Texas Capital Bancshares, Inc. (TCBI) reported its quarterly financial results for the period ended September 30, 2024. The company’s net income was $43.1 million, or $0.93 per diluted share, compared to $34.5 million, or $0.75 per diluted share, in the same period last year. Total assets increased 10% to $14.4 billion, driven by growth in loans and investments. Net interest income rose 12% to $123.8 million, while non-interest income decreased 2% to $34.5 million. The company’s efficiency ratio improved to 54.3% from 56.1% in the same period last year. TCBI’s capital ratios remain strong, with a Tier 1 leverage ratio of 9.4% and a common equity tier 1 capital ratio of 11.3%. The company’s board of directors declared a quarterly dividend of $0.25 per share, payable on November 15, 2024.
Financial Performance Overview
The Company reported a net loss of $61.3 million and a net loss available to common stockholders of $65.6 million for the third quarter of 2024, compared to net income of $61.7 million and net income available to common stockholders of $57.4 million for the third quarter of 2023. For the nine months ended September 30, 2024, the Company reported net income of $6.5 million and a net loss available to common stockholders of $6.5 million, compared to net income of $169.0 million and net income available to common stockholders of $156.1 million for the same period in 2023.
The decrease in net income was primarily due to a significant decrease in non-interest income, resulting from a $179.6 million loss on the sale of available-for-sale debt securities during the third quarter of 2024. This loss more than offset increases in net interest income and decreases in the provision for credit losses.
Net Interest Income and Margin
Net interest income increased to $240.1 million for the third quarter of 2024, compared to $232.1 million for the same period in 2023. This increase was driven by growth in average earning assets, particularly loans held for investment, as well as an increase in yields on earning assets.
The net interest margin increased to 3.16% for the third quarter of 2024, compared to 3.13% for the same period in 2023. The increase was primarily due to higher yields on investment securities, partially offset by an increase in the cost of interest-bearing deposits.
For the nine months ended September 30, 2024, net interest income decreased to $671.7 million, compared to $699.4 million for the same period in 2023. The decrease was primarily due to the impact of rising interest rates on the cost of interest-bearing deposits, partially offset by higher earning asset yields.
The net interest margin decreased to 3.07% for the nine months ended September 30, 2024, compared to 3.25% for the same period in 2023. This decline was also driven by the effect of rising rates on deposit costs.
Non-Interest Income
Non-interest income decreased $161.6 million during the third quarter of 2024, compared to the same period in 2023, primarily due to the $179.6 million loss on the sale of available-for-sale debt securities. This was partially offset by increases in investment banking and advisory fees and other non-interest income.
For the nine months ended September 30, 2024, non-interest income decreased $153.3 million, again primarily due to the loss on the sale of available-for-sale debt securities, partially offset by an increase in investment banking and advisory fees.
Non-Interest Expense
Non-interest expense increased $15.4 million during the third quarter of 2024, compared to the same period in 2023. This was primarily due to increases in salaries and benefits, occupancy expense, and communications and technology expense, partially offset by a decrease in legal and professional expense.
For the nine months ended September 30, 2024, non-interest expense increased $30.6 million, primarily due to increases in salaries and benefits, communications and technology expense, and FDIC insurance assessment, partially offset by a decrease in legal and professional expense.
Loans and Asset Quality
Total loans held for investment were $22.3 billion at September 30, 2024, an increase of $2.0 billion from December 31, 2023. The Company experienced loan growth in all categories except commercial real estate.
Non-accrual loans held for investment totaled $89.0 million at September 30, 2024, compared to $81.4 million at December 31, 2023. The allowance for credit losses on loans was 1.23% of total loans held for investment at September 30, 2024, compared to 1.19% at September 30, 2023.
The Company recorded a provision for credit losses of $49.0 million for the nine months ended September 30, 2024, compared to $53.0 million for the same period in 2023. Net charge-offs were $28.8 million for the nine months ended September 30, 2024, compared to $37.1 million for the same period in 2023.
Liquidity and Capital
The Company’s principal source of funding is customer deposits, which totaled $25.9 billion at September 30, 2024. The Company also has access to short-term borrowing sources, including federal funds purchased, FHLB advances, and a revolving line of credit, to supplement deposits and meet funding needs.
The Company’s equity capital averaged $3.2 billion for the nine months ended September 30, 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 17, 2024, the Company’s board of directors authorized a new $150.0 million share repurchase program. During the nine months ended September 30, 2024, the Company repurchased 1,381,436 shares of its common stock for an aggregate purchase price of $81.5 million.
Outlook and Analysis
The Company’s financial performance in 2024 has been mixed, with decreases in net income and non-interest income offsetting improvements in net interest income and asset quality. The significant loss on the sale of available-for-sale debt securities was a key driver of the weaker results.
Looking ahead, the Company’s ability to grow loans and maintain net interest margins in a rising rate environment will be critical. Continued loan growth, particularly in higher-yielding commercial and mortgage finance segments, could help offset the pressure on deposit costs. However, the Company may need to carefully manage its funding mix and liquidity to maintain profitability.
The Company’s asset quality metrics remain relatively strong, with low levels of non-performing assets and net charge-offs. This provides some cushion, but the Company will need to closely monitor economic conditions and credit risk in its portfolio, especially in the commercial and commercial real estate segments.
Overall, the Company faces a challenging operating environment with rising interest rates and economic uncertainty. Effective balance sheet management, disciplined risk management, and diversification of revenue streams will be key to navigating these conditions and delivering consistent financial performance. Investors will be closely watching the Company’s ability to maintain its competitive position and generate sustainable earnings growth.