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Form 8-K TEXAS CAPITAL BANCSHARES For: Jul 18

July 18, 2018 4:13 PM
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
Current Report Pursuant
to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): July 18, 2018
 
TEXAS CAPITAL BANCSHARES, INC.
(Name of Registrant)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
001-34657
(Commission
File Number)
75-2679109
(I.R.S. Employer
Identification Number)
2000 McKinney Avenue, Suite 700, Dallas, Texas, U.S.A.
(Address of principal executive officers)
75201
(Zip Code)
214-932-6600
(Registrant's telephone number,
including area code)
N/A
(Former address of principal executive offices)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 



Item 2.02.    Results of Operations and Financial Condition.
(a)
On July 18, 2018, Texas Capital Bancshares, Inc. (the "Company") issued a press release and made a concurrent public presentation regarding its operating and financial results for its fiscal quarter ended June 30, 2018. A copy of the press release is attached hereto as Exhibit 99.1. A copy of the presentation is attached hereto as Exhibit 99.2.
The information in Item 2.02 of this report (including the exhibits hereto) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.

Item 9.01.    Financial Statements and Exhibits.

(d)
Exhibits
99.1

99.2




SIGNATURE


Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:
July 18, 2018
TEXAS CAPITAL BANCSHARES, INC.
 
 
 
 
 
 
 
By:
 
/s/ Julie Anderson
 
 
 
 
 
Julie Anderson
Chief Financial Officer



Exhibit 99.1
tcbilogoa49.jpg

INVESTOR CONTACT
Heather Worley, 214.932.6646
[email protected]

TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR Q2 2018

DALLAS - July 18, 2018 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced earnings and operating results for the second quarter of 2018.

“We are pleased with our continued strong operating results in the second quarter, including solid growth in traditional LHI and mortgage finance balances," said Keith Cargill, CEO. "We are highly focused on credit quality, as well as driving efficiencies and improving client experience to position us for long-term success."

•
Loans held for investment ("LHI"), excluding mortgage finance, increased 5% on a linked quarter basis, growing 16% from the second quarter of 2017.
•
Total mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans, increased 25% on a linked quarter basis, growing 19% from the second quarter of 2017.
•
Demand deposits increased 3% and total deposits increased 8% on a linked quarter basis, decreasing 6% and increasing 18%, respectively, from the second quarter of 2017.
•
Net income decreased 1% on a linked quarter basis as a result of higher loan loss provisioning and increased 40% from the second quarter of 2017.
•
EPS remained flat on a linked quarter basis as a result of higher loan loss provisioning and increased 42% from the second quarter of 2017.

FINANCIAL SUMMARY
(dollars and shares in thousands)
 
Q2 2018
 
Q2 2017
 
% Change
QUARTERLY OPERATING RESULTS
 
 
 
 
 
Net income
$
71,436

 
$
51,095

 
40
 %
Net income available to common stockholders
$
68,999

 
$
48,658

 
42
 %
Diluted EPS
$
1.38

 
$
0.97

 
42
 %
Diluted shares
50,096

 
50,230

 
—
 %
ROA
1.16
%
 
0.96
%
 
 
ROE
12.72
%
 
10.08
%
 
 
 
 
 
 
 
 
BALANCE SHEET
 
 
 
 
 
Loans held for sale (LHS), MCA
$
1,275,466

 
$
843,164

 
51
 %
LHI, mortgage finance
5,923,058

 
5,183,600

 
14
 %
LHI
16,536,721

 
14,280,353

 
16
 %
Total LHI
22,459,779

 
19,463,953

 
15
 %
Total loans
23,736,547

 
20,309,970

 
17
 %
Total assets
27,781,910

 
23,119,713

 
20
 %
Demand deposits
7,648,125

 
8,174,830

 
(6
)%
Total deposits
20,334,871

 
17,292,223

 
18
 %
Stockholders’ equity
2,343,530

 
2,100,553

 
12
 %



DETAILED FINANCIALS
Texas Capital Bancshares, Inc. reported net income of $71.4 million and net income available to common stockholders of $69.0 million for the quarter ended June 30, 2018 compared to net income of $51.1 million and net income available to common stockholders of $48.7 million for the same period in 2017. On a fully diluted basis, earnings per common share were $1.38 for the quarter ended June 30, 2018 compared to $0.97 for the same period of 2017. The increase reflects a $20.3 million year-over-year increase in net income caused by an increase in net interest income for the second quarter of 2018 compared to the second quarter of 2017 and a decrease in income tax rates as a result of the Tax Cuts and Jobs Act which became effective on January 1, 2018, offset by an increase in the provision for credit losses and non-interest expense.

Return on average common equity (“ROE”) was 12.72 percent and return on average assets (“ROA”) was 1.16 percent for the second quarter of 2018, compared to 13.39 percent and 1.22 percent, respectively, for the first quarter of 2018 and 10.08 percent and 0.96 percent, respectively, for the second quarter of 2017. The linked quarter decreases in ROE and ROA resulted primarily from increases in the provision for credit losses.

Net interest income was $231.7 million for the second quarter of 2018, compared to $210.3 million for the first quarter of 2018 and $183.0 million for the second quarter of 2017. The linked quarter and year-over-year increases in net interest income were primarily due to increases in total mortgage finance loans (including MCA) and traditional LHI loans, improved earning asset composition and the effect of increases in interest rates on loan yields attributable to our asset-sensitive balance sheet. Net interest margin for the second quarter of 2018 was 3.93 percent, an increase of 22 basis points from the first quarter of 2018 and an increase of 36 basis points from the second quarter of 2017. We experienced significant improvement in traditional LHI yields, reporting a 33 basis point increase for the second quarter of 2018 compared to the first quarter of 2018 and a 75 basis point increase compared to the second quarter of 2017. In contrast, total cost of deposits for the second quarter of 2018 was up only 15 basis points to 0.81 percent compared to 0.66 percent for the first quarter of 2018, and was up 43 basis points from 0.38 percent for the second quarter of 2017.

Average LHI, excluding mortgage finance loans, for the second quarter of 2018 were $15.9 billion, an increase of $458.0 million, or 3 percent, from the first quarter of 2018 and an increase of $2.2 billion, or 16 percent, from the second quarter of 2017. Average total mortgage finance loans for the second quarter of 2018 were $6.4 billion, an increase of $1.1 billion, or 21 percent, from the first quarter of 2018 and an increase of $1.8 billion, or 38 percent, from the second quarter of 2017. Total mortgage finance volumes for the second quarter of 2018 showed increases in average balances from the seasonal lower volumes in the first quarter of 2018.

Average total deposits for the second quarter of 2018 increased $242.8 million from the first quarter of 2018 and increased $2.4 billion from the second quarter of 2017. Average demand deposits for the second quarter of 2018 decreased $130.1 million, or 2 percent, to $8.0 billion from $8.1 billion during the first quarter of 2018, and increased $154.2 million, or 2 percent, from the second quarter of 2017.

We recorded a $27.0 million provision for credit losses for the second quarter of 2018 compared to $12.0 million for the first quarter of 2018 and $13.0 million for the second quarter of 2017. The provision for the second quarter of 2018 was driven by the consistent application of our methodology. The linked-quarter increase was primarily related to traditional LHI growth, as well as credit deterioration in four loans, all of which were identified as non-accrual as of March 31, 2018. The total allowance for credit losses decreased to 1.15 percent of LHI excluding mortgage finance loans at June 30, 2018 compared to 1.27 percent at March 31, 2018 and 1.28 percent at June 30, 2017. In management’s opinion, the allowance is appropriate and is derived from consistent application of the methodology for establishing reserves for the loan portfolio.

We experienced a decrease in non-performing assets ("NPAs") in the second quarter of 2018, decreasing the ratio of total non-performing assets to total LHI plus other real estate owned (“OREO”) to 0.41 percent compared to 0.65 percent for the first quarter of 2018 and 0.73 percent for the second quarter of 2017. Net charge-offs for the second quarter of 2018 were $38.0 million compared to $5.2 million for the first quarter of 2018 and $12.4 million for the second quarter of 2017. The elevated charge-offs for the second quarter of 2018 were primarily related to the four loans referred to above. One of the loans is energy-related, two are leveraged health care and one is general commercial and industrial. For the second quarter of 2018, net charge-offs were 0.73 percent of average total LHI, compared to 0.11 percent for the first quarter of 2018 and 0.28 percent for the same period in 2017. At June 30, 2018, total OREO was $9.5 million compared to $9.6 million at March 31, 2018 and $18.7 million at June 30, 2017. We did not record an OREO valuation allowance during the second quarter of 2018, compared to a valuation allowance of $2.0 million recorded during the first quarter of 2018.

Non-interest income decreased $1.5 million, or 8 percent, during the second quarter of 2018 compared to the same period of 2017, and decreased $2.7 million, or 13 percent, compared to the first quarter of 2018. The year-over-year decrease primarily related to a $3.9 million decrease in other non-interest income attributable to a decrease in gain on sale of MCA loans, offset by a $1.3 million increase in servicing income attributable to an increase in mortgage servicing rights ("MSRs") associated with our MCA program.

Non-interest expense for the second quarter of 2018 increased $20.3 million, or 18 percent, compared to the second quarter of 2017, and increased $5.2 million, or 4 percent, compared to the first quarter of 2018. The year-over-year increase is primarily related to increases in salaries and employee benefits, marketing, legal and professional, FDIC insurance assessment and other non-interest expenses, all of which were attributable to general business growth. Servicing related expenses for the second quarter of 2018 increase

2



d $1.7 million compared to the second quarter of 2017 primarily due to an increase in MSRs, which are being amortized. Offsetting these increases was a $4.8 million decrease in communications and technology expense related to a technology write-off taken in the second quarter of 2017. The linked quarter increase in non-interest expense is primarily related to increases in marketing, legal and professional, communications and technology and servicing related expenses, offset by a decrease in allowance and other carrying costs for OREO.

Stockholders’ equity increased by 12 percent from $2.1 billion at June 30, 2017 to $2.3 billion at June 30, 2018, due to retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines and at June 30, 2018, our ratio of tangible common equity to total tangible assets was 7.8 percent.
    

ABOUT TEXAS CAPITAL BANCSHARES, INC.
Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 1000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.

This news release may be deemed to include forward-looking statements which are based on management’s current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and similar expressions. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from declines and volatility in oil and gas prices, the financial impact of the Tax Cuts and Jobs Act on our results of operations, rates of default or loan losses, volatility in the mortgage industry, the success or failure of our business strategies, future financial performance, future growth and earnings, the appropriateness of our allowance for loan losses and provision for credit losses, the impact of increased regulatory requirements and legislative changes on our business, increased competition, interest rate risk, the success or failure of new lines of business and new product or service offerings and the impact of new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission. The information contained in this release speaks only as of its date. We are under no obligation, and expressly disclaim such obligation, to update, alter or revise our forward-looking statements, whether as a result of new information, future events, or otherwise.



3



TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands except per share data)
 
2nd Quarter
1st Quarter
4th Quarter
3rd Quarter
2nd Quarter
 
2018
2018
2017
2017
2017
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
Interest income
$
286,852

$
253,869

$
249,519

$
237,643

$
208,191

Interest expense
55,140

43,569

38,870

33,282

25,232

Net interest income
231,712

210,300

210,649

204,361

182,959

Provision for credit losses
27,000

12,000

2,000

20,000

13,000

Net interest income after provision for credit losses
204,712

198,300

208,649

184,361

169,959

Non-interest income
17,279

19,947

19,374

19,003

18,769

Non-interest expense
132,131

126,960

133,138

114,830

111,814

Income before income taxes
89,860

91,287

94,885

88,534

76,914

Income tax expense
18,424

19,342

50,143

29,850

25,819

Net income
71,436

71,945

44,742

58,684

51,095

Preferred stock dividends
2,437

2,438

2,437

2,438

2,437

Net income available to common stockholders
$
68,999

$
69,507

$
42,305

$
56,246

$
48,658

 
 
 
 
 
 
Diluted EPS
$
1.38

$
1.38

$
0.84

$
1.12

$
0.97

Diluted shares
50,096,015

50,353,497

50,311,962

50,250,866

50,229,670

 
 
 
 
 
 
CONSOLIDATED BALANCE SHEET DATA
 
 
 
 
 
Total assets
$
27,781,910

$
24,449,147

$
25,075,645

$
24,400,998

$
23,119,713

LHI
16,536,721

15,741,772

15,366,252

14,828,406

14,280,353

LHI, mortgage finance
5,923,058

4,689,938

5,308,160

5,642,285

5,183,600

LHS
1,276,768

1,088,565

1,011,004

955,983

846,017

Liquidity assets(1)
3,288,107

2,296,673

2,727,581

2,357,537

2,142,658

Investment securities
24,408

24,929

23,511

24,224

119,043

Demand deposits
7,648,125

7,413,340

7,812,660

8,263,202

8,174,830

Total deposits
20,334,871

18,764,533

19,123,180

19,081,257

17,292,223

Other borrowings
4,520,849

2,835,540

3,165,040

2,583,496

3,162,224

Subordinated notes
281,586

281,496

281,406

281,315

281,225

Long-term debt
113,406

113,406

113,406

113,406

113,406

Stockholders’ equity
2,343,530

2,273,429

2,202,721

2,158,363

2,100,553

 
 
 
 
 
 
End of period shares outstanding
50,151,064

49,669,774

49,643,344

49,621,825

49,595,252

Book value
$
43.74

$
42.75

$
41.35

$
40.47

$
39.33

Tangible book value(2)
$
43.36

$
42.37

$
40.97

$
40.09

$
38.94

 
 
 
 
 
 
SELECTED FINANCIAL RATIOS
 
 
 
 
 
Net interest margin
3.93
%
3.71
%
3.47
%
3.59
%
3.57
%
Return on average assets
1.16
%
1.22
%
0.71
%
0.99
%
0.96
%
Return on average common equity
12.72
%
13.39
%
8.18
%
11.20
%
10.08
%
Non-interest income to average earning assets
0.29
%
0.35
%
0.32
%
0.33
%
0.36
%
Efficiency ratio(3)
53.1
%
55.1
%
57.9
%
51.4
%
55.4
%
Efficiency ratio, excluding OREO write-down(3)
53.1
%
54.3
%
55.2
%
51.4
%
55.4
%
Non-interest expense to average earning assets
2.23
%
2.23
%
2.17
%
2.00
%
2.17
%
Tangible common equity to total tangible assets(4)
7.8
%
8.6
%
8.1
%
8.2
%
8.4
%
Common Equity Tier 1
8.3
%
8.8
%
8.5
%
8.4
%
8.6
%
Tier 1 capital
9.3
%
9.9
%
9.5
%
9.4
%
9.8
%
Total capital
11.1
%
11.9
%
11.5
%
11.4
%
11.8
%
Leverage
9.9
%
9.9
%
9.2
%
9.6
%
10.3
%
(1)
Liquidity assets include Federal funds sold and interest-bearing deposits in other banks.
(2)
Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end.
(3)
Non-interest expense divided by the sum of net interest income and non-interest income.
(4)
Stockholders’ equity excluding preferred stock and accumulated other comprehensive income less goodwill and intangibles divided by total assets less accumulated other comprehensive income and goodwill and intangibles.

4



TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
 
June 30, 2018
June 30, 2017
%
Change
Assets
 
 
 
Cash and due from banks
$
174,687

$
126,977

38
 %
Interest-bearing deposits in other banks
3,249,107

2,117,658

53
 %
Federal funds sold and securities purchased under resale agreements
39,000

25,000

56
 %
Investment securities
24,408

119,043

(79
)%
LHS ($1,275.5 million and $843.2 million at June 30, 2018 and June 30, 2017, respectively, at fair value)
1,276,768

846,017

51
 %
LHI, mortgage finance
5,923,058

5,183,600

14
 %
LHI (net of unearned income)
16,536,721

14,280,353

16
 %
Less: Allowance for loan losses
179,096

174,225

3
 %
LHI, net
22,280,683

19,289,728

16
 %
Mortgage servicing rights, net
82,776

63,023

31
 %
Premises and equipment, net
26,175

20,750

26
 %
Accrued interest receivable and other assets
609,501

492,240

24
 %
Goodwill and intangibles, net
18,805

19,277

(2
)%
Total assets
$
27,781,910

$
23,119,713

20
 %
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
7,648,125

$
8,174,830

(6
)%
Interest bearing
12,686,746

9,117,393

39
 %
Total deposits
20,334,871

17,292,223

18
 %
 
 
 


Accrued interest payable
11,268

6,246

80
 %
Other liabilities
176,400

163,836

8
 %
Federal funds purchased and repurchase agreements
520,849

462,224

13
 %
Other borrowings
4,000,000

2,700,000

48
 %
Subordinated notes, net
281,586

281,225

—

Trust preferred subordinated debentures
113,406

113,406

—

Total liabilities
25,438,380

21,019,160

21
 %
 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, $1,000 liquidation value:
 
 
 
Authorized shares - 10,000,000
 
 
 
Issued shares - 6,000,000 shares issued at June 30, 2018 and 2017
150,000

150,000

−

Common stock, $.01 par value:
 
 
 
Authorized shares - 100,000,000
 
 
 
Issued shares - 50,151,481 and 49,595,669 at June 30, 2018 and 2017, respectively
502

496

1
 %
Additional paid-in capital
963,732

957,721

1
 %
Retained earnings
1,228,924

991,949

24
 %
Treasury stock (shares at cost: 417 at June 30, 2018 and 2017)
(8
)
(8
)
—

Accumulated other comprehensive income, net of taxes
380

395

(4
)%
Total stockholders’ equity
2,343,530

2,100,553

12
 %
Total liabilities and stockholders’ equity
$
27,781,910

$
23,119,713

20
 %

5



TEXAS CAPITAL BANCSHARES, INC.
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
 
 
(Dollars in thousands except per share data)
 
 
 
 
 
Three Months Ended June 30
Six Months Ended
June 30
 
2018
2017
2018
2017
Interest income
 
 
 
 
Interest and fees on loans
$
279,447

$
201,646

$
523,311

$
378,270

Investment securities
193

287

399

512

Federal funds sold and securities purchased under resale agreements
745

434

1,790

964

Interest-bearing deposits in other banks
6,467

5,824

15,221

12,391

Total interest income
286,852

208,191

540,721

392,137

Interest expense
 
 
 
 
Deposits
39,607

16,533

71,309

29,826

Federal funds purchased
1,665

726

2,634

978

Other borrowings
8,484

2,901

14,164

4,922

Subordinated notes
4,191

4,191

8,382

8,382

Trust preferred subordinated debentures
1,193

881

2,220

1,711

Total interest expense
55,140

25,232

98,709

45,819

Net interest income
231,712

182,959

442,012

346,318

Provision for credit losses
27,000

13,000

39,000

22,000

Net interest income after provision for credit losses
204,712

169,959

403,012

324,318

Non-interest income
 
 
 
 
Service charges on deposit accounts
3,005

3,067

6,142

6,112

Wealth management and trust fee income
2,007

1,402

3,931

2,759

Bank owned life insurance (BOLI) income
657

481

1,316

947

Brokered loan fees
5,815

5,809

10,983

11,487

Servicing income
4,967

3,700

10,459

5,901

Swap fees
1,352

954

2,914

2,757

Other
(524
)
3,356

1,481

5,916

Total non-interest income
17,279

18,769

37,226

35,879

Non-interest expense
 
 
 
 
Salaries and employee benefits
72,404

63,154

144,941

126,157

Net occupancy expense
7,356

6,515

14,590

12,626

Marketing
10,236

6,157

18,913

11,107

Legal and professional
11,654

7,127

19,184

14,580

Communications and technology
7,143

11,906

13,776

18,412

FDIC insurance assessment
6,257

4,603

12,360

10,597

Servicing related expenses
4,367

2,682

8,172

4,432

Allowance and other carrying costs for OREO
176

71

2,331

210

Other
12,538

9,599

24,824

19,787

Total non-interest expense
132,131

111,814

259,091

217,908

Income before income taxes
89,860

76,914

181,147

142,289

Income tax expense
18,424

25,819

37,766

48,652

Net income
71,436

51,095

143,381

93,637

Preferred stock dividends
2,437

2,437

4,875

4,875

Net income available to common stockholders
$
68,999

$
48,658

$
138,506

$
88,762

 
 
 
 
 
Basic earnings per common share
$
1.39

$
0.98

$
2.79

$
1.79

Diluted earnings per common share
$
1.38

$
0.97

$
2.76

$
1.77



6



TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
 
2nd Quarter
1st Quarter
4th Quarter
3rd Quarter
2nd Quarter
 
2018
2018
2017
2017
2017
Allowance for loan losses:
 
 
 
 
 
Beginning balance
$
190,898

$
184,655

$
182,929

$
174,225

$
172,013

Loans charged-off:
 
 
 
 
 
Commercial
38,305

5,667

1,999

10,603

12,310

Real estate
—

—

—

250

40

Construction
—

—

—

59

—

Consumer
—

—

—

—

180

Total charge-offs
38,305

5,667

1,999

10,912

12,530

Recoveries:
 
 
 
 
 
Commercial
320

360

1,019

132

61

Real estate
8

24

1

21

3

Construction
—

—

—

3

—

Consumer
9

59

14

15

36

Leases
1

19

1

1

—

Total recoveries
338

462

1,035

172

100

Net charge-offs
37,967

5,205

964

10,740

12,430

Provision for loan losses
26,165

11,448

2,690

19,444

14,642

Ending balance
$
179,096

$
190,898

$
184,655

$
182,929

$
174,225

 
 
 
 
 
 
Allowance for off-balance sheet credit losses:
 
 
 
 
 
Beginning balance
$
9,623

$
9,071

$
9,761

$
9,205

$
10,847

Provision for off-balance sheet credit losses
835

552

(690
)
556

(1,642
)
Ending balance
$
10,458

$
9,623

$
9,071

$
9,761

$
9,205

 
 
 
 
 
 
Total allowance for credit losses
$
189,554

$
200,521

$
193,726

$
192,690

$
183,430

 
 
 
 
 
 
Total provision for credit losses
$
27,000

$
12,000

$
2,000

$
20,000

$
13,000

 
 
 
 
 
 
Allowance for loan losses to LHI
0.80
%
0.93
%
0.89
%
0.89
%
0.90
%
Allowance for loan losses to LHI excluding mortgage finance loans(2)
1.08
%
1.21
%
1.20
%
1.23
%
1.22
%
Allowance for loan losses to average LHI
0.86
%
0.98
%
0.92
%
0.95
%
0.99
%
Allowance for loan losses to average LHI excluding mortgage finance loans(2)
1.13
%
1.24
%
1.23
%
1.27
%
1.27
%
Net charge-offs to average LHI(1)
0.73
%
0.11
%
0.02
%
0.22
%
0.28
%
Net charge-offs to average LHI excluding mortgage finance loans(1)(2)
0.96
%
0.14
%
0.03
%
0.30
%
0.36
%
Net charge-offs to average LHI for last twelve months(1)
0.28
%
0.15
%
0.16
%
0.29
%
0.27
%
Net charge-offs to average LHI excluding mortgage finance loans for last twelve months(1)(2)
0.36
%
0.20
%
0.21
%
0.37
%
0.36
%
Total provision for credit losses to average LHI(1)
0.52
%
0.25
%
0.04
%
0.41
%
0.30
%
Total provision for credit losses to average LHI excluding mortgage finance loans(1)(2)
0.68
%
0.32
%
0.05
%
0.55
%
0.38
%
Total allowance for credit losses to LHI
0.84
%
0.98
%
0.94
%
0.94
%
0.94
%
Total allowance for credit losses to LHI excluding mortgage finance loans(1)(2)
1.15
%
1.27
%
1.26
%
1.30
%
1.28
%
(1)
Interim period ratios are annualized.
(2)
The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.

7



TEXAS CAPITAL BANCSHARES, INC.
 
 
 
 
 
SUMMARY OF LOAN LOSS EXPERIENCE
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
2nd Quarter
1st Quarter
4th Quarter
3rd Quarter
2nd Quarter
 
2018
2018
2017
2017
2017
 
 
 
 
 
 
Non-accrual loans
$
83,295

$
123,542

$
101,444

$
118,205

$
123,730

Other real estate owned (OREO)(2)
9,526

9,558

11,742

18,131

18,689

Total LHI NPAs
$
92,821

$
133,100

$
113,186

$
136,336

$
142,419

 
 
 
 
 
 
Non-accrual loans to LHI
0.37
%
0.60
%
0.49
%
0.58
%
0.64
%
Non-accrual loans to LHI excluding mortgage finance loans(1)
0.50
%
0.78
%
0.66
%
0.80
%
0.87
%
Total NPAs to LHI plus OREO
0.41
%
0.65
%
0.55
%
0.67
%
0.73
%
Total NPAs to LHI excluding mortgage finance loans plus OREO(1)
0.56
%
0.85
%
0.74
%
0.92
%
1.00
%
Total NPAs to earning assets
0.35
%
0.56
%
0.47
%
0.58
%
0.64
%
Allowance for loan losses to non-accrual loans
2.2x

1.5x

1.8x

1.5x

1.4x

 
 
 
 
 
 
Loans past due 90 days and still accruing(3)
$
7,357

$
13,563

$
8,429

$
8,892

$
11,077

 
 
 
 
 
 
Loans past due 90 days to LHI
0.03
%
0.07
%
0.14
%
0.04
%
0.06
%
Loans past due 90 days to LHI excluding mortgage finance loans(1)
0.04
%
0.09
%
0.18
%
0.06
%
0.08
%
 
 
 
 
 
 
LHS past due 90 days and still accruing(4)
$
27,858

$
35,226

$
19,737

$
—

$
—

(1)
The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.
(2)
At June 30, 2018, there was a $2.0 million valuation allowance recorded against the OREO balance.
(3)
At June 30, 2018, loans past due 90 days and still accruing includes premium finance loans of $6.0 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(4)
Includes loans guaranteed by U.S. government agencies that were repurchased out of Ginnie Mae securities. Loans are recorded as LHS and carried at fair value on the balance sheet. Interest on these past due loans accrues at the debenture rate guaranteed by the U.S. government. Also includes loans that, pursuant to Ginnie Mae servicing guidelines, we have the unilateral right, but not obligation, to repurchase and thus must record as LHS on the balance sheet regardless of whether the repurchase option has been exercised.


8



TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
 
2nd Quarter
1st Quarter
4th Quarter
3rd Quarter
2nd Quarter
 
2018
2018
2017
2017
2017
Interest income
 
 
 
 
 
Interest and fees on loans
$
279,447

$
243,864

$
238,906

$
229,116

$
201,646

Investment securities
193

206

213

341

287

Federal funds sold and securities purchased under resale agreements
745

1,045

936

642

434

Interest-bearing deposits in other banks
6,467

8,754

9,464

7,544

5,824

Total interest income
286,852

253,869

249,519

237,643

208,191

Interest expense
 
 
 
 
 
Deposits
39,607

31,702

27,625

22,435

16,533

Federal funds purchased
1,665

969

723

891

726

Other borrowings
8,484

5,680

5,380

4,835

2,901

Subordinated notes
4,191

4,191

4,191

4,191

4,191

Trust preferred subordinated debentures
1,193

1,027

951

930

881

Total interest expense
55,140

43,569

38,870

33,282

25,232

Net interest income
231,712

210,300

210,649

204,361

182,959

Provision for credit losses
27,000

12,000

2,000

20,000

13,000

Net interest income after provision for credit losses
204,712

198,300

208,649

184,361

169,959

Non-interest income
 
 
 
 
 
Service charges on deposit accounts
3,005

3,137

3,109

3,211

3,067

Wealth management and trust fee income
2,007

1,924

1,767

1,627

1,402

Bank owned life insurance (BOLI) income
657

659

698

615

481

Brokered loan fees
5,815

5,168

5,692

6,152

5,809

Servicing income
4,967

5,492

5,270

4,486

3,700

Swap fees
1,352

1,562

586

647

954

Other
(524
)
2,005

2,252

2,265

3,356

Total non-interest income
17,279

19,947

19,374

19,003

18,769

Non-interest expense
 
 
 
 
 
Salaries and employee benefits
72,404

72,537

70,192

67,882

63,154

Net occupancy expense
7,356

7,234

6,749

6,436

6,515

Marketing
10,236

8,677

8,438

7,242

6,157

Legal and professional
11,654

7,530

8,756

6,395

7,127

Communications and technology
7,143

6,633

6,590

6,002

11,906

FDIC insurance assessment
6,257

6,103

6,710

6,203

4,603

Servicing related expenses
4,367

3,805

7,177

3,897

2,682

Allowance and other carrying costs for OREO
176

2,155

6,122

105

71

Other
12,538

12,286

12,404

10,668

9,599

Total non-interest expense
132,131

126,960

133,138

114,830

111,814

Income before income taxes
89,860

91,287

94,885

88,534

76,914

Income tax expense
18,424

19,342

50,143

29,850

25,819

Net income
71,436

71,945

44,742

58,684

51,095

Preferred stock dividends
2,437

2,438

2,437

2,438

2,437

Net income available to common shareholders
$
68,999

$
69,507

$
42,305

$
56,246

$
48,658





9



TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands)
 
2nd Quarter 2018
 
1st Quarter 2018
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
Average
Balance
Revenue/
Expense
Yield/
Rate
 
Average
Balance
Revenue/
Expense
Yield/
Rate
 
Average
Balance
Revenue/
Expense
Yield/
Rate
 
Average
Balance
Revenue/
Expense
Yield/
Rate
 
Average
Balance
Revenue/
Expense
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities - Taxable
$
24,514

$
193

3.15
%
 
$
23,854

$
206

3.50
%
 
$
23,678

$
213

3.57
%
 
$
86,087

$
340

1.57
%
 
$
65,049

$
287

1.77
%
Investment securities - Non-taxable(2)
—

—

—
%
 
—

—

—
%
 
—

—

—
%
 
—

—

—
%
 
—

—

—
%
Federal funds sold and securities purchased under resale agreements
166,613

745

1.79
%
 
261,641

1,045

1.62
%
 
292,544

936

1.27
%
 
205,938

642

1.24
%
 
174,264

434

1.00
%
Interest-bearing deposits in other banks
1,498,474

6,467

1.73
%
 
2,302,938

8,754

1.54
%
 
2,924,942

9,464

1.28
%
 
2,383,060

7,544

1.26
%
 
2,250,330

5,824

1.04
%
LHS, at fair value
1,516,047

17,026

4.50
%
 
1,187,594

12,535

4.28
%
 
1,144,124

11,507

3.99
%
 
1,009,703

9,882

3.88
%
 
845,623

8,235

3.91
%
LHI, mortgage finance loans
4,898,411

47,056

3.85
%
 
4,097,995

37,362

3.70
%
 
5,102,107

44,477

3.46
%
 
4,847,530

42,294

3.46
%
 
3,805,831

33,399

3.52
%
LHI(1)(2)
15,883,317

216,755

5.47
%
 
15,425,323

195,333

5.14
%
 
15,010,041

185,039

4.89
%
 
14,427,980

178,839

4.92
%
 
13,718,739

161,369

4.72
%
Less allowance for loan
       losses
189,238

—

—

 
184,238

—

—

 
183,233

—

—

 
172,774

—

—

 
170,957

—

—

LHI, net of allowance
20,592,490

263,811

5.14
%
 
19,339,080

232,695

4.88
%
 
19,928,915

229,516

4.57
%
 
19,102,736

221,133

4.59
%
 
17,353,613

194,768

4.50
%
Total earning assets
23,798,138

288,242

4.86
%
 
23,115,107

255,235

4.48
%
 
24,314,203

251,636

4.11
%
 
22,787,524

239,541

4.17
%
 
20,688,879

209,548

4.06
%
Cash and other assets
808,099

 
 
 
797,506

 
 
 
766,622

 
 
 
713,778

 
 
 
632,097

 
 
Total assets
$
24,606,237

 
 
 
$
23,912,613

 
 
 
$
25,080,825

 
 
 
$
23,501,302

 
 
 
$
21,320,976

 
 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
$
2,889,834

$
10,295

1.43
%
 
$
2,792,954

$
8,651

1.26
%
 
$
2,469,984

$
5,845

0.94
%
 
$
2,145,324

$
4,359

0.81
%
 
$
2,008,872

$
2,893

0.58
%
Savings deposits
7,784,937

25,454

1.31
%
 
7,982,256

21,958

1.12
%
 
8,403,473

20,655

0.98
%
 
7,618,843

17,152

0.89
%
 
6,952,317

12,940

0.75
%
Time deposits
979,735

3,858

1.58
%
 
506,375

1,093

0.88
%
 
533,312

1,125

0.84
%
 
496,076

924

0.74
%
 
455,542

700

0.62
%
Total interest bearing deposits
11,654,506

39,607

1.36
%
 
11,281,585

31,702

1.14
%
 
11,406,769

27,625

0.96
%
 
10,260,243

22,435

0.87
%
 
9,416,731

16,533

0.70
%
Other borrowings
2,113,391

10,149

1.93
%
 
1,721,914

6,649

1.57
%
 
1,852,750

6,103

1.31
%
 
1,821,837

5,726

1.25
%
 
1,456,737

3,627

1.00
%
Subordinated notes
281,527

4,191

5.97
%
 
281,437

4,191

6.04
%
 
281,348

4,191

5.91
%
 
281,256

4,191

5.91
%
 
281,167

4,191

5.98
%
Trust preferred subordinated debentures
113,406

1,193

4.22
%
 
113,406

1,027

3.67
%
 
113,406

951

3.33
%
 
113,406

930

3.25
%
 
113,406

881

3.12
%
Total interest bearing liabilities
14,162,830

55,140

1.56
%
 
13,398,342

43,569

1.32
%
 
13,654,273

38,870

1.13
%
 
12,476,742

33,282

1.06
%
 
11,268,041

25,232

0.90
%
Demand deposits
8,017,578

 
 
 
8,147,721

 
 
 
9,085,819

 
 
 
8,764,263

 
 
 
7,863,402

 
 
Other liabilities
100,074

 
 
 
110,698

 
 
 
138,050

 
 
 
116,998

 
 
 
102,653

 
 
Stockholders’ equity
2,325,755

 
 
 
2,255,852

 
 
 
2,202,683

 
 
 
2,143,299

 
 
 
2,086,880

 
 
Total liabilities and stockholders’ equity
$
24,606,237

 
 
 
$
23,912,613

 
 
 
$
25,080,825

 
 
 
$
23,501,302

 
 
 
$
21,320,976

 
 
Net interest income(2)


$
233,102

 
 
 
$
211,666

 
 
 
$
212,766

 
 
 
$
206,259

 
 
 
$
184,316

 
Net interest margin
 
 
3.93
%
 
 
 
3.71
%
 
 
 
3.47
%
 
 
 
3.59
%
 
 
 
3.57
%
(1)
The loan averages include non-accrual loans and are stated net of unearned income.
(2)
Taxable equivalent rates used where applicable.

10

TCBI Q2 2018 Earnings July 18, 2018

 
Certain matters discussed within or in connection with these materials may contain “forward-looking statements” as defined in federal securities laws, which are subject to risks and uncertainties and are based on Texas Capital’s current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and similar expressions. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from declines and volatility in oil and gas prices, the financial impact of the Tax Cuts and Jobs Act on our results of operations, rates of default or loan losses, volatility in the mortgage industry, the success or failure of our business strategies, future financial performance, future growth and earnings, the appropriateness of our allowance for loan losses and provision for credit losses, the impact of increased regulatory requirements and legislative changes on our business, increased competition, interest rate risk, the success or failure of new lines of business and new product or service offerings and the impact of new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this presentation. Texas Capital is under no obligation, and expressly disclaims any obligation, to update, alter or revise its forward-looking statements, whether as a result of new information, future events or otherwise. 2

 
Opening Remarks & Financial Highlights • Solid traditional LHI growth in Q2-2018 • Expected growth in Mortgage Finance balances during seasonally strong Q2-2018 Balanced Growth • Increase in total deposits concentrated in interest-bearing • Benefit from improving yields on strong base of traditional LHI Core • Strong growth in net revenue; 8% from Q1-2018 and 23% from Q2-2017 Earnings • Operating leverage improvement evidenced in YOY comparison Power • ROE of 12.72% for Q2-2018, down slightly from Q1-2018 as a result of increased loan loss provision • NCOs for Q2-2018 $38.0 million with $13.9 million related to energy • Despite higher level of loan loss provision and charge-offs, credit metrics remain good Credit • Q2-2018 total credit costs $27.0 million compared to $14.0 million ($12.0 million provision and $2.0 Quality million OREO valuation allowance) in Q1-2018 Net Income EPS ROE Total Total Operating CE LHI Deposits Results $71.4 million $1.38 12.72% $22.5 billion $20.3 billion 3

 
Energy and Health Care Update Energy Exposure • Outstanding energy loans represented 7% of total loans, or $1.6 billion, at Q2-2018 compared to $1.4 billion at Q1-2018 • Addition of new loans improves composition and quality of total portfolio as problem assets are resolved • Decrease in energy non-accruals ‐ Non-accruals $33.6 million at Q2-2018 compared to $50.4 million at Q1-2018 and $82.6 million at Q2-2017 ‐ Criticized energy loans decreased to 4% of energy loans at Q2-2018 from 5% at Q1-2018 and 12% at Q2-2017 ‐ Total criticized energy loans at Q2-2018 $66.0 million, down from a high of $259.7 million at Q3-2016 Health Care Exposure • As previously noted, two of the four loans that deteriorated during Q2-2018 were identified as leveraged health care • Outstanding health care loans were $846 million at Q2-2018, compared to $753 million at Q4-2017 • Criticized health care loans at Q2-2018 were 3%; over 50% of which relates to the two non-accrual loans • Almost 70% of the health care exposure relates to senior housing, which is not considered leveraged lending; only $9 million criticized at Q2-2018 4

 
5 Update Update on Geographic Diversification Note: Note: (1) Texas Regions loan balances include balances from the Energy business (2) Unemployment data through May 30, 2018 $ Millions 10,000 12,000 14,000 16,000 2,000 4,000 6,000 8,000 0 Texas Regions Loans 10,225 (1) 6,665 Deposits National Businesses 13,512 13,670 San Antonio Houston metro DFW Austin • • • business total their than 20% of less represent clients OurLOBs Texas national but Texas clients, include Finance, BDCFbusinesses depository and national LenderBuilder ABL,Finance, Finance, Franchise Finance, balances include MortgageNational Business share market additional as each gained geographicdiversification operating have ofbusiness lines been Manyofour national Major Texas Metro Areas Metro Texas Major - Arlington - Round Rock for numerous yearsnumerous for , increasing our increasing , Unemployment Rate 3.2% 4.2% 3.4% 2.8% (2)

 
Net Interest Income & Margin Earning Asset & Margin Trends Quarterly Change $25.0 NII ($MM) NIM (%) $3.2 4.40% $1.7 $210.3 Q1 2018 3.71% $2.7 $2.6 $22.1 13.5 Increase in LHI yields .23 $21.1 $20.0 $2.5 $20.5 4.20% (2.4) Mix shift from LHI to MF (.04) $20.1 2.0 Increase in MF loan yields .03 $18.2 - Decrease in liquidity .15 3.93% 4.00% (8.5) Increase in funding costs (.14) $15.0 2.3 Impact of increase in day count - 3.80% Increase in MF & LHI loan 3.71% 14.2 - balances 3.59% .3 Other (.01) Portfolio Balances Balances ($B) Portfolio $10.0 3.57% 3.60% $231.7 Q2 2018 3.93% 3.47% NIM Highlights 3.40% • Net interest income increase of 10% from Q1-2018 with strong LHI growth and increased 27% from Q2-2017 $5.0 • Increase in traditional LHI yield of 33 bps from Q1-2018 3.20% • Less than $110 million in loans subject to floors, down over $63 million compared to Q1-2018 • Average liquidity assets 7% of average earning assets at $- 3.00% Q2-2018 compared to 11% at Q1-2018 primarily as a Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 result of seasonal strength in mortgage finance; positive Loans Other Earning Assets NIM impact on NIM in Q2-2018 6

 
Loan Growth Average Balance Trends ($B) Total Loan Composition ($23.7Billion at 6/30/18) $24.0 7.00% $22.0 6.80% Business Assets 29% 6.60% $20.0 $6.2 $5.3 $6.4 $5.9 6.40% Energy $18.0 5% $4.7 6.20% $16.0 6.00% Highly Liquid $15.9 Unsecured $14.0 $15.0 $15.4 5.80% Assets $14.4 4% 2% $12.0 $13.7 5.47% 5.60% Owner Occupied $10.0 5.40% R/E 5.14% 5% 5.20% PortfolioBalances ($B) $8.0 4.92% 4.89% 5.00% Residential R/E $6.0 Mkt. Risk 4.72% 4.80% 5% $4.0 4.60% $2.0 Total Mortgage 4.40% Finance 30% $- 4.20% Comml R/E Mkt. Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Risk 15% Other Assets LHI (excl. MFLs) Total MFLs LHI (excl. MFL) Yield 5% Growth Highlights • Broad-based growth in average traditional LHI – Growth of $458.0 million (3%) from Q1-2018 and $2.2 billion (16%) from Q2-2017 • Strong growth in traditional LHI at end of the quarter; period-end balance $653.4 million higher than Q2-2018 average balance • Increase in average total MFL balances of $1.1 billion from Q1-2018, expected seasonal strength • Average total MFLs represent 29% of average total loans at Q2-2018 compared to 26% in Q1-2018 and 30% at period end 7

 
Deposit Growth Average Balance Trends ($B) Funding Costs 1.00% $22.0 0.90% $20.0 $9.1 $8.0 0.80% $18.0 $8.8 $8.1 0.74% 0.81% $16.0 $7.9 0.62% $14.0 0.60% 0.56% 0.66% $12.0 0.48% $11.7 0.53% $10.0 $11.4 $11.3 $10.3 0.40% 0.47% $9.4 Deposit Balances ($B) Balances Deposit $8.0 0.38% $6.0 0.20% $4.0 $2.0 $- 0.00% Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Interest-Bearing Deposits DDAs Avg Cost of Deposits Total Funding Costs Growth Highlights • Deposit costs increased 15 bps from .66% at Q1-2018 to .81% at Q2-2018, and total funding costs increased 16 bps • Continued focus on cost-effective deposit growth ‐ Increase in linked quarter deposits with growth in interest-bearing ‐ Lower level of liquidity assets favorable to NIM in Q2-2018; some fluctuations may occur from quarter to quarter based on timing of deposit growth relative to total loan growth 8

 
Non-interest Expense Quarterly Change NIE - Efficiency Increase/ • Changes in Salaries & Benefits components of change Non-interest expense ($MM) (Decrease) • Annual incentive accrual ramps generally Q1 2018 $127.0 higher in Q2 than Q1 Salaries and employee benefits – FAS 123R • FICA and other payroll related items generally (includes stock price changes) .1 higher in Q1 compared to Q2 Salaries and employee benefits – non-LTI • Efficiency ratio (excluding OREO permanent write- incentives and annual incentive pool .5 down) 53.1% for Q2-2018 compared to 54.3% for Q1- 2018 Salaries and employee benefits – FICA and seasonal payroll related items (1.9) • Increase in marketing expense expected as we’ve noted the variable component which is tied to growth in Salaries and employee benefits – salaries only 1.2 deposit balances as well as increases in rates Marketing expense 1.6 • Increase in legal and professional includes an outsized Legal and professional 4.1 non-recurring portion totaling more than half of the increase that won’t be recurring in Q3-2018, and also Servicing related expenses .6 includes the new variable component added during Q1- OREO related costs (2.0) 2018 that is directly related to deposit services All other – includes occupancy, technology, FDIC insurance assessment .9 Q2 2018 $132.1 9

 
Asset Quality NCO / Average Traditional LHI Non-accrual loans Q2 2018 1.40% Commercial $ 79,586 Construction – 1.20% Real estate 2,543 1.00% Consumer 66 0.80% Equipment leases 1,100 0.60% 0.56% 0.38% Total non-accrual loans $ 83,295 0.40% 0.21% 0.20% 0.07% 0.10% Non-accrual loans as % of LHI .50% 0.00% excluding MF 2014 2015 2016 2017 Q2 2018 Combined Non-accrual loans as % of total .37% Reserves/ 1.06% 1.28% 1.38% 1.26% 1.15% LHI Trad’l LHI Asset Quality Highlights • Total credit cost of $27.0 million for Q2-2018, compared to $14.0 OREO 9,526 million in Q1-2018 (includes $2.0 million OREO valuation allowance) Total Non-accruals + OREO $ 92,821 and $13.0 million in Q2-2017 Non-accrual loans + OREO as % .56% • NCOs $38.0 million, or 96 bps of LHI excluding MF loans, in Q2-2018 of LHI excluding MF + OREO compared to $5.2 million, or 14 bps, in Q1-2018 and 36 bps in Q2-2017 • NPL ratio decreased to .37% of total LHI Reserve to non-accrual loans 2.2x • $13.9 million in charge-offs related to energy in Q2-2018; energy NPLs at $33.6 million for Q2-2018 compared to $50.4 million in Q1-2018 and $82.6 million in Q2-2017 10

 
Performance Summary - Quarterly (in thousands) Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Net interest income $ 231,712 $ 210,300 $ 210,649 $ 204,361 $ 182,959 Non-interest income 17,279 19,947 19,374 19,003 18,769 Net revenue 248,991 230,247 230,023 223,364 201,728 Provision for credit losses 27,000 12,000 2,000 20,000 13,000 OREO write-down - 2,000 6,111 - - Non-interest expense 132,131 124,960 127,027 114,830 111,814 Income before income taxes 89,860 91,287 94,885 88,534 76,914 Income tax expense 18,424 19,342 50,143 29,850 25,819 Net income 71,436 71,945 44,742 58,684 51,095 Preferred stock dividends 2,437 2,438 2,437 2,438 2,437 Net income available to common shareholders $ 68,999 $ 69,507 $ 42,305 $ 56,246 $ 48,658 Diluted EPS $ 1.38 $ 1.38 $ .84 $ 1.12 $ .97 Net interest margin 3.93% 3.71% 3.47% 3.59% 3.57% ROA 1.16% 1.22% .71% .99% .96% ROE 12.72% 13.39% 8.18% 11.20% 10.08% ROE, excl. DTA write-off 12.72% 13.39% 11.58% 11.20% 10.08% Efficiency 53.1% 55.1% 57.9% 51.4% 55.4% Efficiency, excl. OREO write-down 53.1% 54.3% 55.2% 51.4% 55.4% 11

 
2018 Outlook Business 2018 Outlook v. 2017 Results Comments & Changes since June 18, Driver 2018 Average LHI Low to mid-teens percent growth - Increased from low- to mid-single digit percent Average LHI – Mid-single digit percent growth growth and removed range for QTD average Mortgage Finance balance Loans held for sale $1.2 billion average Increased from $1 billion average (MCA) Average Deposits Low-teens percent growth Decreased from low to mid-teens percent growth Net Revenue Mid to high-teens percent growth Increased from mid-teens percent growth Net Interest 3.60% to 3.70% Increased from 3.45% to 3.55% Margin Provision Expense Low to mid-$60 million level - Increased from high single digit to low-teens NIE Low-teens percent growth percent growth Efficiency Ratio Low-50s - - Effective tax rate 22% 12

 
Closing Comments • Continued strong earnings in Q2-2018 • Solid traditional LHI growth in Q2-2018, and year to date which is positive to earnings for the remainder of 2018 • Benefit from seasonal strength in Mortgage Finance asset balances • Deposit levels increased, but also used more of liquidity in funding seasonal growth in Mortgage Finance • High asset betas continue to overcome the shift in deposit composition and pricing with rising rates • Focus on ROE • Continued strong focus on credit quality • Targeted approach in slowing pace of NIE growth • Leveraging deposit generation capabilities which will have longer term impact • Positive impact from new corporate tax rate 13

 
Q&A 14

 
Appendix 15

 
Average Balances, Yields & Rates - Quarterly (in thousands) Q2 2018 Q1 2018 Q2 2017 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 24,514 3.15% $ 23,854 3.50% $ 65,049 1.77% Liquidity assets 1,665,087 1.74% 2,564,579 1.55% 2,424,594 1.04% Loans held for sale 1,516,047 4.50% 1,187,594 4.28% 845,623 3.91% LHI, mortgage finance 4,898,411 3.85% 4,097,995 3.70% 3,805,831 3.52% LHI 15,883,317 5.47% 15,425,323 5.14% 13,718,739 4.72% Total LHI, net of reserve 20,592,490 5.14% 19,339,080 4.88% 17,353,613 4.50% Total earning assets 23,798,138 4.86% 23,115,107 4.48% 20,688,879 4.06% Total assets $24,606,237 $23,912,613 $21,320,976 Liabilities and Stockholders’ Equity Total interest bearing deposits $11,654,506 1.36% $11,281,585 1.14% $ 9,416,731 .70% Other borrowings 2,113,391 1.93% 1,721,914 1.57% 1,456,737 1.00% Total long-term debt 394,933 5.47% 394,843 5.36% 394,573 5.16% Total interest bearing liabilities 14,162,830 1.56% 13,398,342 1.32% 11,268,041 .90% Demand deposits 8,017,578 8,147,721 7,863,402 Total deposits 19,672,084 .81% 19,429,306 .66% 17,280,133 .38% Stockholders’ equity 2,325,755 2,255,852 2,086,880 Total liabilities and stockholders’ equity $24,606,237 .90% $23,912,613 .74% $21,320,976 .48% Net interest margin 3.93% 3.71% 3.57% Total deposits and borrowed funds $21,785,475 .92% $21,151,220 .74% $18,736,870 .43% 16

 
Average Balance Sheet - Quarterly (in thousands) QTD Average Q2/Q1 % YOY % Q2 2018 Q1 2018 Q2 2017 Change Change Total assets $24,606,237 $23,912,613 $21,320,976 3% 15% Loans held for sale 1,516,047 1,187,594 845,623 28% 79% Loans held for investment 15,883,317 15,425,323 13,718,739 3% 16% Loans held for investment, mortgage 4,898,411 4,097,995 3,805,831 finance 20% 29% Total loans held for investment 20,781,728 19,523,318 17,524,570 6% 19% Total loans 22,297,775 20,710,912 18,370,193 8% 21% Liquidity assets 1,665,087 2,564,579 2,424,594 (35)% (31)% Demand deposits 8,017,578 8,147,721 7,863,402 (2)% 2% Total deposits 19,672,084 19,429,306 17,280,133 1% 14% Stockholders’ equity 2,325,755 2,255,852 2,086,880 3% 11% 17

 
Period End Balance Sheet (in thousands) Period End Q2/Q1 % YOY % Q2 2018 Q1 2018 Q2 2017 Change Change Total assets $27,781,910 $24,449,147 $23,119,713 14% 20% Loans held for sale 1,276,768 1,088,565 846,017 17% 51% Loans held for investment 16,536,721 15,741,772 14,280,353 5% 16% Loans held for investment, mortgage 5,923,058 4,689,938 5,183,600 26% 14% finance Total loans held for investment 22,459,779 20,431,710 19,463,953 10% 15% Total loans 23,736,547 21,520,275 20,309,970 10% 17% Liquidity assets 3,288,107 2,296,673 2,142,658 43% 53% Demand deposits 7,648,125 7,413,340 8,174,830 3% (6)% Total deposits 20,334,871 18,764,533 17,292,223 8% 18% Stockholders’ equity 2,343,530 2,273,429 2,100,553 3% 12% 18

 

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