Texas Capital Bancshares (TCBI) 8-K Texas Capital Bancshares Announces Operating Results for Q1 2013

TCBI Q1 2013

Earnings

2

Certain matters discussed on this call may contain forward-looking statements, which are subject to risks and uncertainties and

are based on Texas Capital’s current estimates or expectations of future events or future results. Texas Capital is under no

obligation, and expressly disclaims such obligation, to update, alter or revise its forward-looking statements, whether as a result

of new information, future events or otherwise. A number of factors, many of which are beyond Texas Capital’s control, could

cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks

and uncertainties include the risk of adverse impacts from general economic conditions, competition, interest rate sensitivity and

exposure to regulatory and legislative changes. These and other factors that could cause results to differ materially from those

described in the forward-looking statements can be found in the prospectus supplements, the Annual Report on Form 10-K and

other filings made by Texas Capital with the Securities and Exchange Commission (SEC).

Opening Remarks

•

Strong profitability in Q1-2013 with ROA of 1.38% and ROE 15.8%

•

Continued reduction in credit costs and improvement in NPAs

•

Strong growth in LHI and deposits in Q1-2013 despite seasonality;

continued growth in DDAs

•

LHS levels seasonally lower, as expected, on a linked quarter basis;

continuing to take advantage of market demand and expect modest growth

for 2013

3

Financial Review

Net Income and EPS

–

Growth in net income and EPS compared to Q4-2012 and Q1-2012

Operating Leverage, Core Earnings Power & NIM

–

Net Revenue

•

12% growth from Q1-2012

•

4% decrease from Q4-2012 due to seasonal factors for LHS and reduction in days

–

Good growth in LHI average balances

•

Growth of 3% from Q4-2012 despite seasonal weakness

•

Growth of 21% from Q1-2012

–

Margin remained at 4.27%

•

Strong LHI levels with favorable spreads; yields down only slightly

•

Improved funding profile at reduced cost from growth in DDA and total deposits

•

Lower levels in LHS, but strong growth from Q1-2012 and above 2012 average

–

Reduced credit costs with reduction in NPAs and low level of NCOs

Capital

–

Capital position enhanced with successful addition of $150 million of preferred stock

4

Financial Review

Loan Growth

–

•

Averages increased 3% from Q4-2012 and 21% from Q1-2012

–

•

Balances

affected

by

seasonal

factors

but

not

indicative

of

full

year

•

Results remained well above industry trends in mortgage origination and warehouse

Funding

–

Funding profile improved with exceptional DDA and total deposit growth

•

Average  DDA increased 7% from Q4-2012 and 49% from Q1-2012

•

DDA quarter-end balance $98.5 million above Q1-13 average

•

Total average deposits increased 7% from Q4-2012 and 29% from Q1-2012

–

LHS match funded with borrowings and deposits, producing excellent spreads for highly liquid, short-

duration earning assets

Credit Costs

–

Total credit costs of $2.1 million for Q1-2013

•

Provision of $2.0 million compared to $4.5 million in Q4-2012

•

OREO valuation cost of $71,000 compared to $955,000 in Q4-2012 and $2.7 million in Q1-2012

•

NCOs of $1.2 million (7 bps) compared to $3.5 million (21 bps) in Q4-2012 and 6 bps for Q1-2012

–

Favorable trend in NPA ratio with $14.0 million (19%) decrease from Q4-12, including OREO reduction of

$1.6 million (10%)

5

Broad-based growth in LHI

Average LHS balances down 11% from Q4-2012 and up 16% from Q1-2012

Income Statement -

Quarterly

6

Q1-13

Q4-12

Q3-12

Q2-12

Q1-12

Net interest income

$   98,042

$ 101,155

$   96,855

$   90,640

$   88,229

Non-interest income

11,281

12,836

10,552

10,462

9,190

Net revenue

109,323

113,991

107,407

101,102

97,419

Provision for credit losses

2,000

4,500

3,000

1,000

3,000

OREO valuation and write-down expense

71

955

64

3,123

2,741

Total provision  and OREO valuation

2,071

5,455

3,064

4,123

5,741

Non-interest expense

55,629

59,119

53,457

50,850

49,535

Income before income taxes

51,623

49,417

50,886

46,129

42,143

Income tax expense

18,479

17,982

18,316

16,506

15,062

Net income

33,144

31,435

32,570

29,623

27,081

Preferred stock dividends

81

–

–

–

–

Net income available to common shareholders

$   33,062

$   31,435

$   32,570

$   29,623

$   27,081

Diluted EPS

$         .80

$         .76

$         .80

$         .76

$         .70

Net interest margin

4.27%

4.27%

4.36%

4.49%

4.54%

ROA

1.38%

1.27%

1.40%

1.40%

1.33%

ROE

15.82%

15.35%

17.27%

18.08%

17.36%

Efficiency

(1)

50.9%

48.4%

49.8%

50.3%

50.8%

(1)  Excludes OREO valuation charge and $4 million litigation settlement in Q4-12

QTD Average Balances, Yields and Rates

7

(in thousands)

Q1 2013

Q4 2012

Q1 2012

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Assets

Securities

$    93,394

4.57%

$    103,483

4.55%

$137,509

4.24%

Fed funds sold & liquidity investments

103,503

.23%

91,503

.27%

56,318

.36%

Loans held for sale

2,362,646

3.89%

2,658,092

3.96%

2,036,622

4.21%

Loans held for investment

6,842,766

4.77%

6,662,817

4.79%

5,660,993

5.01%

Total loans, net of reserve

9,130,970

4.58%

9,246,997

4.59%

7,627,354

4.84%

Total earning assets

9,327,867

4.53%

9,441,983

4.55%

7,821,181

4.80%

Total assets

$9,729,559

$9,869,282

$8,209,190

Total interest bearing deposits

$4,988,788

.26%

$4,662,116

.28%

$4,134,976

.34%

Other borrowings

1,041,573

.17%

1,725,129

.19%

1,554,716

.19%

Subordinated notes

111,000

6.68%

111,000

6.56%

–

–

Long-term debt

113,406

2.27%

113,406

2.33%

113,406

2.52%

Total interest bearing liabilities

6,254,767

.40%

6,611,651

.40%

5,803,098

.34%

Demand deposits

2,529,927

2,356,758

1,700,390

Stockholders’

equity

854,327

814,565

627,594

$9,729,559

.26%

$9,869,282

.27%

$8,209,190

.26%

Net interest margin

4.27%

4.27%

4.54%

Liabilities

and

Stockholders’

Equity

Total

liabilities

and

stockholders’

equity

Financial Summary

8

(in thousands)

QTD Averages

Q1 2013

Q4 2012

Q1 2012

Q1/Q4 %

Change

YOY %

Change

Total assets

$9,729,559

$9,869,282

$8,209,190

(1)%

19%

Loans held for investment

6,842,766

6,662,817

5,660,993

3%

21%

Loans held for sale

2,362,646

2,658,092

2,036,622

(11)%

16%

Total loans

9,205,412

9,320,909

7,697,615

(1)%

20%

Securities

93,394

103,483

137,509

(10)%

(32)%

Demand deposits

2,529,927

2,356,758

1,700,390

7%

49%

Total deposits

7,518,715

7,018,874

5,835,366

7%

29%

Stockholders’

equity

854,327

814,565

627,594

5%

36%

Financial Summary

9

(in thousands)

Period End

Q1 2013

Q4 2012

Q1 2012

Q1/Q4 %

Change

YOY %

Change

Total assets

$10,020,565

$10,540,542

$8,559,917

(5)%

17%

Loans held for investment

6,920,011

6,785,535

5,792,349

2%

19%

Loans held for sale

2,577,830

3,175,272

2,255,281

(19)%

14%

Total loans

9,497,841

9,960,807

8,047,630

(5)%

18%

Securities

87,527

100,195

123,828

(13)%

(29)%

Demand deposits

2,628,446

2,535,375

1,751,443

4%

50%

Total deposits

7,745,831

7,440,804

6,063,558

4%

28%

Stockholders’

equity

1,013,195

836,242

647,341

21%

57%

Revenue and Income Growth

Operating Revenue CAGR: 24%

Net Interest

Income CAGR:

25%

Non-interest Income CAGR: 18%

Non-interest Expense CAGR: 18%

Net Income CAGR: 48%

($ in thousands)

Non-Interest Income

10

(1)  Excludes OREO valuation charge for 2012, 2011 and 2010.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2008

2009

2010

2011

2012

Q1

2013

Non

-Interest Expense

Net Interest Income

109,651

137,733

154,985

181,403

212,961

222,516

174,207

225,951

273,937

335,169

419,919

437,292

11

EPS Growth

2008

2009^

2010

2011

2012

5 Year EPS CAGR: 35%

Q1-2013

^Excludes $.15 effect of preferred TARP dividend during 2009. Reported EPS was $0.56.

$0.89

$0.71

$1.00

$1.99

3.01

$0.80

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Demand Deposit CAGR: 42%

Total Deposit CAGR: 22%

Loans Held for Investment CAGR: 14%

Deposit and Loan Growth

($ in millions)

Demand Deposits

12

4028

4457

4711

5572

6786

6920

3333

4121

5455

5557

7441

7746

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2008

2009

2010

2011

2012

Q1-2013

Loans HFI

Interest Bearing Deposits

Loan Portfolio Statistics

13

Non-accrual loans

Commercial

$         20,814

Construction

–

Real estate

22,504

Consumer

37

Equipment leases

69

Total non-accrual loans

$         43,424

Non-accrual loans as % of

loans held for investment

.63%

Non-accrual loans as % of

total loans

.46%

OREO

14,426

Total Non-accruals +

OREO

$         57,850

Non-accrual loans + OREO

as % of loans held for

investment + OREO

.83%

Total Loans  $9,497,841

All numbers in thousands.

Loan Collateral by Type 3/31/13

Credit Quality

Improved Credit Trends

–

Total credit cost of $2.1 million for Q1-2013, compared to $5.5 million in Q4-2012 and $5.7

million in Q1-2012

•

Provision of $2.0 million for Q1-2013 compared to $4.5 million for Q4-2012 and $3.0

million in Q1-2012, reflecting better credit trends

•

NCOs $1.2 million (7 bps) in Q1-2013 compared to 21 bps in Q4-2012 and 6 bps in Q1-

2012

•

OREO valuation charge of $71,000 compared to $955,000 in Q4-2012 and $2.7 million in

Q1-2012

–

NPA ratio continues to decline

•

Reduction of $14.0 million (19%) from Q4-2012 and $24.9 million (30%) from Q1-2012

•

NPA ratio of .83% compared to 1.06% in Q4-2012 and 1.42% in Q1-2012

•

NPLs at $43.4 million, down $12.4 million from Q4-2012 and down $6.7 million from

Q1-2012

•

NPL ratio at .46% of total loans and .63% of LHI

•

OREO reduction of $1.6 million (10%) from Q4-2012 and $18.2 million (56%) from Q1-

2012

–

Achieved reduction in credit costs consistent with improvement in credit metrics

14

15

Credit Quality

Net Charge-offs / Average Loans

* Excludes loans held for sale.

Combined reserve /

Loans

*

1.14%

1.15%

1.31%

1.56%

1.59%

Non-accrual loans +

OREO to loans

*

+

OREO

.83%

1.06%

1.58%

3.25%

2.74%

Combined reserve to

non-accruals

1.7x

1.3x

1.3x

.6x

.7x

0.07%

0.10%

0.58%

1.14%

0.46%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

2013

2012

2011

2010

2009

Closing Comments

•

Strong

core

earnings

power,

profitability

and

growth

to

continue

in

2013

•

Credit costs continue positive trend

•

Strong LHI pipeline and new commitments present opportunity for growth

potential

•

LHS average balances to remain high with potential for modest growth

with increased market share and participation program

16

Q&A

17