Texas Capital Bancshares (TCBI) 8-K Texas Capital Bancshares, Inc. Announces Operating Results for Q2 2013

TCBI Q2 2013

Earnings

Exhibit 99.2

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 continued core earnings growth, with increased provision as a result

of record growth in LHI

•

Required charge related to announced organizational change in Q2-2013

•

Continued improvement in NPAs

•

Strong growth in deposits, specifically DDAs

•

LHS levels increased on a linked quarter basis; continuing to take advantage

of market demand with expectations for modest growth for 2013

3

Financial Review

Net Income and EPS

–

Decrease in net income and EPS compared to Q1-2013 and Q2-2012, mainly as a result of the increased

provision for growth, $.06 full quarter of preferred stock dividend, and charge related to organizational

change

Operating Leverage, Core Earnings Power & NIM

–

Net Revenue

•

3% increase from Q1-2013

•

11% growth from Q2-2012

–

Exceptional growth in LHI average balances

•

Growth of 5% from Q1-2013

•

Growth of 20% from Q2-2012

–

Margin declined 8 bps from Q1-2013 to 4.19%

•

Strong LHI levels with favorable spreads; yields down only slightly

•

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

•

Increased levels in LHS with reduction in spreads, with strong growth from Q2-2012 and above 2012

average; yields expected to increase in Q3-2013

–

Increased provision for loan losses directly related to record quarterly growth in LHI of $591 million

–

$9.9 million of notable charges in non-interest expense in Q2-13

•

$7.7

million

($0.12

per

share)

related

to

organizational

change,

most

related

to

future

performance

•

Assumptions about potential expense required to be estimated in Q2-2013

•

$2.2 million related to probability of achieving performance targets calculated using current stock price

•

Highly variable and aligned with shareholder interests

4

Financial Review

Loan Growth

–

Broad-based growth in LHI

•

Record quarterly growth of $591 million, or 9%, from Q1-2013

•

Period end balance $358 million over average balance for the quarter

•

Averages increased 5% from Q1-2013 and 20% from Q2-2012

–

Average LHS balances up 2% from Q1-2013 and 17% from Q2-2012

Funding

–

Funding profile improved with exceptional DDA and total deposit growth

•

Average  DDA increased 15% from Q1-2013 and 56% from Q2-2012

•

Total average deposits increased 7% from Q1-2013 and 29% from Q2-2012

–

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

duration earning assets

Credit Costs

–

Total credit costs of $7.4 million for Q2-2013

–

Favorable trend in NPA ratio with $6.3 million (11%) decrease from Q1-13, including OREO reduction of

$1.4 million (10%)

5

Results remained well above industry trends in mortgage origination and warehouse

•

Provision of $7.0 million compared to $2.0 million in Q1-2013, with increase related to LHI growth

OREO valuation cost of $382,000 compared to $71,000 in Q1-2013 and $3.1 million in Q2-2012

NCOs of $2.4 million (13 bps) compared to $1.2 million (7 bps) in Q1-2013 and 4 bps for Q2-2012

•

•

•

6

Review of Mortgage Finance

Highly profitable, sustainable business with favorable earning asset and funding profile

–

Strong position nationally with focus on large regional, privately owned mortgage companies; consistent with

middle market position

–

Asset generated characterized by exceptional yield, asset quality, liquidity and risk profile

–

Increased market share, now benefitting from focus on purchase money mortgages

–

Near perfect asset class in low rate environment with minimal risk

•

Reduction in yield and NIM, tracking national mortgage rates

•

Portfolio positioned to produce higher yields in Q3-2013

•

Excellent results from growth and operating leverage

–

$2.7 billion business (before participations); modest growth from Q1-2013 and consistent with expectations

and ahead of average for 2012

–

Funding provided by $1.1 billion in deposits with balance supported by borrowed funds

LHS represents 25% of average total loans with similar contribution to PTPP Income for YTD 2013

–

Return on allocated equity comparable to other lines of business

–

At 100% Risk Weight, Company allocating capital with after-tax cost of <5% compared to ROIC >20%

–

Contrast with ownership of securities compelling in terms of earnings profile and long term risk

characteristics

•

Lower NIM in current rate environment

•

No credit costs

•

Increased costs with employed approach but risk mitigated

•

Excellent operating leverage when volumes are high

Income Statement -

Quarterly

7

(1)  Excludes OREO valuation charge

Q2-13

Q1-13

Q4-12

Q3-12

Q2-12

Net interest income

$  101,220

$   98,042

$ 101,155

$   96,855

$   90,640

Non-interest income

11,128

11,281

12,836

10,552

10,462

Net revenue

112,348

109,323

113,991

107,407

101,102

Provision for credit losses

7,000

2,000

4,500

3,000

1,000

382

71

955

64

3,123

Total provision  and OREO valuation

7,382

2,071

5,455

3,064

4,123

Non-interest expense

68,352

55,629

59,119

53,457

50,850

Income before income taxes

36,614

51,623

49,417

50,886

46,129

Income tax expense

12,542

18,479

17,982

18,316

16,506

Net income

24,072

33,144

31,435

32,570

29,623

Preferred stock dividends

2,438

81

–

–

–

Net income available to common shareholders

$   21,634

$   33,063

$   31,435

$   32,570

$   29,623

Diluted EPS

$         .52

$         .80

$         .76

$         .80

$         .76

Net interest margin

4.19%

4.27%

4.27%

4.36%

4.49%

ROA

0.95%

1.38%

1.27%

1.40%

1.40%

ROE

9.94%

15.82%

15.35%

17.27%

18.08%

Efficiency

(1)

60.8%

50.9%

51.9%

49.8%

50.3%

OREO valuation and write-down expense

QTD Average Balances, Yields and Rates

8

(in thousands)

Q2 2013

Q1 2013

Q2 2012

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Assets

Securities

$      78,906

4.42%

$    93,394

4.57%

$118,440

4.55%

Fed funds sold & liquidity investments

145,625

.20%

103,503

.23%

68,493

.31%

Loans held for sale

2,406,246

3.74%

2,362,646

3.89%

2,062,449

4.11%

Loans held for investment

7,152,323

4.71%

6,842,766

4.77%

5,950,913

4.95%

Total loans, net of reserve

9,483,563

4.50%

9,130,970

4.58%

7,941,583

4.78%

Total earning assets

9,708,094

4.44%

9,327,867

4.53%

8,128,516

4.73%

Total assets

$10,110,992

$9,729,559

$8,522,602

Liabilities

and

Stockholders’

Equity

Total interest bearing deposits

$  5,130,200

.25%

$4,988,788

.26%

$4,388,120

.32%

Other borrowings

727,158

.20%

1,041,573

.17%

1,428,575

.21%

Subordinated notes

111,000

6.61%

111,000

6.68%

–

–

Long-term debt

113,406

2.24%

113,406

2.27%

113,406

2.44%

Total interest bearing liabilities

6,081,764

.40%

6,254,767

.40%

5,930,101

.33%

Demand deposits

2,914,341

2,529,927

1,864,456

Stockholders’

equity

1,023,279

854,327

658,969

Total

liabilities

and

stockholders’

equity

$10,110,992

.24%

$9,729,559

.26%

$8,522,602

.23%

Net interest margin

4.19%

4.27%

4.49%

Financial Summary

9

(in thousands)

QTD Averages

Q2 2013

Q1 2013

Q2 2012

Q2/Q1 %

Change

YOY %

Change

Total assets

$10,110,992

$9,729,559

$8,522,602

4%

19%

Loans held for investment

7,152,323

6,842,766

5,950,913

5%

20%

Loans held for sale

2,406,246

2,362,646

2,062,449

2%

17%

Total loans

9,558,569

9,205,412

8,013,362

4%

19%

Securities

78,906

93,394

118,440

(16)%

(33)%

Demand deposits

2,914,341

2,529,927

1,864,456

15%

56%

Total deposits

8,044,541

7,518,715

6,252,576

7%

29%

Stockholders’

equity

1,023,279

854,327

658,969

20%

55%

Financial Summary

10

(in thousands)

Period End

Q2 2013

Q1 2013

Q2 2012

Q2/Q1 %

Change

YOY %

Change

Total assets

$10,977,990

$10,020,565

$9,144,360

10%

20%

Loans held for investment

7,510,662

6,920,011

6,234,692

9%

20%

Loans held for sale

2,838,234

2,577,830

2,408,032

10%

18%

Total loans

10,348,896

9,497,841

8,642,724

9%

20%

Securities

75,861

87,527

114,964

(13)%

(34)%

Demand deposits

2,928,735

2,628,446

2,019,473

11%

45%

Total deposits

7,980,598

7,745,831

6,660,290

3%

20%

Stockholders’

equity

1,034,955

1,013,195

680,705

2%

52%

Revenue and Income Growth

($ in thousands)

11

Note:

Excludes OREO valuation charge for YTD 2013, 2012, 2011 and 2010. YTD Q2

2013 data is annualized.

Operating Revenue CAGR: 23%

Net Interest

Income CAGR:

24%

Non-interest Income CAGR: 17%

Non-interest Expense CAGR: 20%

Net Income CAGR: 40%

$174,207

$225,951

$273,937

$335,169

$419,919

$443,342

109,651

137,733

154,985

181,403

212,961

247,904

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

YTD Q2 2013

Non-interest Income

Net Interest Income

Non-interest Expense

12

EPS Growth

2008

2009^

2010

2011

2012

5 Year EPS CAGR: 27%

Q2-2013

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

$0.89

$0.71

$1.00

$1.99

3.01

$1.31

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Deposit and Loan Growth

($ in millions)

13

$3,333

$4,121

$5,455

$5,556

$7,441

$7,981

$4,028

$4,457

$4,711

$5,572

$6,786

$7,511

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2008

2009

2010

2011

2012

Q2 2013

Demand Deposits

Interest Bearing Deposits

Loans HFI

Demand Deposit CAGR: 43%

Total Deposit CAGR: 21%

Loans Held for Investment CAGR: 15%

Loan Portfolio Statistics

14

Non-accrual loans

Commercial

$         17,577

Construction

–

Real estate

20,799

Consumer

9

Equipment leases

65

Total non-accrual loans

$         38,450

Non-accrual loans as % of

loans held for investment

.51%

Non-accrual loans as % of

total loans

.37%

OREO

13,053

Total Non-accruals +

OREO

$         51,503

Non-accrual loans + OREO

as % of loans held for

investment + OREO

.68%

Total Loans  $10,348,896

All numbers in thousands.

Loan Collateral by Type 6/30/13

Credit Quality

Improved Credit Trends

–

Total credit cost of $7.4 million for Q2-2013, compared to $2.1 million in Q1-2013 and $4.1

million in Q2-2012

•

Provision of $7.0 million for Q2-2013 compared to $2.0 million for Q1-2013 and $1.0

million in Q2-2012

•

Increase from Q1-2013 related to record growth, supported by maintenance of exceptional

metrics

•

NCOs $2.4 million (13 bps) in Q2-2013 compared to 7 bps in Q1-2013 and 4 bps in Q2-

2012; NCO ratio of 10pbs for YTD

•

OREO valuation charge of $382,000 compared to $71,000 in Q1-2013 and $3.1 million in

Q2-2012

–

NPA ratio continues to decline

•

Reduction of $6.3 million (11%) from Q1-2013 and $32.8 million (39%) from Q2-2012

•

NPA ratio of .68% compared to .83% in Q1-2013 and 1.35% in Q2-2012

•

NPLs at $38.5 million, down $4.9 million from Q1-2013 and down $17.9 million from

Q2-2012

•

NPL ratio at .37% of total loans and .51% of LHI

•

OREO reduction of $1.4 million (10%) from Q1-2013 and $14.8 million (53%) from Q2-

2012

15

16

Credit Quality

Net Charge-offs / Average Loans

* Excludes loans held for sale.

Combined reserve /

Loans

*

1.11%

1.15%

1.31%

1.56%

1.59%

Non-accrual loans +

OREO to loans

*

+

OREO

.68%

1.06%

1.58%

3.25%

2.74%

Combined reserve to

non-accruals

2.1x

1.3x

1.3x

.6x

.7x

0.10%

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 continues 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

17

Q&A

18