Form 8-K TEXAS CAPITAL BANCSHARES For: Oct 17
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): October 17, 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 October 17, 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 September 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: | October 17, 2018 | TEXAS CAPITAL BANCSHARES, INC. | |||
By: | /s/ Julie Anderson | ||||
Julie Anderson Chief Financial Officer | |||||
Exhibit 99.1
INVESTOR CONTACT
Heather Worley, 214.932.6646
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR Q3 2018
DALLAS - October 17, 2018 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced earnings and operating results for the third quarter of 2018.
“We continue to focus on strategic initiatives to position ourselves for the future while delivering record financial results," said Keith Cargill, CEO. "Positioning for through-the-cycle credit quality, broadening our funding profile and driving efficiencies, as we enhance the client experience, are top of mind."
• | Loans held for investment ("LHI"), excluding mortgage finance, remained flat on a linked quarter basis, growing 12% from the third quarter of 2017. |
• | Total mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans, decreased 1% on a linked quarter basis, and increased 8% from the third quarter of 2017. |
• | Demand deposits decreased 8% and total deposits remained flat on a linked quarter basis, decreasing 15% and increasing 7%, respectively, from the third quarter of 2017. |
• | Net income increased 20% on a linked quarter basis and increased 46% from the third quarter of 2017. |
• | EPS increased 20% on a linked quarter basis and increased 47% from the third quarter of 2017. |
FINANCIAL SUMMARY
(dollars and shares in thousands)
Q3 2018 | Q3 2017 | % Change | ||||||||
QUARTERLY OPERATING RESULTS | ||||||||||
Net income | $ | 85,552 | $ | 58,684 | 46 | % | ||||
Net income available to common stockholders | $ | 83,114 | $ | 56,246 | 48 | % | ||||
Diluted EPS | $ | 1.65 | $ | 1.12 | 47 | % | ||||
Diluted shares | 50,381 | 50,251 | — | % | ||||||
ROA | 1.31 | % | 0.99 | % | ||||||
ROE | 14.68 | % | 11.20 | % | ||||||
BALANCE SHEET | ||||||||||
Loans held for sale (LHS), MCA | $ | 1,651,930 | $ | 955,983 | 73 | % | ||||
LHI, mortgage finance | 5,477,787 | 5,642,285 | (3 | )% | ||||||
LHI | 16,569,538 | 14,828,406 | 12 | % | ||||||
Total LHI | 22,047,325 | 20,470,691 | 8 | % | ||||||
Total loans | 23,699,255 | 21,426,674 | 11 | % | ||||||
Total assets | 27,127,107 | 24,400,998 | 11 | % | ||||||
Demand deposits | 7,031,460 | 8,263,202 | (15 | )% | ||||||
Total deposits | 20,385,637 | 19,081,257 | 7 | % | ||||||
Stockholders’ equity | 2,426,442 | 2,158,363 | 12 | % | ||||||
DETAILED FINANCIALS
Texas Capital Bancshares, Inc. reported net income of $85.6 million and net income available to common stockholders of $83.1 million for the quarter ended September 30, 2018 compared to net income of $58.7 million and net income available to common stockholders of $56.2 million for the same period in 2017. On a fully diluted basis, earnings per common share were $1.65 for the quarter ended September 30, 2018 compared to $1.12 for the same period of 2017. The increase reflects a $26.9 million year-over-year increase in net income caused by increases in net interest income and non-interest income for the third quarter of 2018 compared to the third quarter of 2017, as well as a decrease in the provision for credit losses 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 non-interest expense.
Return on average common equity (“ROE”) was 14.68 percent and return on average assets (“ROA”) was 1.31 percent for the third quarter of 2018, compared to 12.72 percent and 1.16 percent, respectively, for the second quarter of 2018 and 11.20 percent and 0.99 percent, respectively, for the third quarter of 2017. The linked quarter increases in ROE and ROA resulted primarily from the decrease in the provision for credit losses.
Net interest income was $232.2 million for the third quarter of 2018, compared to $231.7 million for the second quarter of 2018 and $204.4 million for the third quarter of 2017. The linked quarter increase in net interest income was primarily due to an increase in average total loans. Net interest margin for the third quarter of 2018 was 3.70 percent, a decrease of 23 basis points from the second quarter of 2018 and an increase of 11 basis points from the third quarter of 2017. Traditional LHI yields for the third quarter of 2018 increased 1 basis point compared to the second quarter of 2018 and 56 basis points compared to the third quarter of 2017. Mortgage finance, excluding MCA, yields for the third quarter of 2018 decreased 23 basis points compared to the second quarter of 2018 and increased 16 basis points compared to the third quarter of 2017. Total cost of deposits for the third quarter of 2018 increased 18 basis points to 0.99 percent compared to 0.81 percent for the second quarter of 2018, and increased 52 basis points from 0.47 percent for the third quarter of 2017.
Average LHI, excluding mortgage finance loans, for the third quarter of 2018 were $16.3 billion, an increase of $448.3 million, or 3 percent, from the second quarter of 2018 and an increase of $1.9 billion, or 13 percent, from the third quarter of 2017. Average total mortgage finance loans for the third quarter of 2018 were $6.9 billion, an increase of $513.8 million, or 8 percent, from the second quarter of 2018 and an increase of $1.1 billion, or 18 percent, from the third quarter of 2017.
Average total deposits for the third quarter of 2018 increased $1.1 billion from the second quarter of 2018 and increased $1.8 billion from the third quarter of 2017. Average demand deposits for the third quarter of 2018 decreased $77.1 million, or 1 percent, to $7.9 billion from $8.0 billion during the second quarter of 2018, and decreased $823.8 million, or 9 percent, from the third quarter of 2017 as a result of the rising interest rate environment and the shift to interest-bearing deposits.
We recorded a $13.0 million provision for credit losses for the third quarter of 2018 compared to $27.0 million for the second quarter of 2018 and $20.0 million for the third quarter of 2017. The provision for the third quarter of 2018 was driven by the consistent application of our methodology. The linked-quarter decrease was primarily related to flat traditional LHI balances, as well as a higher second quarter provision related to credit deterioration in four loans, offset by an increase in non-accrual loans from the second quarter of 2018. The total allowance for credit losses increased to 1.21 percent of LHI excluding mortgage finance loans at September 30, 2018 compared to 1.15 percent at June 30, 2018 and decreased from 1.30 percent at September 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 an increase in non-performing assets ("NPAs") in the third quarter of 2018, increasing the ratio of total non-performing assets to total LHI plus other real estate owned (“OREO”) to 0.49 percent compared to 0.41 percent for the second quarter of 2018 and decreasing from 0.67 percent for the third quarter of 2017. Net charge-offs for the third quarter of 2018 were $2.0 million compared to $38.0 million for the second quarter of 2018 and $10.7 million for the third quarter of 2017. For the third quarter of 2018, net charge-offs were 0.04 percent of average total LHI, compared to 0.73 percent for the second quarter of 2018 and 0.22 percent for the same period in 2017. At September 30, 2018, total OREO was $79,000 compared to $9.5 million at June 30, 2018 and $18.1 million at September 30, 2017. During the third quarter of 2018, we sold our largest OREO property and recorded a $2.0 million gain on sale, as well as a reversal of a $2.0 million valuation allowance that was recorded on the property during the first quarter of 2018.
Non-interest income for the third quarter of 2018 increased $8.2 million, or 48 percent, compared to the second quarter of 2018, and increased $6.5 million, or 34 percent compared to the same period of 2017. The linked quarter and year-over-year increases are primarily related to increases in other non-interest income attributable to increases in gain on sale of MCA loans and the above-mentioned gain on sale of OREO.
Non-interest expense for the third quarter of 2018 increased $4.0 million, or 3 percent, compared to the second quarter of 2018, and increased $21.3 million, or 19 percent, compared to the third quarter of 2017. The linked quarter increase in non-interest expense is primarily related to increases in salaries and employee benefits, which includes $2.8 million in severance payments, and net occupancy expenses. Offsetting these increases was a $2.0 million decrease in allowance and other carrying costs for OREO expense related to the above-mentioned sale of OREO. The year-over-year increase is primarily related to increases in salaries and employee benefits,
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net occupancy, marketing, legal and professional, communications and technology and other non-interest expenses, all of which were attributable to general business growth, offset by a decrease in allowance and other carrying costs for OREO.
Stockholders’ equity increased by 12 percent from $2.2 billion at September 30, 2017 to $2.4 billion at September 30, 2018, due to retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines and at September 30, 2018, our ratio of tangible common equity to total tangible assets was 8.3 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.
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TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED) | |||||||||||||||
(Dollars in thousands except per share data) | |||||||||||||||
3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | |||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
Interest income | $ | 301,754 | $ | 286,852 | $ | 253,869 | $ | 249,519 | $ | 237,643 | |||||
Interest expense | 69,579 | 55,140 | 43,569 | 38,870 | 33,282 | ||||||||||
Net interest income | 232,175 | 231,712 | 210,300 | 210,649 | 204,361 | ||||||||||
Provision for credit losses | 13,000 | 27,000 | 12,000 | 2,000 | 20,000 | ||||||||||
Net interest income after provision for credit losses | 219,175 | 204,712 | 198,300 | 208,649 | 184,361 | ||||||||||
Non-interest income | 25,518 | 17,279 | 19,947 | 19,374 | 19,003 | ||||||||||
Non-interest expense | 136,143 | 132,131 | 126,960 | 133,138 | 114,830 | ||||||||||
Income before income taxes | 108,550 | 89,860 | 91,287 | 94,885 | 88,534 | ||||||||||
Income tax expense | 22,998 | 18,424 | 19,342 | 50,143 | 29,850 | ||||||||||
Net income | 85,552 | 71,436 | 71,945 | 44,742 | 58,684 | ||||||||||
Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | ||||||||||
Net income available to common stockholders | $ | 83,114 | $ | 68,999 | $ | 69,507 | $ | 42,305 | $ | 56,246 | |||||
Diluted EPS | $ | 1.65 | $ | 1.38 | $ | 1.38 | $ | 0.84 | $ | 1.12 | |||||
Diluted shares | 50,381,349 | 50,096,015 | 50,353,497 | 50,311,962 | 50,250,866 | ||||||||||
CONSOLIDATED BALANCE SHEET DATA | |||||||||||||||
Total assets | $ | 27,127,107 | $ | 27,781,910 | $ | 24,449,147 | $ | 25,075,645 | $ | 24,400,998 | |||||
LHI | 16,569,538 | 16,536,721 | 15,741,772 | 15,366,252 | 14,828,406 | ||||||||||
LHI, mortgage finance | 5,477,787 | 5,923,058 | 4,689,938 | 5,308,160 | 5,642,285 | ||||||||||
LHS | 1,651,930 | 1,276,768 | 1,088,565 | 1,011,004 | 955,983 | ||||||||||
Liquidity assets(1) | 2,615,570 | 3,288,107 | 2,296,673 | 2,727,581 | 2,357,537 | ||||||||||
Investment securities | 117,389 | 24,408 | 24,929 | 23,511 | 24,224 | ||||||||||
Demand deposits | 7,031,460 | 7,648,125 | 7,413,340 | 7,812,660 | 8,263,202 | ||||||||||
Total deposits | 20,385,637 | 20,334,871 | 18,764,533 | 19,123,180 | 19,081,257 | ||||||||||
Other borrowings | 3,686,818 | 4,520,849 | 2,835,540 | 3,165,040 | 2,583,496 | ||||||||||
Subordinated notes | 281,677 | 281,586 | 281,496 | 281,406 | 281,315 | ||||||||||
Long-term debt | 113,406 | 113,406 | 113,406 | 113,406 | 113,406 | ||||||||||
Stockholders’ equity | 2,426,442 | 2,343,530 | 2,273,429 | 2,202,721 | 2,158,363 | ||||||||||
End of period shares outstanding | 50,177,260 | 50,151,064 | 49,669,774 | 49,643,344 | 49,621,825 | ||||||||||
Book value | $ | 45.37 | $ | 43.74 | $ | 42.75 | $ | 41.35 | $ | 40.47 | |||||
Tangible book value(2) | $ | 45.00 | $ | 43.36 | $ | 42.37 | $ | 40.97 | $ | 40.09 | |||||
SELECTED FINANCIAL RATIOS | |||||||||||||||
Net interest margin | 3.70 | % | 3.93 | % | 3.71 | % | 3.47 | % | 3.59 | % | |||||
Return on average assets | 1.31 | % | 1.16 | % | 1.22 | % | 0.71 | % | 0.99 | % | |||||
Return on average common equity | 14.68 | % | 12.72 | % | 13.39 | % | 8.18 | % | 11.20 | % | |||||
Non-interest income to average earning assets | 0.40 | % | 0.29 | % | 0.35 | % | 0.32 | % | 0.33 | % | |||||
Efficiency ratio(3) | 52.8 | % | 53.1 | % | 55.1 | % | 57.9 | % | 51.4 | % | |||||
Efficiency ratio, excluding OREO write-down(3) | 53.6 | % | 53.1 | % | 54.3 | % | 55.2 | % | 51.4 | % | |||||
Non-interest expense to average earning assets | 2.15 | % | 2.23 | % | 2.23 | % | 2.17 | % | 2.00 | % | |||||
Tangible common equity to total tangible assets(4) | 8.3 | % | 7.8 | % | 8.6 | % | 8.1 | % | 8.2 | % | |||||
Common Equity Tier 1 | 8.6 | % | 8.3 | % | 8.8 | % | 8.5 | % | 8.4 | % | |||||
Tier 1 capital | 9.6 | % | 9.3 | % | 9.9 | % | 9.5 | % | 9.4 | % | |||||
Total capital | 11.5 | % | 11.1 | % | 11.9 | % | 11.5 | % | 11.4 | % | |||||
Leverage | 9.7 | % | 9.9 | % | 9.9 | % | 9.2 | % | 9.6 | % | |||||
(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. |
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TEXAS CAPITAL BANCSHARES, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||||||||
(Dollars in thousands) | ||||||||
September 30, 2018 | September 30, 2017 | % Change | ||||||
Assets | ||||||||
Cash and due from banks | $ | 169,481 | $ | 143,616 | 18 | % | ||
Interest-bearing deposits in other banks | 2,585,570 | 2,332,537 | 11 | % | ||||
Federal funds sold and securities purchased under resale agreements | 30,000 | 25,000 | 20 | % | ||||
Investment securities | 117,389 | 24,224 | 385 | % | ||||
LHS, at fair value | 1,651,930 | 955,983 | 73 | % | ||||
LHI, mortgage finance | 5,477,787 | 5,642,285 | (3 | )% | ||||
LHI (net of unearned income) | 16,569,538 | 14,828,406 | 12 | % | ||||
Less: Allowance for loan losses | 190,306 | 182,929 | 4 | % | ||||
LHI, net | 21,857,019 | 20,287,762 | 8 | % | ||||
Mortgage servicing rights, net | 86,359 | 77,630 | 11 | % | ||||
Premises and equipment, net | 24,004 | 23,882 | 1 | % | ||||
Accrued interest receivable and other assets | 586,668 | 511,207 | 15 | % | ||||
Goodwill and intangibles, net | 18,687 | 19,157 | (2 | )% | ||||
Total assets | $ | 27,127,107 | $ | 24,400,998 | 11 | % | ||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 7,031,460 | $ | 8,263,202 | (15 | )% | ||
Interest bearing | 13,354,177 | 10,818,055 | 23 | % | ||||
Total deposits | 20,385,637 | 19,081,257 | 7 | % | ||||
Accrued interest payable | 17,218 | 4,562 | 277 | % | ||||
Other liabilities | 215,909 | 178,599 | 21 | % | ||||
Federal funds purchased and repurchase agreements | 486,818 | 83,496 | 483 | % | ||||
Other borrowings | 3,200,000 | 2,500,000 | 28 | % | ||||
Subordinated notes, net | 281,677 | 281,315 | — | |||||
Trust preferred subordinated debentures | 113,406 | 113,406 | — | |||||
Total liabilities | 24,700,665 | 22,242,635 | 11 | % | ||||
Stockholders’ equity: | ||||||||
Preferred stock, $.01 par value, $1,000 liquidation value: | ||||||||
Authorized shares - 10,000,000 | ||||||||
Issued shares - 6,000,000 shares issued at September 30, 2018 and 2017 | 150,000 | 150,000 | − | |||||
Common stock, $.01 par value: | ||||||||
Authorized shares - 100,000,000 | ||||||||
Issued shares - 50,177,677 and 49,622,242 at September 30, 2018 and 2017, respectively | 502 | 496 | 1 | % | ||||
Additional paid-in capital | 965,286 | 959,251 | 1 | % | ||||
Retained earnings | 1,312,038 | 1,048,195 | 25 | % | ||||
Treasury stock (shares at cost: 417 at September 30, 2018 and 2017) | (8 | ) | (8 | ) | — | |||
Accumulated other comprehensive income, net of taxes | (1,376 | ) | 429 | (421 | )% | |||
Total stockholders’ equity | 2,426,442 | 2,158,363 | 12 | % | ||||
Total liabilities and stockholders’ equity | $ | 27,127,107 | $ | 24,400,998 | 11 | % | ||
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TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||||||
(Dollars in thousands except per share data) | ||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Interest income | ||||||||||||
Interest and fees on loans | $ | 291,189 | $ | 229,116 | $ | 814,500 | $ | 607,386 | ||||
Investment securities | 1,161 | 341 | 1,560 | 853 | ||||||||
Federal funds sold and securities purchased under resale agreements | 1,018 | 642 | 2,808 | 1,606 | ||||||||
Interest-bearing deposits in other banks | 8,386 | 7,544 | 23,607 | 19,935 | ||||||||
Total interest income | 301,754 | 237,643 | 842,475 | 629,780 | ||||||||
Interest expense | ||||||||||||
Deposits | 52,034 | 22,435 | 123,343 | 52,261 | ||||||||
Federal funds purchased | 1,800 | 891 | 4,434 | 1,869 | ||||||||
Other borrowings | 10,317 | 4,835 | 24,481 | 9,757 | ||||||||
Subordinated notes | 4,191 | 4,191 | 12,573 | 12,573 | ||||||||
Trust preferred subordinated debentures | 1,237 | 930 | 3,457 | 2,641 | ||||||||
Total interest expense | 69,579 | 33,282 | 168,288 | 79,101 | ||||||||
Net interest income | 232,175 | 204,361 | 674,187 | 550,679 | ||||||||
Provision for credit losses | 13,000 | 20,000 | 52,000 | 42,000 | ||||||||
Net interest income after provision for credit losses | 219,175 | 184,361 | 622,187 | 508,679 | ||||||||
Non-interest income | ||||||||||||
Service charges on deposit accounts | 3,477 | 3,211 | 9,619 | 9,323 | ||||||||
Wealth management and trust fee income | 2,065 | 1,627 | 5,996 | 4,386 | ||||||||
Bank owned life insurance (BOLI) income | 643 | 615 | 1,959 | 1,562 | ||||||||
Brokered loan fees | 6,141 | 6,152 | 17,124 | 17,639 | ||||||||
Servicing income | 4,987 | 4,486 | 15,446 | 10,387 | ||||||||
Swap fees | 1,355 | 647 | 4,269 | 3,404 | ||||||||
Other | 6,850 | 2,265 | 8,331 | 8,181 | ||||||||
Total non-interest income | 25,518 | 19,003 | 62,744 | 54,882 | ||||||||
Non-interest expense | ||||||||||||
Salaries and employee benefits | 77,327 | 67,882 | 222,268 | 194,039 | ||||||||
Net occupancy expense | 8,362 | 6,436 | 22,952 | 19,062 | ||||||||
Marketing | 10,214 | 7,242 | 29,127 | 18,349 | ||||||||
Legal and professional | 10,764 | 6,395 | 29,948 | 20,975 | ||||||||
Communications and technology | 7,435 | 6,002 | 21,211 | 24,414 | ||||||||
FDIC insurance assessment | 6,524 | 6,203 | 18,884 | 16,800 | ||||||||
Servicing related expenses | 4,207 | 3,897 | 12,379 | 8,329 | ||||||||
Allowance and other carrying costs for OREO | (1,864 | ) | 105 | 467 | 315 | |||||||
Other | 13,174 | 10,668 | 37,998 | 30,455 | ||||||||
Total non-interest expense | 136,143 | 114,830 | 395,234 | 332,738 | ||||||||
Income before income taxes | 108,550 | 88,534 | 289,697 | 230,823 | ||||||||
Income tax expense | 22,998 | 29,850 | 60,764 | 78,502 | ||||||||
Net income | 85,552 | 58,684 | 228,933 | 152,321 | ||||||||
Preferred stock dividends | 2,438 | 2,438 | 7,313 | 7,313 | ||||||||
Net income available to common stockholders | $ | 83,114 | $ | 56,246 | $ | 221,620 | $ | 145,008 | ||||
Basic earnings per common share | $ | 1.66 | $ | 1.13 | $ | 4.45 | $ | 2.93 | ||||
Diluted earnings per common share | $ | 1.65 | $ | 1.12 | $ | 4.41 | $ | 2.89 | ||||
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TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
SUMMARY OF LOAN LOSS EXPERIENCE | |||||||||||||||
(Dollars in thousands) | |||||||||||||||
3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | |||||||||||
Allowance for loan losses: | |||||||||||||||
Beginning balance | $ | 179,096 | $ | 190,898 | $ | 184,655 | $ | 182,929 | $ | 174,225 | |||||
Loans charged-off: | |||||||||||||||
Commercial | 1,301 | 38,305 | 5,667 | 1,999 | 10,603 | ||||||||||
Real estate | — | — | — | — | 250 | ||||||||||
Construction | — | — | — | — | 59 | ||||||||||
Consumer | 767 | — | — | — | — | ||||||||||
Leases | 319 | — | — | — | — | ||||||||||
Total charge-offs | 2,387 | 38,305 | 5,667 | 1,999 | 10,912 | ||||||||||
Recoveries: | |||||||||||||||
Commercial | 389 | 320 | 360 | 1,019 | 132 | ||||||||||
Real estate | 11 | 8 | 24 | 1 | 21 | ||||||||||
Construction | — | — | — | — | 3 | ||||||||||
Consumer | 10 | 9 | 59 | 14 | 15 | ||||||||||
Leases | 12 | 1 | 19 | 1 | 1 | ||||||||||
Total recoveries | 422 | 338 | 462 | 1,035 | 172 | ||||||||||
Net charge-offs | 1,965 | 37,967 | 5,205 | 964 | 10,740 | ||||||||||
Provision for loan losses | 13,175 | 26,165 | 11,448 | 2,690 | 19,444 | ||||||||||
Ending balance | $ | 190,306 | $ | 179,096 | $ | 190,898 | $ | 184,655 | $ | 182,929 | |||||
Allowance for off-balance sheet credit losses: | |||||||||||||||
Beginning balance | $ | 10,458 | $ | 9,623 | $ | 9,071 | $ | 9,761 | $ | 9,205 | |||||
Provision for off-balance sheet credit losses | (175 | ) | 835 | 552 | (690 | ) | 556 | ||||||||
Ending balance | $ | 10,283 | $ | 10,458 | $ | 9,623 | $ | 9,071 | $ | 9,761 | |||||
Total allowance for credit losses | $ | 200,589 | $ | 189,554 | $ | 200,521 | $ | 193,726 | $ | 192,690 | |||||
Total provision for credit losses | $ | 13,000 | $ | 27,000 | $ | 12,000 | $ | 2,000 | $ | 20,000 | |||||
Allowance for loan losses to LHI | 0.86 | % | 0.80 | % | 0.93 | % | 0.89 | % | 0.89 | % | |||||
Allowance for loan losses to LHI excluding mortgage finance loans(2) | 1.15 | % | 1.08 | % | 1.21 | % | 1.20 | % | 1.23 | % | |||||
Allowance for loan losses to average LHI | 0.87 | % | 0.86 | % | 0.98 | % | 0.92 | % | 0.95 | % | |||||
Allowance for loan losses to average LHI excluding mortgage finance loans(2) | 1.17 | % | 1.13 | % | 1.24 | % | 1.23 | % | 1.27 | % | |||||
Net charge-offs to average LHI(1) | 0.04 | % | 0.73 | % | 0.11 | % | 0.02 | % | 0.22 | % | |||||
Net charge-offs to average LHI excluding mortgage finance loans(1)(2) | 0.05 | % | 0.96 | % | 0.14 | % | 0.03 | % | 0.30 | % | |||||
Net charge-offs to average LHI for last twelve months(1) | 0.22 | % | 0.28 | % | 0.15 | % | 0.16 | % | 0.29 | % | |||||
Net charge-offs to average LHI excluding mortgage finance loans for last twelve months(1)(2) | 0.29 | % | 0.36 | % | 0.20 | % | 0.21 | % | 0.37 | % | |||||
Total provision for credit losses to average LHI(1) | 0.24 | % | 0.52 | % | 0.25 | % | 0.04 | % | 0.41 | % | |||||
Total provision for credit losses to average LHI excluding mortgage finance loans(1)(2) | 0.32 | % | 0.68 | % | 0.32 | % | 0.05 | % | 0.55 | % | |||||
Total allowance for credit losses to LHI | 0.91 | % | 0.84 | % | 0.98 | % | 0.94 | % | 0.94 | % | |||||
Total allowance for credit losses to LHI excluding mortgage finance loans(1)(2) | 1.21 | % | 1.15 | % | 1.27 | % | 1.26 | % | 1.30 | % | |||||
(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) | |||||||||||||||
3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | |||||||||||
Non-accrual loans | $ | 107,532 | $ | 83,295 | $ | 123,542 | $ | 101,444 | $ | 118,205 | |||||
Other real estate owned (OREO) | 79 | 9,526 | 9,558 | 11,742 | 18,131 | ||||||||||
Total LHI NPAs | $ | 107,611 | $ | 92,821 | $ | 133,100 | $ | 113,186 | $ | 136,336 | |||||
Non-accrual loans to LHI | 0.49 | % | 0.37 | % | 0.60 | % | 0.49 | % | 0.58 | % | |||||
Non-accrual loans to LHI excluding mortgage finance loans(1) | 0.65 | % | 0.50 | % | 0.78 | % | 0.66 | % | 0.80 | % | |||||
Total NPAs to LHI plus OREO | 0.49 | % | 0.41 | % | 0.65 | % | 0.55 | % | 0.67 | % | |||||
Total NPAs to LHI excluding mortgage finance loans plus OREO(1) | 0.65 | % | 0.56 | % | 0.85 | % | 0.74 | % | 0.92 | % | |||||
Total NPAs to earning assets | 0.41 | % | 0.35 | % | 0.56 | % | 0.47 | % | 0.58 | % | |||||
Allowance for loan losses to non-accrual loans | 1.8x | 2.2x | 1.5x | 1.8x | 1.5x | ||||||||||
Loans past due 90 days and still accruing(2) | $ | 11,295 | $ | 7,357 | $ | 13,563 | $ | 8,429 | $ | 8,892 | |||||
Loans past due 90 days to LHI | 0.05 | % | 0.03 | % | 0.07 | % | 0.14 | % | 0.04 | % | |||||
Loans past due 90 days to LHI excluding mortgage finance loans(1) | 0.07 | % | 0.04 | % | 0.09 | % | 0.18 | % | 0.06 | % | |||||
LHS past due 90 days and still accruing(3) | $ | 25,238 | $ | 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 September 30, 2018, loans past due 90 days and still accruing includes premium finance loans of $8.2 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. |
(3) | 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) | |||||||||||||||
3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | 3rd Quarter | |||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | |||||||||||
Interest income | |||||||||||||||
Interest and fees on loans | $ | 291,189 | $ | 279,447 | $ | 243,864 | $ | 238,906 | $ | 229,116 | |||||
Investment securities | 1,161 | 193 | 206 | 213 | 341 | ||||||||||
Federal funds sold and securities purchased under resale agreements | 1,018 | 745 | 1,045 | 936 | 642 | ||||||||||
Interest-bearing deposits in other banks | 8,386 | 6,467 | 8,754 | 9,464 | 7,544 | ||||||||||
Total interest income | 301,754 | 286,852 | 253,869 | 249,519 | 237,643 | ||||||||||
Interest expense | |||||||||||||||
Deposits | 52,034 | 39,607 | 31,702 | 27,625 | 22,435 | ||||||||||
Federal funds purchased | 1,800 | 1,665 | 969 | 723 | 891 | ||||||||||
Other borrowings | 10,317 | 8,484 | 5,680 | 5,380 | 4,835 | ||||||||||
Subordinated notes | 4,191 | 4,191 | 4,191 | 4,191 | 4,191 | ||||||||||
Trust preferred subordinated debentures | 1,237 | 1,193 | 1,027 | 951 | 930 | ||||||||||
Total interest expense | 69,579 | 55,140 | 43,569 | 38,870 | 33,282 | ||||||||||
Net interest income | 232,175 | 231,712 | 210,300 | 210,649 | 204,361 | ||||||||||
Provision for credit losses | 13,000 | 27,000 | 12,000 | 2,000 | 20,000 | ||||||||||
Net interest income after provision for credit losses | 219,175 | 204,712 | 198,300 | 208,649 | 184,361 | ||||||||||
Non-interest income | |||||||||||||||
Service charges on deposit accounts | 3,477 | 3,005 | 3,137 | 3,109 | 3,211 | ||||||||||
Wealth management and trust fee income | 2,065 | 2,007 | 1,924 | 1,767 | 1,627 | ||||||||||
Bank owned life insurance (BOLI) income | 643 | 657 | 659 | 698 | 615 | ||||||||||
Brokered loan fees | 6,141 | 5,815 | 5,168 | 5,692 | 6,152 | ||||||||||
Servicing income | 4,987 | 4,967 | 5,492 | 5,270 | 4,486 | ||||||||||
Swap fees | 1,355 | 1,352 | 1,562 | 586 | 647 | ||||||||||
Other | 6,850 | (524 | ) | 2,005 | 2,252 | 2,265 | |||||||||
Total non-interest income | 25,518 | 17,279 | 19,947 | 19,374 | 19,003 | ||||||||||
Non-interest expense | |||||||||||||||
Salaries and employee benefits | 77,327 | 72,404 | 72,537 | 70,192 | 67,882 | ||||||||||
Net occupancy expense | 8,362 | 7,356 | 7,234 | 6,749 | 6,436 | ||||||||||
Marketing | 10,214 | 10,236 | 8,677 | 8,438 | 7,242 | ||||||||||
Legal and professional | 10,764 | 11,654 | 7,530 | 8,756 | 6,395 | ||||||||||
Communications and technology | 7,435 | 7,143 | 6,633 | 6,590 | 6,002 | ||||||||||
FDIC insurance assessment | 6,524 | 6,257 | 6,103 | 6,710 | 6,203 | ||||||||||
Servicing related expenses | 4,207 | 4,367 | 3,805 | 7,177 | 3,897 | ||||||||||
Allowance and other carrying costs for OREO | (1,864 | ) | 176 | 2,155 | 6,122 | 105 | |||||||||
Other | 13,174 | 12,538 | 12,286 | 12,404 | 10,668 | ||||||||||
Total non-interest expense | 136,143 | 132,131 | 126,960 | 133,138 | 114,830 | ||||||||||
Income before income taxes | 108,550 | 89,860 | 91,287 | 94,885 | 88,534 | ||||||||||
Income tax expense | 22,998 | 18,424 | 19,342 | 50,143 | 29,850 | ||||||||||
Net income | 85,552 | 71,436 | 71,945 | 44,742 | 58,684 | ||||||||||
Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | ||||||||||
Net income available to common shareholders | $ | 83,114 | $ | 68,999 | $ | 69,507 | $ | 42,305 | $ | 56,246 | |||||
9
TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||||||||||||||||||||||||||||||||||
QUARTERLY FINANCIAL SUMMARY - UNAUDITED | ||||||||||||||||||||||||||||||||||||||||||||
Consolidated Daily Average Balances, Average Yields and Rates | ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
3rd Quarter 2018 | 2nd Quarter 2018 | 1st Quarter 2018 | 4th Quarter 2017 | 3rd 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 | $ | 24,221 | $ | 191 | 3.14 | % | $ | 24,514 | $ | 193 | 3.15 | % | $ | 23,854 | $ | 206 | 3.50 | % | $ | 23,678 | $ | 213 | 3.57 | % | $ | 86,087 | $ | 340 | 1.57 | % | ||||||||||||||
Investment securities - Non-taxable(2) | 91,298 | 1,228 | 5.33 | % | — | — | — | % | — | — | — | % | — | — | — | % | — | — | — | % | ||||||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements | 203,972 | 1,018 | 1.98 | % | 166,613 | 745 | 1.79 | % | 261,641 | 1,045 | 1.62 | % | 292,544 | 936 | 1.27 | % | 205,938 | 642 | 1.24 | % | ||||||||||||||||||||||||
Interest-bearing deposits in other banks | 1,697,787 | 8,386 | 1.96 | % | 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 | % | ||||||||||||||||||||||||
LHS, at fair value | 1,484,459 | 17,272 | 4.62 | % | 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 | % | ||||||||||||||||||||||||
LHI, mortgage finance loans | 5,443,829 | 49,715 | 3.62 | % | 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 | % | ||||||||||||||||||||||||
LHI(1)(2) | 16,331,622 | 225,604 | 5.48 | % | 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 | % | ||||||||||||||||||||||||
Less allowance for loan losses | 179,227 | — | — | 189,238 | — | — | 184,238 | — | — | 183,233 | — | — | 172,774 | — | — | |||||||||||||||||||||||||||||
LHI, net of allowance | 21,596,224 | 275,319 | 5.06 | % | 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 | % | ||||||||||||||||||||||||
Total earning assets | 25,097,961 | 303,414 | 4.80 | % | 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 | % | ||||||||||||||||||||||||
Cash and other assets | 877,954 | 808,099 | 797,506 | 766,622 | 713,778 | |||||||||||||||||||||||||||||||||||||||
Total assets | $ | 25,975,915 | $ | 24,606,237 | $ | 23,912,613 | $ | 25,080,825 | $ | 23,501,302 | ||||||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
Transaction deposits | $ | 3,253,310 | $ | 13,642 | 1.66 | % | $ | 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 | % | ||||||||||||||
Savings deposits | 7,820,742 | 29,930 | 1.52 | % | 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 | % | ||||||||||||||||||||||||
Time deposits | 1,778,831 | 8,462 | 1.89 | % | 979,735 | 3,858 | 1.58 | % | 506,375 | 1,093 | 0.88 | % | 533,312 | 1,125 | 0.84 | % | 496,076 | 924 | 0.74 | % | ||||||||||||||||||||||||
Total interest bearing deposits | 12,852,883 | 52,034 | 1.61 | % | 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 | % | ||||||||||||||||||||||||
Other borrowings | 2,275,640 | 12,117 | 2.11 | % | 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 | % | ||||||||||||||||||||||||
Subordinated notes | 281,619 | 4,191 | 5.90 | % | 281,527 | 4,191 | 5.97 | % | 281,437 | 4,191 | 6.04 | % | 281,348 | 4,191 | 5.91 | % | 281,256 | 4,191 | 5.91 | % | ||||||||||||||||||||||||
Trust preferred subordinated debentures | 113,406 | 1,237 | 4.33 | % | 113,406 | 1,193 | 4.22 | % | 113,406 | 1,027 | 3.67 | % | 113,406 | 951 | 3.33 | % | 113,406 | 930 | 3.25 | % | ||||||||||||||||||||||||
Total interest bearing liabilities | 15,523,548 | 69,579 | 1.78 | % | 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 | % | ||||||||||||||||||||||||
Demand deposits | 7,940,503 | 8,017,578 | 8,147,721 | 9,085,819 | 8,764,263 | |||||||||||||||||||||||||||||||||||||||
Other liabilities | 116,302 | 100,074 | 110,698 | 138,050 | 116,998 | |||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 2,395,562 | 2,325,755 | 2,255,852 | 2,202,683 | 2,143,299 | |||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 25,975,915 | $ | 24,606,237 | $ | 23,912,613 | $ | 25,080,825 | $ | 23,501,302 | ||||||||||||||||||||||||||||||||||
Net interest income(2) | $ | 233,835 | $ | 233,102 | $ | 211,666 | $ | 212,766 | $ | 206,259 | ||||||||||||||||||||||||||||||||||
Net interest margin | 3.70 | % | 3.93 | % | 3.71 | % | 3.47 | % | 3.59 | % | ||||||||||||||||||||||||||||||||||
(1) | The loan averages include non-accrual loans and are stated net of unearned income. |
(2) | Taxable equivalent rates used where applicable. |
10
TCBI Q3 2018 Earnings October 17, 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 • Modest traditional LHI growth linked quarter; up 12% from Q3-2017 • Continued seasonally strong mortgage finance average balances Balanced Growth • Expected increase in total deposits concentrated in interest-bearing • 3% growth in net revenue from Q2-2018; 15% from Q3-2017 Core • Operating leverage improvement evidenced in YTD comparison Earnings • ROE of 14.68% for Q3-2018, up from Q2-2018 as a result of more normalized loan loss provision Power • NCOs of $2.0 million for Q3-2018, none related to energy • Overall asset quality continues to be good Credit • Q3-2018 total credit costs $11.0 million ($13.0 million provision, net $2.0 million reversal of OREO Quality valuation allowance) compared to $27.0 million in Q2-2018 Net Income EPS ROE Total Total Operating CE LHI Deposits Results $85.6 million $1.65 14.68% $22.0 billion $20.4 billion 3
Net Interest Income & Margin Earning Asset & Margin Trends Quarterly Change NII ($MM) NIM (%) 4.40% $231.7 Q2 2018 3.93% $25.0 $2.0 .4 Increase in LHI yields .01 $3.2 $1.7 .4 Increase in LHS yields .01 $2.7 $2.6 $23.1 4.20% $22.1 (1.6) Mix shift from LHI to MF (.03) $20.0 $21.1 $20.1 $20.5 (3.2) Decrease in MF loan yields (.05) 4.00% 3.93% (.1) Increase in liquidity (.03) (8.6) Increase in funding costs (.14) $15.0 3.71% 3.80% 2.5 Impact of increase in day count - Increase in MF & LHI loan 10.8 - 3.70% balances 3.59% Portfolio Balances Balances ($B) Portfolio 3.47% 3.60% (.1) Other - $10.0 $232.2 Q3 2018 3.70% 3.40% NIM Highlights • LIBOR slower to move prior to September Fed funds $5.0 increase as compared to June and March increases; 3.20% negative impact on NIM in Q3-2018 • Loan fees on traditional LHI yields more normalized in Q3-2018 from strong Q2-2018; 9 bps decline from Q2- $- 3.00% 2018 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 • Rate of increase in total funding costs grew 1 bp from Loans Other Earning Assets NIM Q2-2018; increase of 17 bps during Q3-2018 compared to 16 bps during Q2-2018 • Earning asset mix shift negatively impacting NIM in Q3- 2018 4
Loan Growth Average Balance Trends ($B) Total Loan Composition ($23.7Billion at 9/30/18) $24.0 7.00% $22.0 6.80% Business Assets 29% $6.4 $6.9 6.60% $20.0 $6.2 $5.3 $5.9 6.40% Energy $18.0 5% 6.20% $16.0 6.00% $16.3 Highly Liquid $15.9 Unsecured $14.0 $15.0 $15.4 5.80% Assets $14.4 4% 1% $12.0 5.47% 5.48% 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 4.80% 5% $4.0 4.60% Total Mortgage $2.0 4.40% Finance 30% $- 4.20% Comml R/E Mkt. Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Risk 15% Other Assets LHI (excl. MFLs) Total MFLs LHI (excl. MFL) Yield 6% Growth Highlights • Broad-based growth in average traditional LHI – Growth of $448.3 million (3%) from Q2-2018 and $1.9 billion (13%) from Q3-2017 • Moderate growth in traditional LHI at end of the quarter; period-end balance $237.9 million higher than Q3-2018 average balance • Increase in average total MFL balances of $513.8 million from Q2-2018, continued seasonal strength • Average total MFLs represent 30% of average total loans at Q3-2018 compared to 29% in Q2-2018 and 30% based on period-end balances at Q3-2018 5
Deposit Growth Average Balance Trends ($B) Funding Costs 1.20% $22.0 1.07% $20.0 $7.9 $9.1 1.00% $8.1 $8.0 0.90% $18.0 $8.8 0.99% $16.0 0.80% 0.74% $14.0 0.81% 0.62% $12.0 0.60% 0.56% $12.9 0.66% $11.7 $10.0 $11.4 $11.3 $10.3 0.53% Deposit Balances ($B) Balances Deposit $8.0 0.40% 0.47% $6.0 $4.0 0.20% $2.0 $- 0.00% Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Interest-Bearing Deposits DDAs Avg Cost of Deposits Total Funding Costs Growth Highlights • Deposit costs increased 18 bps during Q3-2018 and total funding costs increased 17 bps; compared to increases of 15 bps and 16 bps, respectively, in Q2-2018 • Increase in linked quarter deposits with growth in interest-bearing • Continued focus on cost-effective deposit growth 6
Non-interest Expense Quarterly Change NIE - Efficiency Increase/ • Changes in Salaries & Benefits components of change Non-interest expense ($MM) (Decrease) • Decrease in 123R expense mainly due to stock Q2 2018 $132.1 price Salaries and employee benefits – FAS 123R • Annual incentive accrual ramps generally (includes stock price changes) (1.2) higher in Q3 than Q2 Salaries and employee benefits – non-LTI • $2.8 million in severance payments related to incentives and annual incentive pool 2.2 organizational changes Salaries and employee benefits – FICA and • Efficiency ratio (excluding release of OREO valuation seasonal payroll related items .2 allowance) 53.6% for Q3-2018 compared to 53.1% for Q2-2018 Salaries and employee benefits – severance 2.8 • Decrease in OREO related costs related to OREO sale Salaries and employee benefits – salaries only .9 in Q3-2018; resulted in release of $2.0 million Net occupancy expense 1.0 valuation allowance recorded in Q1-2018 Legal and professional (.9) OREO related costs (2.0) All other – includes marketing, technology, FDIC insurance assessment, servicing related expenses 1.0 Q3 2018 $136.1 7
Asset Quality NCO / Average Traditional LHI Non-accrual loans Q3 2018 1.40% Commercial $ 104,957 Construction – 1.20% Real estate 2,515 1.00% Consumer 60 0.80% Equipment leases – 0.60% Total non-accrual loans $ 107,532 0.38% 0.40% 0.29% 0.21% 0.20% 0.07% 0.10% Non-accrual loans as % of LHI .65% 0.00% excluding MF 2014 2015 2016 2017 Q3 2018 Combined Non-accrual loans as % of total .49% Reserves/ 1.06% 1.28% 1.38% 1.26% 1.21% LHI Trad’l LHI Asset Quality Highlights • Total credit cost of $11 million ($13.0 million provision, net $2.0 million OREO 79 reversal of OREO valuation allowance) for Q3-2018, compared to $27.0 Total Non-accruals + OREO $ 107,611 million in Q2-2018 and $20.0 million in Q3-2017 • NCOs $2.0 million, or 5 bps of average LHI excluding MF loans, in Q3- Non-accrual loans + OREO as % .65% 2018 compared to $38.0 million, or 96 bps, in Q2-2018 and 30 bps in Q3- of LHI excluding MF + OREO 2017 Reserve to non-accrual loans 1.8x • NPL ratio increased to .49% of total LHI • Criticized loans to total capital decreased from 16.4% at Q3-2017 to 13.8% at Q3-2018 8
Performance Summary - Quarterly (in thousands) Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Net interest income $ 232,175 $ 231,712 $ 210,300 $ 210,649 $ 204,361 Non-interest income 25,518 17,279 19,947 19,374 19,003 Net revenue 257,693 248,991 230,247 230,023 223,364 Provision for credit losses 13,000 27,000 12,000 2,000 20,000 OREO write-down (2,000) - 2,000 6,111 - Non-interest expense 138,143 132,131 124,960 127,027 114,830 Income before income taxes 108,550 89,860 91,287 94,885 88,534 Income tax expense 22,998 18,424 19,342 50,143 29,850 Net income 85,552 71,436 71,945 44,742 58,684 Preferred stock dividends 2,438 2,437 2,438 2,437 2,438 Net income available to common shareholders $ 83,114 $ 68,999 $ 69,507 $ 42,305 $ 56,246 Diluted EPS $ 1.65 $ 1.38 $ 1.38 $ .84 $ 1.12 Net interest margin 3.70% 3.93% 3.71% 3.47% 3.59% ROA 1.31% 1.16% 1.22% .71% .99% ROE 14.68% 12.72% 13.39% 8.18% 11.20% ROE, excl. DTA write-off 14.68% 12.72% 13.39% 11.58% 11.20% Efficiency 52.8% 53.1% 55.1% 57.9% 51.4% Efficiency, excl. OREO write-down 53.6% 53.1% 54.3% 55.2% 51.4% 9
2018 Outlook Business 2018 Outlook v. 2017 Results Comments & Changes since July 18, Driver 2018 Average LHI Low to mid-teens percent growth - Average LHI – Low to mid-teens percent growth Increased from mid-single digit percent growth Mortgage Finance Loans held for sale $1.4 billion average Increased from $1.2 billion average (MCA) Average Deposits High single digit percent growth Decreased from low-teens percent growth Net Revenue Mid to high-teens percent growth - Net Interest 3.70% to 3.75% Increased from 3.60% to 3.70% Margin Provision Expense Low to mid-$60 million level - NIE Low-teens percent growth - Efficiency Ratio Low-50s - 10
Closing Comments • Continued strong earnings for 2018 with improvements in year to date operating leverage • Solid traditional LHI growth, up 8% year to date, with slower level in Q3-2018 as we are selective about growth areas in positioning our portfolio for through-the-cycle credit quality • Continued benefit from seasonal strength in Mortgage Finance asset balances in Q3-2018; Q4-2018 will reflect the normal seasonal weakness • Deposit levels increased, with growth concentrated in interest-bearing, and expected increase in deposit costs • More normalized provision for loan losses in Q3-2018 and in line with full year guidance • Focus on ROE • Continued strong focus on credit quality • Targeted approach in slowing pace of NIE growth • Leveraging treasury capabilities to improve funding mix over time • Positive impact from new corporate tax rate 11
Q&A 12
Appendix 13
Average Balances, Yields & Rates - Quarterly (in thousands) Q3 2018 Q2 2018 Q3 2017 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 115,519 4.87% $ 24,514 3.15% $ 86,087 1.57% Liquidity assets 1,901,759 1.96% 1,665,087 1.74% 2,588,998 1.25% Loans held for sale 1,484,459 4.62% 1,516,047 4.50% 1,009,703 3.88% LHI, mortgage finance 5,443,829 3.62% 4,898,411 3.85% 4,847,530 3.46% LHI 16,331,622 5.48% 15,883,317 5.47% 14,427,980 4.92% Total LHI, net of reserve 21,596,224 5.06% 20,592,490 5.14% 19,102,736 4.59% Total earning assets 25,097,961 4.80% 23,798,138 4.86% 22,787,524 4.17% Total assets $25,975,915 $24,606,237 $23,501,302 Liabilities and Stockholders’ Equity Total interest bearing deposits $12,852,883 1.61% $11,654,506 1.36% $10,260,243 .87% Other borrowings 2,275,640 2.11% 2,113,391 1.93% 1,821,837 1.25% Total long-term debt 395,025 5.45% 394,933 5.47% 394,662 5.15% Total interest bearing liabilities 15,523,548 1.78% 14,162,830 1.56% 12,476,742 1.06% Demand deposits 7,940,503 8,017,578 8,764,263 Total deposits 20,793,386 .99% 19,672,084 .81% 19,024,506 .47% Stockholders’ equity 2,395,562 2,325,755 2,143,299 Total liabilities and stockholders’ equity $25,975,915 1.07% $24,606,237 .90% $23,501,302 .56% Net interest margin 3.70% 3.93% 3.59% Total deposits and borrowed funds $23,069,026 1.10% $21,785,475 .92% $20,846,343 .54% 14
Average Balance Sheet - Quarterly (in thousands) QTD Average Q3/Q2 % YOY % Q3 2018 Q2 2018 Q3 2017 Change Change Total assets $25,975,915 $24,606,237 $23,501,302 6% 11% Loans held for sale 1,484,459 1,516,047 1,009,703 (2)% 47% Loans held for investment 16,331,622 15,883,317 14,427,980 3% 13% Loans held for investment, mortgage 5,443,829 4,898,411 4,847,530 finance 11% 12% Total loans held for investment 21,775,451 20,781,728 19,275,510 5% 13% Total loans 23,259,910 22,297,775 20,285,213 4% 15% Liquidity assets 1,901,759 1,665,087 2,588,998 14% (27)% Demand deposits 7,940,503 8,017,578 8,764,263 (1)% (9)% Total deposits 20,793,386 19,672,084 19,024,506 6% 9% Stockholders’ equity 2,395,562 2,325,755 2,143,299 3% 12% 15
Period End Balance Sheet (in thousands) Period End Q3/Q2 % YOY % Q3 2018 Q2 2018 Q3 2017 Change Change Total assets $27,127,107 $27,781,910 $24,400,998 (2)% 11% Loans held for sale 1,651,930 1,276,768 955,983 29% 73% Loans held for investment 16,569,538 16,536,721 14,828,406 0% 12% Loans held for investment, mortgage 5,477,787 5,923,058 5,642,285 (8)% (3)% finance Total loans held for investment 22,047,325 22,459,779 20,470,691 (2)% 8% Total loans 23,699,255 23,736,547 21,426,674 (0)% 11% Liquidity assets 2,615,570 3,288,107 2,357,537 (20)% 11% Demand deposits 7,031,460 7,648,125 8,263,202 (8)% (15)% Total deposits 20,385,637 20,334,871 19,081,257 0% 7% Stockholders’ equity 2,426,442 2,343,530 2,158,363 4% 12% 16