was 5.56% and ROA was 0.61% for the three months ended March 31, 2025, compared to 3.03% and 0.36%, respectively, for the same period in 2024. The increase in net income for the three months ended March 31, 2025 compared to the same period in 2024 resulted primarily from an increase in net interest income.

Details of the changes in the various components of net income are discussed below.

Taxable Equivalent Net Interest Income Analysis - Year to Date(1)

(1)Taxable equivalent rates used where applicable.

(2)Yields on investment securities are calculated using available-for-sale securities at amortized cost.

(3)Average balances include non-accrual loans.

Volume/Rate Analysis

The following table presents the changes in taxable equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest bearing liabilities and the changes due to differences in the average interest rate on those assets and liabilities.

(1)Yield/rate and volume variances are allocated to yield/rate.

(2)Taxable equivalent rates used where applicable assuming a 21% tax rate.

Net Interest Income

Net interest income was $236.0 million for the three months ended March 31, 2025, compared to $215.0 million for the same period in 2024. The increase was primarily due to an increase in average total loans held for investment and a decrease in funding costs, partially offset by an increase in average interest bearing liabilities and a decrease in earning asset yields.

Average earning assets increased $1.8 billion for the three months ended March 31, 2025, compared to the same period in 2024, which included increases of $1.5 billion in average total loans held for investment, $164.5 million in average investment securities and $204.2 million in average interest bearing cash and cash equivalents. Average interest bearing liabilities increased $2.4 billion for the three months ended March 31, 2025, compared to the same period in 2024, primarily due to an increase of $2.7 billion in average interest bearing deposits, partially offset by decreases of $160.6 million in average short-term borrowings and $199.1 million in average long-term debt. Average non-interest bearing deposits for the three months ended March 31, 2025 decreased to $7.9 billion from $8.6 billion for the same period in 2024.

Net interest margin for the three months ended March 31, 2025 was 3.19%, compared to 3.03% for the same period of 2024. The increase was primarily due to a decrease in the cost of interest bearing deposits, partially offset by lower earning asset yields, compared to the same period in 2024.

The yield on total loans held for investment decreased to 6.39% for the three months ended March 31, 2025, compared to 6.70% for the same period in 2024, and the yield on earning assets decreased to 5.76% for the three months ended March 31, 2025, compared to 5.88% for the same period in 2024. Total cost of deposits decreased to 2.76% for the three months ended March 31, 2025 from 2.97% for the same period in 2024 and total funding costs, including non-interest bearing deposits and stockholders' equity, decreased to 2.54% for the three months ended March 31, 2025, compared to 2.83% for the same period in 2024.

Non-interest Income

Non-interest income increased $3.1 million during the three months ended March 31, 2025, compared to the same period in 2024, primarily due to increases in service charges on deposit accounts, trading income and other non-interest income, partially offset by a decrease in investment banking and advisory fees.

Non-interest Expense

Non-interest expense increased $627,000 during the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to increases in salaries and benefits and communications and technology expense, partially offset by a decrease in FDIC expense. The three months ended March 31, 2024 included $3.0 million in additional FDIC special assessment expense.

Analysis of Financial Condition

Loans Held for Investment

The following table summarizes the Company’s loans held for investment by portfolio segment. See Note 1 - Operations and Summary of Significant Accounting Policies in the 2024 Form 10-K for details of these portfolio segments.

Total loans held for investment were $22.4 billion at March 31, 2025, an increase of $70.3 million from December 31, 2024, as increases in commercial and commercial real estate loans were partially offset by a decrease in mortgage finance loans. Mortgage finance loans include legal ownership interests in mortgage loans that the Company purchases from unaffiliated mortgage originators, either directly or through a special purpose entity structure, that are typically sold within 10 to 20 days and represent 21% and 23% of gross loans held for investment at March 31, 2025 and December 31, 2024, respectively. Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates, and tend to peak at the end of each month.

The Company originates a substantial majority of all loans held for investment. The Company also participates in shared national credits, both as a participant and as an agent. As of March 31, 2025, the Company had $5.8 billion in shared national credits, $1.0 billion of which the Company administered as agent. All syndicated loans, whether the Company acts as agent or participant, are underwritten to the same standards as all other loans the Company originates. As of March 31, 2025, approximately $34.0 million of the Company’s shared national credits were on non-accrual.

Portfolio Concentrations

Although more than 50% of the Company’s total loan exposure is outside of Texas and more than 50% of deposits are sourced outside of Texas, Texas concentration remains significant. As of March 31, 2025, a majority of the loans held for investment, excluding mortgage finance and other national lines of business, were to businesses with headquarters or operations in Texas. This geographic concentration subjects the Company’s loan portfolio to the general economic conditions within this state. The risks created by this concentration have been considered by management in determining the appropriateness of the allowance for credit losses.

Non-performing Assets

Non-performing assets include non-accrual loans and leases, and repossessed assets. The table below summarizes non-accrual loans by portfolio segment and by type of property securing the credit.

Summary of Credit Loss Experience

The provision for credit losses, comprised of a provision for loans and off-balance sheet credit losses, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses at each balance sheet date.

The Company recorded a provision for credit losses of $17.0 million for the three months ended March 31, 2025, compared to a provision of $19.0 million for the three months ended March 31, 2024. The provision for credit losses for the three months ended March 31, 2025 reflects an increase in criticized loans, $9.8 million in net charge-offs recorded during the three months ended March 31, 2025 and uncertainty in the economic outlook. Criticized loans totaled $762.9 million at March 31, 2025, compared to $714.0 million at December 31, 2024.

The table below presents key metrics related to the Company’s credit loss experience:

(1)Ratios are calculated using average balance for the three months ended March 31, 2025 and 2024, respectively.

(2)Ratios are annualized utilizing provision for credit losses for the three months ended March 31, 2025 and 2024, respectively.

The table below details net charge-offs/(recoveries) as a percentage of average total loans by portfolio segment:

(1)Ratios are annualized utilizing net charge-offs for the three months ended March 31, 2025 and 2024, respectively.

Liquidity and Capital Resources

Liquidity

In general terms, liquidity is a measurement of the Company’s ability to meet its cash needs. The Company’s objectives in managing its liquidity are to maintain the ability to meet loan commitments, repurchase investment securities and repay deposits and other liabilities in accordance with their terms, without an adverse impact on current or future earnings. The Company’s liquidity strategy is guided by policies, formulated and monitored by senior management and the Asset and Liability Management Committee (“ALCO”), which take into account the demonstrated marketability of the Company’s assets, the sources and stability of its funding and the level of unfunded commitments. The Company regularly evaluates all of its various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. The Company’s principal source of funding is customer deposits, supplemented by short-term borrowings, primarily from federal funds purchased and Federal Home Loan Bank (“FHLB”) borrowings, which are generally used to fund mortgage finance loans, and long-term debt. The Company also relies on the availability of the mortgage secondary market provided by Ginnie Mae and government sponsored entities to support the liquidity of mortgage finance loans.

The following table summarizes the Company’s interest bearing cash and cash equivalents:

The Company aims to obtain as much of its funding as possible from customer deposits, which are generated through digital acquisition or as a result of development of long-term customer relationships, with a significant focus on treasury management products. In addition, the Company also has access to deposits through brokered channels. The following table summarizes period-end total deposits:

Estimated uninsured deposits, including accrued interest, were 41% of total deposits at both March 31, 2025 and December 31, 2024. The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

The Company has short-term borrowing sources available to supplement deposits and meet its funding needs. Such borrowings are generally used to fund mortgage finance loans, due to their liquidity, short duration and interest spreads available. These borrowing sources include federal funds purchased from downstream correspondent bank relationships (which consist of banks that are smaller than the Bank) and from upstream correspondent bank relationships (which consist of banks that are larger than the Bank), customer repurchase agreements and advances from the FHLB and the Federal Reserve. The following table summarizes short-term borrowings, all of which mature within one year:

The following table summarizes the Company’s short-term borrowing capacities net of balances outstanding:

(1)FHLB borrowings are collateralized by a blanket floating lien on certain real estate secured loans, mortgage finance loans and certain pledged securities.

(2)Unsecured revolving, non-amortizing line of credit with maturity date of February 8, 2026. Proceeds may be used for general corporate purposes, including funding regulatory capital infusions into the Bank. The loan agreement contains customary financial covenants and restrictions. No borrowings were made against this line of credit during the three months ended March 31, 2025 or 2024.

The Company has long-term debt outstanding of $660.5 million as of March 31, 2025, comprised of trust preferred securities and subordinated notes with maturity dates ranging from January 2026 to December 2036. See Note 5 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information. The Company may consider raising additional capital, if needed, in public or private offerings of debt or equity securities to supplement deposits and meet its long-term funding needs.

As the Company is a holding company and is a separate operating entity from the Bank, the Company’s primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. See Note 7 - Regulatory Ratios and Capital in the accompanying notes to the consolidated financial statements included elsewhere in this report for additional information regarding dividend restrictions and “Liquidity Risks” included in Part I, Item 1A. Risk Factors of the 2024 Form 10-K.

Periodically, based on market conditions and other factors, and subject to compliance with applicable laws and regulations and the terms of its existing indebtedness, the Company may repay, repurchase, exchange or redeem outstanding indebtedness, or otherwise enter into transactions regarding debt or capital structure. For example, the Company periodically evaluates and may engage in liability management transactions, including repurchases or redemptions of outstanding subordinated notes, which may be funded by the issuance of, or exchanges of, newly issued unsecured borrowings to actively manage the debt maturity profile and interest cost.

Capital Resources

The Company’s equity capital averaged $3.4 billion for the three months ended March 31, 2025 compared to$3.2 billionfor the same period in 2024. The Company has not paid any cash dividends on common stock since operations commenced and has no plans to do so in the foreseeable future.

On January 22, 2025, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $200.0 million in shares of its outstanding common stock, excluding the effect of excise tax expense incurred on net stock repurchases. The share repurchase program expires on January 31, 2026, but may be suspended or discontinued at any time. Remaining repurchase authorization under the January 17, 2024 share repurchase program was terminated upon authorization of this new program. During the three months ended March 31, 2025, the Company repurchased 396,106 shares of its common stock for an aggregate purchase price, including excise tax expense, of $31.2 million, at a weighted average price of $78.25 per share.

Any repurchases under the Company’s repurchase program will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will be at management’s discretion and will depend upon a variety of factors, including market conditions, the Company’s capital position and amount of retained earnings, regulatory requirements and other considerations.

For additional information on the Company’s capital and stockholders’ equity, see Note 7 - Regulatory Ratios and Capital, in the accompanying notes to the consolidated financial statements included elsewhere in this report.

Critical Accounting Estimates

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

The Company follows financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 1 - Operations and Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in the Company’s 2024 Form 10-K. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting estimate.

Allowance for Credit Losses

Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification 326, Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in the Company’s portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. The allowance for credit losses on off-balance sheet financial instruments is recorded in other liabilities on the consolidated balance sheets. For purposes of determining the allowance for credit losses, the loan portfolio is segregated into pools first by portfolio segment and then by past due status or credit grade. Each pool is assigned a loss estimate, reflecting historical loss rates that incorporate probability of default and severity of losses over the estimated remaining life of the loans. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective (pool) evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Modifications to loss estimates are made to incorporate a reasonable and supportable forecast of future losses at the pool level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”). A similar process is employed to calculate a reserve assigned to off-balance sheet financial instruments, specifically unfunded loan commitments and letters of credit. Modified loss estimates are assigned based on the balance of the commitments estimated to be outstanding at the time of default. The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process. A reserve is recorded upon origination or purchase of a loan. See“Summary of Credit Loss Experience” above and Note 4 - Loans and Allowance for Credit Losses on Loans in the accompanying notes to the consolidated financial statements included elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses.

Management considers a range of macroeconomic scenarios in connection with the allowance estimation process. Within the various economic scenarios considered as of March 31, 2025, the quantitative estimate of the allowance for credit loss would increase by approximately $132.8 million under sole consideration of the most severe downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.