EXHIBIT 99.1
April 23, 2003
Dear Shareholder:
Today we released the attached announcement reporting our financial results for
the quarter ended March 31, 2003.
We are pleased to report that during the first quarter, earnings increased 100
percent to $.14 per share on a fully diluted basis, assets grew 58 percent to
$1.948 billion, loans grew 35 percent to $1.180 billion, and deposits grew 38
percent to $1.296 billion from the first quarter of 2002. These results were
achieved while the quality of our assets improved significantly. For the quarter
ended March 31, 2003, we experienced net recoveries of $105,000 of loans and
leases previously charged off, and our non-performing assets declined to $3.8
million from $10 million at March 31, 2002. We are particularly pleased with
these results given the continued weakness in the economy.
Since March 31, 2003, the Board of Directors has received several unsolicited
indications from various banking institutions that they may be interested in
acquiring or merging with the Company. After receiving appropriate advice from
investment bankers and other consultants and after much careful consideration,
the Board unanimously decided not to pursue these indications of interest and
adopted the following policy:
It is our belief that Texas Capital Bancshares is in a growth phase,
that it has not reached its full potential, and that the greatest value
to be derived for the shareholders is in successfully implementing the
Company's strategic plan. Consequently, Texas Capital Bancshares is not
for sale at this time. Nevertheless, if a qualified party desires to
make a bona fide offer, it is the Board's duty and policy to consider
any such offer, to compare it to Texas Capital's potential future
value, and to reach a conclusion that the Board believes is in the best
interest of the shareholders.
We remain convinced that the best way to provide liquidity and a market price
that reflect the future value of the company for the shareholders is through the
planned initial public offering. To that end, we are pleased to report that the
effort to extend to February 28, 2004 the lockup agreements for those
shareholders with 10,000 or more shares who had previously signed lockup
agreements was very successful. With the end of the war, a somewhat better tone
to the stock market, and the outstanding results recorded by the Company in the
first quarter, we remain confident in the prospects for our business and for the
successful completion of the IPO.
During the last quarter, we received Board resignations from Dave Lawson, who
resigned to become chief financial officer of Capital One, and from Dave Wood,
who resigned because of increased commitments in his own business. We will miss
their advice and counsel, but are extremely grateful for their service during
the formative years of the company.
It is with regret that we also announce the resignation of Raleigh Hortenstine
from his positions with Texas Capital Bank and Texas Capital Bancshares and from
the boards of directors of both entities effective April 15, 2003. We sincerely
appreciate his contributions to the company and will miss him. He was
instrumental in helping us raise our initial and subsequent rounds of capital.
He was a leader among our management team and was a valuable contributor as a
member of the boards of both companies. We wish Raleigh well and look forward to
his continued support as a significant shareholder.
Thank you for your ongoing help, and we look forward to seeing you at our annual
shareholders meeting on May 20.
/s/ JODY GRANT /s/ GEORGE F. JONES, JR.
Chairman and CEO President and CEO
Texas Capital Bancshares, Inc. Texas Capital Bank
Enclosure
This letter contains forward-looking statements, which are subject to risk and
uncertainties. A number of factors, many of which are beyond the Company's
control, could cause actual conditions, events, or results to differ
significantly from those described in the Company's 10Q for the quarter ended
March 31, 2003 which will be filed with the Securities and Exchange Commission
by May 15, 2003. To obtain the Form 10Q when it is filed, visit our website at
texascapitalbank.com or call 214-932-6600.
(TEXAS CAPITAL BANCSHARES, INC. LOGO)
Contact:
Blake Lewis, 972.231.1800
blake@blakelewisapr.com
TEXAS CAPITAL BANCSHARES REPORTS INCREASE IN NET INCOME
DALLAS, Texas (April 23, 2003) - Texas Capital Bancshares, Inc. today reported
net income for the first quarter of 2003 of $3.0 million compared to $1.6
million for the first quarter of 2002. On a fully diluted basis, earnings per
share were $.14 for the three months ended March 31, 2003 compared to $.07 for
the same quarter last year, which represents an increase of 100 percent.
Return on average equity was 9.68 percent and return on average assets was .67
percent for the quarter ended March 31, 2003, compared to 5.65 percent and .53
percent respectively for the first quarter of 2002. The increase in earnings in
2003 is attributed to strong asset and related net interest income growth,
strong growth in non-interest income, and modest growth in non-interest
expenses. The Company's efficiency ratio was 63.7 percent for the quarter versus
72.0 percent for the same quarter of 2002.
"We are very encouraged about our results for the first quarter of 2003," said
Jody Grant, chairman and CEO of Texas Capital Bancshares, Inc. "The 100 percent
increase in earnings per share from 2002 continues the strong trend in earnings
begun in the first quarter of 2001 when we initially turned profitable. Our
performance over the last year was highlighted by a 38 percent growth in
deposits and a 35 percent growth in loans. We are also very pleased about the
quality of our loan portfolio. In the first quarter, we actually experienced net
recoveries of $105,000 of previously charged off loans and leases, and our
non-performing loans and leases declined to $3.8 million from $10 million a year
ago. We continue to be well situated to benefit from an improving economy and
rising interest rates, which is expected to significantly improve our net
interest margin."
Net interest income was $11.7 million for the first quarter of 2003, compared to
$9.4 million for the first quarter of 2002. The increase was primarily due to an
increase in average earning assets of $572.9 million, as compared to the first
quarter of 2002, which offset a 61 basis point decrease in net interest margin.
The increase in average earning assets included a $232.9 million increase in
average net loans and a $331.8 million increase in average securities. Average
interest bearing liabilities increased $527.7 million from the first quarter of
2002, which included a $206.3 million increase in interest-bearing deposits and
a $311.4 million increase in other borrowings. The increase in average
borrowings was primarily related to an increase in federal funds purchased and
securities sold under repurchase agreements, and was used to supplement deposits
in funding loan growth and securities purchases. The average cost of
interest-bearing liabilities decreased from 2.61 percent for the quarter ended
March 31, 2002 to 2.31 percent for the same period of 2003, reflecting the
continuing decline in market interest rates.
The provision for loan losses was $1.3 million for the first quarter of 2003,
compared to $1.2 million for the first quarter of 2002. The provision reflects
management's assessment of the risk of loan losses, including risks associated
with the continued growth in Texas Capital's loan portfolio. For the quarter
ended March 31, 2003, the provision for loan losses to average loans was .45
percent compared to .54 percent during the same quarter in 2002. The reserve for
loan losses totaled $15.9 million at March 31, 2003, which is 1.35 percent of
total loans, compared to $12.8 million or 1.46 percent at March 31, 2002. The
company's reserve ratio to non-performing loans continues to be strong at 417
percent at March 31, 2003, compared to 127 percent at March 31, 2002. Texas
Capital had net recoveries of loans and leases previously charged off of
$105,000 in the quarter versus net losses of $999,000 in the first quarter of
2002.
Texas Capital had non-performing loans of $3.8 million, or .32 percent of total
loans at March 31, 2003 compared to $10.0 million or 1.15 percent of total loans
at March 31, 2002. Of the $3.8 million in non-performing loans and leases,
$815,000 was in commercial loans, $1,355,000 in real estate loans, $13,000 in
consumer loans, and $1,586,000 in leases.
Non-interest income increased $1.1 million, including securities gains of
$341,000, compared to the same quarter of 2002 when there were no securities
gains. Service charges on deposit accounts in the first quarter of 2003
increased $214,000 due to the higher level of deposits and transactions. Trust
fee income increased $34,000 due to continued growth of trust assets in 2003.
Income from bank owned life insurance totaled $414,000 for the first quarter of
2003. Cash processing fees in the first quarter of 2003 were consistent with
those in the first quarter of 2002. Non-interest income also included an
increase in mortgage warehouse fees of approximately $155,000.
Non-interest expense for the first quarter of 2003 increased $1.0 million or 12
percent, compared to the first quarter of 2002 due entirely to increases in
salaries and employee benefits. Total employees increased from 196 at March 31,
2002 to 224 at March 31, 2003.
Management expects the balance sheet will continue to be asset-sensitive over
the next 12 months, resulting in more loans than deposits repricing over this
period. This is largely due to the concentration of assets in variable rate
loans, rather than fixed rate loans, which positions the company to benefit from
rising interest rates.
Total assets at March 31, 2003 were $1.948 billion, an increase of $155 million
from $1.793 billion at December 31, 2002, and an increase of $716 million from
$1.232 billion at March 31, 2002. The aggregate loan portfolio at March 31, 2003
was $1.180 billion, an increase of $57 million from $1.123 billion at December
31, 2002, and an increase of $305 million from $875 million at March 31, 2002.
Total deposits at March 31, 2003 were $1.296 billion, an increase of $99 million
from $1.197 billion at December 31, 2002, and an increase of $359 million from
$937 million at March 31, 2002.
About Texas Capital Bancshares
Texas Capital Bancshares, Inc. is a privately owned and operated bank holding
company, the principal subsidiary of which is Texas Capital Bank, N.A.,
headquartered in Dallas, Texas. Texas Capital Bank targets middle market
businesses, the executives of those businesses and affluent individuals. The
Bank has full-service locations in Austin, Dallas, Fort Worth, Plano and San
Antonio.
This release contains forward-looking statements, which are subject to risks and
uncertainties. A number of factors, many of which are beyond Texas Capital
Bancshares' 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. Additional factors that could cause results to differ
materially from those described in the forward-looking statements can be found
in the registration statement on Form S-3 as amended relating to the initial
public offering and other filings made by Texas Capital Bancshares with the
Securities and Exchange Commission.
TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In thousands except share data)
<Table>
<Caption>
For the three months ended For the three months ended
March 31, 2003 March 31, 2002
-------------------------------------------- ------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
------------ ------------ ------------ ------------ ------------ ------------
ASSETS
Taxable securities $ 546,120 $ 5,356 3.98% $ 214,281 $ 2,889 5.47%
Federal funds sold 29,394 87 1.20% 21,291 89 1.70%
Deposits in other banks 213 1 1.90% 171 1 2.37%
Loans 1,119,684 14,696 5.32% 884,795 12,501 5.73%
Less reserve for loan losses 14,944 -- -- 12,928 -- --
------------ ------------ ------------ ------------ ------------ ------------
Loans, net of reserve 1,104,740 14,696 5.39% 871,867 12,501 5.81%
------------ ------------ ------------ ------------ ------------ ------------
Total earning assets 1,680,467 20,140 4.86% 1,107,610 15,480 5.67%
Cash and other assets 144,661 87,044
------------ -----------
Total assets $ 1,825,128 $ 1,194,654
============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Transaction deposits $ 59,584 $ 112 0.76% $ 48,658 $ 125 1.04%
Savings deposits 381,587 1,640 1.74% 342,460 1,519 1.80%
Time deposits 524,622 3,630 2.81% 368,359 3,263 3.59%
------------ ------------ ------------ ------------ ------------ ------------
Total interest-bearing deposits 965,793 5,382 2.26% 759,477 4,907 2.62%
Other borrowings 496,617 2,885 2.36% 185,263 1,179 2.58%
Long-term debt 10,000 133 5.39% -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total interest-bearing liabilities 1,472,410 8,400 2.31% 944,740 6,086 2.61%
Demand deposits 213,991 130,552
Other liabilities 11,784 7,464
Stockholders' equity 126,943 111,898
------------ ------------
Total liabilities and
stockholders' equity $ 1,825,128 $ 1,194,654
============ ============
Net interest income $ 11,740 $ 9,394
Net interest income to earning
assets 2.83% 3.44%
------------ ------------
Provision for loan losses 1,250 1,171
Non-interest income 3,329 2,196
Non-interest expense 9,378 8,341
------------ ------------
INCOME BEFORE TAXES 4,441 2,078
Federal income tax 1,410 520
------------ ------------
NET INCOME $ 3,031 $ 1,558
============ ============
EARNINGS PER SHARE:
NET INCOME
Basic $ .14 $ .07
Diluted $ .14 $ .07
Return on average equity 9.68% 5.65%
Return on average assets .67% .53%
Equity to assets 6.96% 9.37%
</Table>
TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands)
<Table>
<Caption>
Three months ended March 31
2003 2002
------------- -------------
Beginning balance $ 14,538 $ 12,598
Loans charged-off:
Commercial -- 1,000
Leases 13 --
------------- -------------
Total 13 1,000
Recoveries:
Commercial 78 --
Consumer -- 1
Leases 40 --
------------- -------------
Total recoveries 118 1
------------- -------------
Net charge-offs (recoveries) (105) 999
Provision for loan losses 1,250 1,171
------------- -------------
Ending balance $ 15,893 $ 12,770
============= =============
Reserve for loan losses to loans outstanding at end of period 1.35% 1.46%
Net charge-offs to average loans -- .46%
Provision for loan losses to average loans .45% .54%
Recoveries to gross charge-offs 907.69% .10%
Reserve as a multiple of net charge-offs -- 12.8x
Non-performing and renegotiated loans:
Loans past due (90 days) $ 38 $ 5,312
Non-accrual 3,769 4,750
------------- -------------
Total $ 3,807 $ 10,062
============= =============
Reserve as a percent of non-performing and renegotiated loans 417.47% 126.91%
</Table>
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands except share data)
<Table>
<Caption>
Three months ended March 31
2003 2002
------------- -------------
INTEREST INCOME
Interest and fees on loans $ 14,696 $ 12,501
Securities 5,356 2,889
Federal funds sold 87 89
Deposits in other banks 1 1
------------- -------------
Total interest income 20,140 15,480
INTEREST EXPENSE
Deposits 5,382 4,907
Federal funds purchased 440 375
Other borrowings 2,445 804
Long-term debt 133 --
------------- -------------
Total interest expense 8,400 6,086
------------- -------------
NET INTEREST INCOME 11,740 9,394
PROVISION FOR LOAN LOSSES 1,250 1,171
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,490 8,223
NON-INTEREST INCOME
Service charges on deposit accounts 843 629
Trust fee income 281 247
Gain on sale of securities 341 --
Cash processing fees 900 993
BOLI income 414 --
Other 550 327
------------- -------------
Total non-interest income 3,329 2,196
NON-INTEREST EXPENSE
Salaries and employee benefits 5,379 4,333
Net occupancy expense 1,187 1,277
Advertising 193 80
Legal and professional 579 684
Communications and data processing 720 722
Franchise taxes 37 14
Other 1,283 1,231
------------- -------------
Total non-interest expense 9,378 8,341
------------- -------------
INCOME BEFORE INCOME TAXES 4,441 2,078
Income tax expense 1,410 520
------------- -------------
NET INCOME 3,031 1,558
Preferred stock dividends (274) (261)
------------- -------------
Income available to common stockholders $ 2,757 $ 1,297
============= =============
EARNINGS PER SHARE:
Basic $ .14 $ .07
Diluted $ .14 $ .07
</Table>
TEXAS CAPITAL BANCSHARES, INC.
(In thousands except share data)
<Table>
<Caption>
March 31, December 31, March 31,
2003 2002 2002
------------- ------------- -------------
ASSETS
Cash and due from banks $ 56,049 $ 88,744 $ 31,407
Federal funds sold 62,210 -- 60,360
Securities, available for sale 620,769 553,169 266,163
Loans, net 1,037,121 988,019 833,832
Loans held for sale 122,950 116,106 24,000
Premises and equipment, net 3,498 3,829 4,612
Accrued interest receivable and other assets 44,084 41,919 10,584
Goodwill, net 1,496 1,496 1,496
------------- ------------- -------------
Total assets $ 1,948,177 $ 1,793,282 $ 1,232,454
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 272,789 $ 238,873 $ 141,762
Interest bearing 1,023,357 957,662 794,999
------------- ------------- -------------
Total deposits 1,296,146 1,196,535 936,761
Accrued interest payable 2,714 3,826 2,290
Other liabilities 7,413 8,485 3,305
Federal funds purchased 148,729 83,629 85,369
Repurchase agreements 352,628 302,083 72,588
Other borrowings 2,785 63,748 20,116
Long-term debt 10,000 10,000 --
------------- ------------- -------------
Total liabilities 1,820,415 1,668,306 1,120,429
Stockholders' equity:
Series A convertible preferred stock, $.01 par value, 6%: Authorized shares -
10,000,000 Issued shares - 1,057,142 at March 31, 2003, December 31, 2002
and March 31, 2002 11 11 11
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 18,517,656, 18,500,812 and 18,430,246 at March 31, 2003,
December 31, 2002 and March 31, 2002, respectively 185 185 184
Series A-1 Non-voting common stock, $.01 par value:
Issued shares - 694,672, 695,516 and 711,456 at March 31, 2003, December
31, 2002 and March 31, 2002, respectively 7 7 7
Additional paid-in capital 131,707 131,881 132,367
Accumulated deficit (10,316) (13,347) (19,132)
Treasury stock (shares at cost: 97,246, 97,246 and 84,274 at
March 31, 2003, December 31, 2002 and March 31, 2002) (668) (668) (573)
Deferred compensation 573 573 573
Accumulated other comprehensive income 6,263 6,334 (1,412)
------------- ------------- -------------
Total stockholders' equity 127,762 124,976 112,025
------------- ------------- -------------
Total liabilities and stockholders' equity $ 1,948,177 $ 1,793,282 $ 1,232,454
============= ============= =============
</Table>