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Section 1: 8-K (8-K)

Document
 
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): January 23, 2019
 
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 January 23, 2019, Texas Capital Bancshares, Inc. issued a press release and made a concurrent public presentation regarding its operating and financial results for its fiscal quarter and year ended December 31, 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
Press Release, dated January 23, 2019 announcing Texas Capital Bancshares, Inc.'s operating and financial results for its fiscal quarter and year ended December 31, 2018

99.2
Presentation given January 23, 2019 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal quarter and year ended December 31, 2018





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:
January 23, 2019
TEXAS CAPITAL BANCSHARES, INC.
 
 
 
 
 
 
 
By:
 
/s/ Julie Anderson
 
 
 
 
 
Julie Anderson
Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Exhibit
Exhibit 99.1
396456980_tcbilogoa58.jpg
INVESTOR CONTACT
Heather Worley, 214.932.6646
[email protected]
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR 2018
DALLAS - January 23, 2019 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced earnings and operating results for the fourth quarter and full year of 2018.
“We are pleased with our 2018 operating results, highlights of which include record earnings increasing 53% year over year, continued loan growth and improvements in operating leverage," said Keith Cargill, President and CEO. "We are committed to being proactive in regard to both credit quality and ensuring that our balance sheet is well positioned ahead of an eventual economic slowdown. We are confident in the continued success of our strategic initiatives for 2019, which include diversifying our funding profile and growing risk-appropriate earnings, as well as developing our talent and leveraging our people with improved technology to deliver premier client experience."
Loans held for investment ("LHI"), excluding mortgage finance, increased 1% on a linked quarter basis (increasing 2% on an average basis) and 9% from the fourth quarter of 2017 (increasing 11% on an average basis).
Total mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans held for sale ("LHS"), increased 10% on a linked quarter basis (increasing 2% on an average basis) and increased 24% from the fourth quarter of 2017 (increasing 14% on an average basis).
Demand deposits increased 4% and total deposits increased 1% on a linked quarter basis (decreased 6% and increased 1%, respectively, on an average basis), and decreased 6% and increased 8%, respectively, from the fourth quarter of 2017 (decreased 18% and increased 2%, respectively on an average basis).
Net income decreased 16% on a linked quarter basis, reflecting an increased provision for credit losses, and increased 61% from the fourth quarter of 2017.
EPS decreased 16% on a linked quarter basis, reflecting an increased provision for credit losses, and increased 64% from the fourth quarter of 2017.
FINANCIAL SUMMARY
(dollars and shares in thousands)
 
2018
 
2017
 
% Change
ANNUAL OPERATING RESULTS
 
 
 
 
 
Net income
$
300,824

 
$
197,063

 
53
 %
Net income available to common stockholders
$
291,074

 
$
187,313

 
55
 %
Diluted EPS
$
5.79

 
$
3.73

 
55
 %
Diluted shares
50,273

 
50,260

 
 %
ROA
1.19
%
 
0.87
%
 
 
ROE
13.14
%
 
9.51
%
 
 
QUARTERLY OPERATING RESULTS
 
 
 
 
 
Net income
$
71,891

 
$
44,742

 
61
 %
Net income available to common stockholders
$
69,454

 
$
42,305

 
64
 %
Diluted EPS
$
1.38

 
$
0.84

 
64
 %
Diluted shares
50,333

 
50,312

 
 %
ROA
1.09
%
 
0.71
%
 
 
ROE
11.82
%
 
8.18
%
 
 
BALANCE SHEET
 
 
 
 
 
LHS
$
1,969,474

 
$
1,011,004

 
95
 %
LHI, mortgage finance
5,877,524

 
5,308,160

 
11
 %
LHI
16,690,550

 
15,366,252

 
9
 %
Total LHI
22,568,074

 
20,674,412

 
9
 %
Total loans
24,537,548

 
21,688,725

 
13
 %
Total assets
28,257,767

 
25,075,645

 
13
 %
Demand deposits
7,317,161

 
7,812,660

 
(6
)%
Total deposits
20,606,113

 
19,123,180

 
8
 %
Stockholders’ equity
2,500,394

 
2,202,721

 
14
 %





DETAILED FINANCIALS
Texas Capital Bancshares, Inc. reported net income of $300.8 million and net income available to common stockholders of $291.1 million for the year ended December 31, 2018, compared to net income of $197.1 million and net income available to common stockholders of $187.3 million for the year ended December 31, 2017. For the fourth quarter of 2018, net income was $71.9 million and net income available to common stockholders was $69.5 million, compared to net income of $44.7 million and net income available to common stockholders of $42.3 million for the same period in 2017. On a fully diluted basis, earnings per common share were $5.79 for the year ended December 31, 2018 compared to $3.73 for the same period in 2017. Diluted earnings per common share were $1.38 for the quarter ended December 31, 2018 compared to $0.84 for the same period of 2017. The increase reflects a $27.1 million increase in net income primarily driven by an increase in net interest income for the fourth quarter of 2018 compared to the fourth quarter of 2017, as well as a decrease in income tax rates as a result of the Tax Cuts and Jobs Act which became effective on January 1, 2018 (the "Tax Act"), offset by an increase in the provision for credit losses. Results for the fourth quarter of 2017 were negatively impacted by a $17.6 million ($0.35 per share) write-off of our deferred tax asset as a result of the Tax Act.

Return on common equity ("ROE") was 13.14 percent and return on average assets ("ROA") was 1.19 percent for the year ended December 31, 2018, compared to 9.51 percent and 0.87 percent, respectively, for the year ended December 31, 2017. ROE was 11.82 percent and ROA was 1.09 percent for the fourth quarter of 2018, compared to 14.68 percent and 1.31 percent, respectively, for the third quarter of 2018 and 8.18 percent and 0.71 percent, respectively, for the fourth quarter of 2017. The linked quarter decreases in ROE and ROA for the fourth quarter of 2018 resulted primarily from the increase in the provision for credit losses.

Net interest income was $240.7 million for the fourth quarter of 2018, compared to $232.2 million for the third quarter of 2018 and $210.6 million for the fourth quarter of 2017. The linked quarter and year-over-year increases in net interest income are due primarily to increases in loan yields and growth in total loans. Net interest margin for the fourth quarter of 2018 was 3.78 percent, an increase of 8 basis points from the third quarter of 2018 and an increase of 31 basis points from the fourth quarter of 2017. LHI, excluding mortgage finance, yields were up 24 basis points from the third quarter of 2018, and were up 83 basis points compared to the fourth quarter of 2017. Mortgage finance, excluding MCA, yields for the fourth quarter of 2018 increased 10 basis points compared to the third quarter of 2018 and increased 26 basis points compared to the fourth quarter of 2017. Total cost of deposits for the fourth quarter of 2018 increased 18 basis points to 1.17 percent compared to 0.99 percent for the third quarter of 2018, and increased 64 basis points from 0.53 percent for the fourth quarter of 2017.

Average LHI, excluding mortgage finance loans, for the year ended December 31, 2018 were $16.1 billion, an increase of $2.0 billion, or 14 percent, from 2017. Average LHI, excluding mortgage finance loans, for the fourth quarter of 2018 were $16.6 billion, an increase of $311.9 million, or 2 percent, from the third quarter of 2018 and an increase of $1.6 billion, or 11 percent, from the fourth quarter of 2017. Average total mortgage finance loans, including MCA loans, for the fourth quarter of 2018 were $7.1 billion, an increase of $167.6 million, or 2 percent, from the third quarter of 2018 and an increase of $849.7 million, or 14 percent, from the fourth quarter of 2017.

Average total deposits for the year ended December 31, 2018 were $20.2 billion, an increase of $1.8 billion, or 10 percent, from 2017. Average demand deposits for the year ended December 31, 2018 were $7.9 billion, a decrease of $430.3 million, or 5 percent, from 2017. Average total deposits for the fourth quarter of 2018 increased $143.3 million from the third quarter of 2018 and increased $444.1 million from the fourth quarter of 2017. Average demand deposits for the fourth quarter of 2018 decreased $478.1 million, or 6 percent, to $7.5 billion from $7.9 billion from the third quarter of 2018, and decreased $1.6 billion, or 18 percent, from the fourth quarter of 2017 as a result of the rising interest rate environment and the shift to interest-bearing deposits.

We recorded a $35.0 million provision for credit losses for the fourth quarter of 2018 compared to $13.0 million for the third quarter of 2018 and $2.0 million for the fourth quarter of 2017. The provision for the fourth quarter of 2018 was driven by the consistent application of our methodology. The linked quarter increase resulted from an increase in charge-offs primarily related to several commercial loans, all of which were identified as non-accrual as of September 30, 2018, as well as an increase in total criticized loans. The total allowance for credit losses at December 31, 2018 increased to 1.22 percent of LHI, excluding mortgage finance loans, compared to 1.21 percent at September 30, 2018 and decreased from 1.26 percent at December 31, 2017. In management’s opinion, the allowance is appropriate and is derived from consistent application of the methodology for establishing reserves for the loan portfolio.

We experienced a decrease in non-performing assets ("NPAs") in the fourth quarter of 2018 compared to the third quarter of 2018 and fourth quarter of 2017, decreasing the ratio of total NPAs to total LHI plus other real estate owned ("OREO") to 0.36 percent compared to 0.49 percent for the third quarter of 2018 and 0.55 percent for the fourth quarter of 2017. Net charge-offs for the fourth quarter of 2018 were $32.6 million compared to $2.0 million for the third quarter of 2018 and $964,000 for the fourth quarter of 2017. The increase in charge-offs was primarily related to several commercial loans, all of which were identified as non-accrual as of September 30, 2018. For the fourth quarter of 2018, net charge-offs were 0.60 percent of average total LHI,

2




compared to 0.04 percent for the third quarter of 2018 and 0.02 percent for the same period in 2017. At December 31, 2018, total OREO was $79,000 compared to $79,000 at September 30, 2018 and $11.7 million at December 31, 2017.

Non-interest income decreased $4.1 million, or 21 percent, during the fourth quarter of 2018 compared to the same period of 2017, and decreased $10.2 million, or 40 percent, compared to the third quarter of 2018. The linked quarter decrease is primarily related to decreases in the gain on sale of loans held for sale and servicing income. The year-over-year decrease primarily related to decreases in the gain on sale of loans and servicing income, offset by an increase in other non-interest income.

Non-interest expense for the fourth quarter of 2018 decreased $6.3 million, or 5 percent, compared to the third quarter of 2018, and decreased $3.3 million, or 2 percent, compared to the fourth quarter of 2017. The linked quarter decrease in non-interest expense was primarily related to decreases in salaries and employee benefits, FDIC insurance assessment and servicing related expenses, offset by increases in legal and professional expenses, communications and technology expenses and allowance and other carrying costs for OREO expenses. The year-over-year decrease was primarily due to decreases in allowance and other carrying costs for OREO, servicing related expenses and FDIC insurance assessment, offset by increases in legal and professional, communications and technology and marketing expenses.

Stockholders’ equity increased by 14 percent from $2.2 billion at December 31, 2017 to $2.5 billion at December 31, 2018, primarily due to the retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines. At December 31, 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 2000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio.

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

3




TEXAS CAPITAL BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands except per share data)
 
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
4th Quarter
 
2018
2018
2018
2018
2017
CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
Interest income
$
321,718

$
301,754

$
286,852

$
253,869

$
249,519

Interest expense
81,045

69,579

55,140

43,569

38,870

Net interest income
240,673

232,175

231,712

210,300

210,649

Provision for credit losses
35,000

13,000

27,000

12,000

2,000

Net interest income after provision for credit losses
205,673

219,175

204,712

198,300

208,649

Non-interest income
15,280

25,518

17,279

19,947

19,374

Non-interest expense
129,862

136,143

132,131

126,960

133,138

Income before income taxes
91,091

108,550

89,860

91,287

94,885

Income tax expense
19,200

22,998

18,424

19,342

50,143

Net income
71,891

85,552

71,436

71,945

44,742

Preferred stock dividends
2,437

2,438

2,437

2,438

2,437

Net income available to common stockholders
$
69,454

$
83,114

$
68,999

$
69,507

$
42,305

 
 
 
 
 
 
Diluted EPS
$
1.38

$
1.65

$
1.38

$
1.38

$
0.84

Diluted shares
50,333,412

50,381,349

50,096,015

50,353,497

50,311,962

CONSOLIDATED BALANCE SHEET DATA
 
 
 
 
 
Total assets
$
28,257,767

$
27,127,107

$
27,781,910

$
24,449,147

$
25,075,645

LHI
16,690,550

16,569,538

16,536,721

15,741,772

15,366,252

LHI, mortgage finance
5,877,524

5,477,787

5,923,058

4,689,938

5,308,160

LHS
1,969,474

1,651,930

1,276,768

1,088,565

1,011,004

Liquidity assets(1)
2,865,874

2,615,570

3,288,107

2,296,673

2,727,581

Investment securities
120,216

117,389

24,408

24,929

23,511

Demand deposits
7,317,161

7,031,460

7,648,125

7,413,340

7,812,660

Total deposits
20,606,113

20,385,637

20,334,871

18,764,533

19,123,180

Other borrowings
4,541,174

3,686,818

4,520,849

2,835,540

3,165,040

Subordinated notes
281,767

281,677

281,586

281,496

281,406

Long-term debt
113,406

113,406

113,406

113,406

113,406

Stockholders’ equity
2,500,394

2,426,442

2,343,530

2,273,429

2,202,721

 
 
 
 
 
 
End of period shares outstanding
50,200,710

50,177,260

50,151,064

49,669,774

49,643,344

Book value
$
46.82

$
45.37

$
43.74

$
42.75

$
41.35

Tangible book value(2)
$
46.45

$
45.00

$
43.36

$
42.37

$
40.97

SELECTED FINANCIAL RATIOS
 
 
 
 
 
Net interest margin
3.78
%
3.70
%
3.93
%
3.71
%
3.47
%
Return on average assets
1.09
%
1.31
%
1.16
%
1.22
%
0.71
%
Return on average common equity
11.82
%
14.68
%
12.72
%
13.39
%
8.18
%
Non-interest income to average earning assets
0.24
%
0.40
%
0.29
%
0.35
%
0.32
%
Efficiency ratio(3)
50.7
%
52.8
%
53.1
%
55.1
%
57.9
%
Non-interest expense to average earning assets
2.03
%
2.15
%
2.23
%
2.23
%
2.17
%
Tangible common equity to total tangible assets(4)
8.3
%
8.3
%
7.8
%
8.6
%
8.1
%
Common Equity Tier 1
8.6
%
8.6
%
8.3
%
8.8
%
8.5
%
Tier 1 capital
9.5
%
9.6
%
9.3
%
9.9
%
9.5
%
Total capital
11.3
%
11.5
%
11.1
%
11.9
%
11.5
%
Leverage
9.9
%
9.7
%
9.9
%
9.9
%
9.2
%
(1)
Liquidity assets include Federal funds sold and interest-bearing deposits in other banks.
(2)
Stockholders’ equity excluding preferred stock, less goodwill and intangibles, divided by shares outstanding at period end.
(3)
Non-interest expense divided by the sum of net interest income and non-interest income.
(4)
Stockholders’ equity excluding preferred stock and accumulated other comprehensive income less goodwill and intangibles divided by total assets less accumulated other comprehensive income and goodwill and intangibles.

4




TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
 
December 31, 2018
December 31, 2017
%
Change
Assets
 
 
 
Cash and due from banks
$
214,191

$
178,010

20
 %
Interest-bearing deposits
2,815,684

2,697,581

4
 %
Federal funds sold and securities purchased under resale agreements
50,190

30,000

67
 %
Securities, available-for-sale
120,216

23,511

411
 %
LHS ($1,969.2 million and $1,007.7 million at December 2018 and 2017, respectively, at fair value)
1,969,474

1,011,004

95
 %
LHI, mortgage finance
5,877,524

5,308,160

11
 %
LHI (net of unearned income)
16,690,550

15,366,252

9
 %
Less: Allowance for loan losses
191,522

184,655

4
 %
LHI, net
22,376,552

20,489,757

9
 %
Mortgage servicing rights, net
42,474

85,327

(50
)%
Premises and equipment, net
23,802

25,176

(5
)%
Accrued interest receivable and other assets
626,614

516,239

21
 %
Goodwill and intangibles, net
18,570

19,040

(2
)%
Total assets
$
28,257,767

$
25,075,645

13
 %
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
7,317,161

$
7,812,660

(6
)%
Interest bearing
13,288,952

11,310,520

17
 %
Total deposits
20,606,113

19,123,180

8
 %
 
 
 


Accrued interest payable
20,675

7,680

169
 %
Other liabilities
194,238

182,212

7
 %
Federal funds purchased and repurchase agreements
641,174

365,040

76
 %
Other borrowings
3,900,000

2,800,000

39
 %
Subordinated notes, net
281,767

281,406

 %
Trust preferred subordinated debentures
113,406

113,406

 %
Total liabilities
25,757,373

22,872,924

13
 %
 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, $1,000 liquidation value:
 
 
 
Authorized shares - 10,000,000
 
 
 
Issued shares - 6,000,000 shares issued at December 31, 2018 and 2017
150,000

150,000

 %
Common stock, $.01 par value:
 
 
 
Authorized shares - 100,000,000
 
 
 
Issued shares - 50,201,127 and 49,643,761 at December 31, 2018 and 2017, respectively
502

496

1
 %
Additional paid-in capital
967,890

961,305

1
 %
Retained earnings
1,381,492

1,090,500

27
 %
Treasury stock (shares at cost: 417 at December 31, 2018 and 2017)
(8
)
(8
)
 %
Accumulated other comprehensive income, net of taxes
518

428

21
 %
Total stockholders’ equity
2,500,394

2,202,721

14
 %
Total liabilities and stockholders’ equity
$
28,257,767

$
25,075,645

13
 %

5




TEXAS CAPITAL BANCSHARES, INC.
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
 
 
(Dollars in thousands except per share data)
 
 
 
 
 
Three Months Ended December 31,
Year Ended December 31,
 
2018
2017
2018
2017
Interest income
 
 
 
 
Interest and fees on loans
$
310,470

$
238,906

$
1,124,970

$
846,292

Investment securities
1,274

213

2,834

1,066

Federal funds sold and securities purchased under resale agreements
984

936

3,792

2,542

Interest-bearing deposits in other banks
8,990

9,464

32,597

29,399

Total interest income
321,718

249,519

1,164,193

879,299

Interest expense
 
 
 
 
Deposits
61,773

27,625

185,116

79,886

Federal funds purchased
2,097

723

6,531

2,592

Other borrowings
11,726

5,380

36,207

15,137

Subordinated notes
4,191

4,191

16,764

16,764

Trust preferred subordinated debentures
1,258

951

4,715

3,592

Total interest expense
81,045

38,870

249,333

117,971

Net interest income
240,673

210,649

914,860

761,328

Provision for credit losses
35,000

2,000

87,000

44,000

Net interest income after provision for credit losses
205,673

208,649

827,860

717,328

Non-interest income
 
 
 
 
Service charges on deposit accounts
3,168

3,109

12,787

12,432

Wealth management and trust fee income
2,152

1,767

8,148

6,153

Brokered loan fees
5,408

5,692

22,532

23,331

Servicing income
2,861

5,270

18,307

15,657

Swap fees
1,356

586

5,625

3,990

Gain/(Loss) on sale of LHS
(8,087
)
(1,055
)
(15,934
)
(2,387
)
Other
8,422

4,005

26,559

15,080

Total non-interest income
15,280

19,374

78,024

74,256

Non-interest expense
 
 
 
 
Salaries and employee benefits
69,500

70,192

291,768

264,231

Net occupancy expense
7,390

6,749

30,342

25,811

Marketing
10,208

8,438

39,335

26,787

Legal and professional
13,042

8,756

42,990

29,731

Communications and technology
8,845

6,590

30,056

31,004

FDIC insurance assessment
5,423

6,710

24,307

23,510

Servicing related expenses
2,555

7,177

14,934

15,506

Allowance and other carrying costs for OREO
7

6,122

474

6,437

Other
12,892

12,404

50,890

42,859

Total non-interest expense
129,862

133,138

525,096

465,876

Income before income taxes
91,091

94,885

380,788

325,708

Income tax expense
19,200

50,143

79,964

128,645

Net income
71,891

44,742

300,824

197,063

Preferred stock dividends
2,437

2,437

9,750

9,750

Net income available to common stockholders
$
69,454

$
42,305

$
291,074

$
187,313

 
 
 
 
 
Basic earnings per common share
$
1.38

$
0.85

$
5.83

$
3.78

Diluted earnings per common share
$
1.38

$
0.84

$
5.79

$
3.73



6




TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
 
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
4th Quarter
 
2018
2018
2018
2018
2017
Allowance for loan losses:
 
 
 
 
 
Beginning balance
$
190,306

$
179,096

$
190,898

$
184,655

$
182,929

Loans charged-off:
 
 
 
 
 
Commercial
34,419

1,301

38,305

5,667

1,999

Real estate





Construction





Consumer

767




Leases

319




Total charge-offs
34,419

2,387

38,305

5,667

1,999

Recoveries:
 
 
 
 
 
Commercial
1,399

389

320

360

1,019

Real estate
26

11

8

24

1

Construction





Consumer
360

10

9

59

14

Leases
1

12

1

19

1

Total recoveries
1,786

422

338

462

1,035

Net charge-offs
32,633

1,965

37,967

5,205

964

Provision for loan losses
33,849

13,175

26,165

11,448

2,690

Ending balance
$
191,522

$
190,306

$
179,096

$
190,898

$
184,655

 
 
 
 
 
 
Allowance for off-balance sheet credit losses:
 
 
 
 
 
Beginning balance
$
10,283

$
10,458

$
9,623

$
9,071

$
9,761

Provision for off-balance sheet credit losses
1,151

(175
)
835

552

(690
)
Ending balance
$
11,434

$
10,283

$
10,458

$
9,623

$
9,071

 
 
 
 
 
 
Total allowance for credit losses
$
202,956

$
200,589

$
189,554

$
200,521

$
193,726

 
 
 
 
 
 
Total provision for credit losses
$
35,000

$
13,000

$
27,000

$
12,000

$
2,000

 
 
 
 
 
 
Allowance for loan losses to LHI
0.85
%
0.86
%
0.80
%
0.93
%
0.89
%
Allowance for loan losses to LHI excluding mortgage finance loans(2)
1.15
%
1.15
%
1.08
%
1.21
%
1.20
%
Allowance for loan losses to average LHI
0.88
%
0.87
%
0.86
%
0.98
%
0.92
%
Allowance for loan losses to average LHI excluding mortgage finance loans(2)
1.15
%
1.17
%
1.13
%
1.24
%
1.23
%
Net charge-offs to average LHI(1)
0.60
%
0.04
%
0.73
%
0.11
%
0.02
%
Net charge-offs to average LHI excluding mortgage finance loans(1)(2)
0.78
%
0.05
%
0.96
%
0.14
%
0.03
%
Net charge-offs to average LHI for last twelve months(1)
0.37
%
0.22
%
0.28
%
0.15
%
0.16
%
Net charge-offs to average LHI, excluding mortgage finance loans, for last twelve months(1)(2)
0.48
%
0.29
%
0.36
%
0.20
%
0.21
%
Total provision for credit losses to average LHI(1)
0.64
%
0.24
%
0.52
%
0.25
%
0.04
%
Total provision for credit losses to average LHI excluding mortgage finance loans(1)(2)
0.83
%
0.32
%
0.68
%
0.32
%
0.05
%
Total allowance for credit losses to LHI
0.90
%
0.91
%
0.84
%
0.98
%
0.94
%
Total allowance for credit losses to LHI, excluding mortgage finance loans(2)
1.22
%
1.21
%
1.15
%
1.27
%
1.26
%
(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 NON-PERFORMING ASSETS AND PAST DUE LOANS
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
4th Quarter
 
2018
2018
2018
2018
2017
 
 
 
 
 
 
Non-performing assets (NPAs):
 
 
 
 
 
Non-accrual loans
$
80,375

$
107,532

$
83,295

$
123,542

$
101,444

Other real estate owned (OREO)
79

79

9,526

9,558

11,742

Total LHI NPAs
$
80,454

$
107,611

$
92,821

$
133,100

$
113,186

 
 
 
 
 
 
Non-accrual loans to LHI
0.36
%
0.49
%
0.37
%
0.60
%
0.49
%
Non-accrual loans to LHI excluding mortgage finance loans(1)
0.48
%
0.65
%
0.50
%
0.78
%
0.66
%
Total LHI NPAs to LHI plus OREO
0.36
%
0.49
%
0.41
%
0.65
%
0.55
%
Total LHI NPAs to LHI excluding mortgage finance loans plus OREO(1)
0.48
%
0.65
%
0.56
%
0.85
%
0.74
%
Total LHI NPAs to earning assets
0.29
%
0.41
%
0.35
%
0.56
%
0.47
%
Allowance for loan losses to non-accrual loans
2.4x

1.8x

2.2x

1.5x

1.8x

 
 
 
 
 
 
Loans past due 90 days and still accruing(2)
$
9,353

$
11,295

$
7,357

$
13,563

$
8,429

 
 
 
 
 
 
Loans past due 90 days to LHI
0.04
%
0.05
%
0.03
%
0.07
%
0.04
%
Loans past due 90 days to LHI excluding mortgage finance loans(1)
0.06
%
0.07
%
0.04
%
0.09
%
0.05
%
 
 
 
 
 
 
LHS past due 90 days and still accruing(3)
$
16,829

$
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 December 31, 2018, loans past due 90 days and still accruing includes premium finance loans of $9.2 million. These loans are primarily secured by obligations of insurance carriers to refund premiums on canceled 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 our balance sheet regardless of whether the repurchase option has been exercised.

8





TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
 
 
 
 
 
 
 
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
4th Quarter
 
2018
2018
2018
2018
2017
Interest income
 
 
 
 
 
Interest and fees on loans
$
310,470

$
291,189

$
279,447

$
243,864

$
238,906

Investment securities
1,274

1,161

193

206

213

Federal funds sold and securities purchased under resale agreements
984

1,018

745

1,045

936

Interest-bearing deposits in other banks
8,990

8,386

6,467

8,754

9,464

Total interest income
321,718

301,754

286,852

253,869

249,519

Interest expense
 
 
 
 
 
Deposits
61,773

52,034

39,607

31,702

27,625

Federal funds purchased
2,097

1,800

1,665

969

723

Other borrowings
11,726

10,317

8,484

5,680

5,380

Subordinated notes
4,191

4,191

4,191

4,191

4,191

Trust preferred subordinated debentures
1,258

1,237

1,193

1,027

951

Total interest expense
81,045

69,579

55,140

43,569

38,870

Net interest income
240,673

232,175

231,712

210,300

210,649

Provision for credit losses
35,000

13,000

27,000

12,000

2,000

Net interest income after provision for credit losses
205,673

219,175

204,712

198,300

208,649

Non-interest income
 
 
 
 
 
Service charges on deposit accounts
3,168

3,477

3,005

3,137

3,109

Wealth management and trust fee income
2,152

2,065

2,007

1,924

1,767

Brokered loan fees
5,408

6,141

5,815

5,168

5,692

Servicing income
2,861

4,987

4,967

5,492

5,270

Swap fees
1,356

1,355

1,352

1,562

586

Gain/(Loss) on sale of LHS
(8,087
)
(444
)
(5,230
)
(2,173
)
(1,055
)
Other
8,422

7,937

5,363

4,837

4,005

Total non-interest income
15,280

25,518

17,279

19,947

19,374

Non-interest expense
 
 
 
 
 
Salaries and employee benefits
69,500

77,327

72,404

72,537

70,192

Net occupancy expense
7,390

8,362

7,356

7,234

6,749

Marketing
10,208

10,214

10,236

8,677

8,438

Legal and professional
13,042

10,764

11,654

7,530

8,756

Communications and technology
8,845

7,435

7,143

6,633

6,590

FDIC insurance assessment
5,423

6,524

6,257

6,103

6,710

Servicing related expenses
2,555

4,207

4,367

3,805

7,177

Allowance and other carrying costs for OREO
7

(1,864
)
176

2,155

6,122

Other
12,892

13,174

12,538

12,286

12,404

Total non-interest expense
129,862

136,143

132,131

126,960

133,138

Income before income taxes
91,091

108,550

89,860

91,287

94,885

Income tax expense
19,200

22,998

18,424

19,342

50,143

Net income
71,891

85,552

71,436

71,945

44,742

Preferred stock dividends
2,437

2,438

2,437

2,438

2,437

Net income available to common shareholders
$
69,454

$
83,114

$
68,999

$
69,507

$
42,305



9




TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands)
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
4th 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
$
23,977

$
259

4.29
%
 
$
24,221

$
191

3.14
%
 
$
24,514

$
193

3.15
%
 
$
23,854

$
206

3.50
%
 
$
23,678

$
213

3.57
%
Investment securities - Non-taxable(2)
93,394

1,285

5.46
%
 
91,298

1,228

5.33
%
 


%
 


%
 


%
Federal funds sold and securities purchased under resale agreements
173,654

984

2.25
%
 
203,972

1,018

1.98
%
 
166,613

745

1.79
%
 
261,641

1,045

1.62
%
 
292,544

936

1.27
%
Interest-bearing deposits in other banks
1,585,763

8,990

2.25
%
 
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
%
LHS, at fair value
2,049,395

24,407

4.72
%
 
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
%
LHI, mortgage finance loans
5,046,540

47,305

3.72
%
 
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
%
LHI(1)(2)
16,643,559

239,995

5.72
%
 
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
%
Less allowance for loan
       losses
182,814



 
179,227



 
189,238



 
184,238



 
183,233



LHI, net of allowance
21,507,285

287,300

5.30
%
 
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
%
Total earning assets
25,433,468

323,225

5.04
%
 
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
%
Cash and other assets
828,156

 
 
 
877,954

 
 
 
808,099

 
 
 
797,506

 
 
 
766,622

 
 
Total assets
$
26,261,624

 
 
 
$
25,975,915

 
 
 
$
24,606,237

 
 
 
$
23,912,613

 
 
 
$
25,080,825

 
 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
$
3,233,960

$
15,150

1.86
%
 
$
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
%
Savings deposits
8,354,332

36,913

1.75
%
 
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
%
Time deposits
1,886,016

9,710

2.04
%
 
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
%
Total interest bearing deposits
13,474,308

61,773

1.82
%
 
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
%
Other borrowings
2,290,520

13,823

2.39
%
 
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
%
Subordinated notes
281,708

4,191

5.90
%
 
281,619

4,191

5.90
%
 
281,527

4,191

5.97
%
 
281,437

4,191

6.04
%
 
281,348

4,191

5.91
%
Trust preferred subordinated debentures
113,406

1,258

4.40
%
 
113,406

1,237

4.33
%
 
113,406

1,193

4.22
%
 
113,406

1,027

3.67
%
 
113,406

951

3.33
%
Total interest bearing liabilities
16,159,942

81,045

1.99
%
 
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
%
Demand deposits
7,462,392

 
 
 
7,940,503

 
 
 
8,017,578

 
 
 
8,147,721

 
 
 
9,085,819

 
 
Other liabilities
157,278

 
 
 
116,302

 
 
 
100,074

 
 
 
110,698

 
 
 
138,050

 
 
Stockholders’ equity
2,482,012

 
 
 
2,395,562

 
 
 
2,325,755

 
 
 
2,255,852

 
 
 
2,202,683

 
 
Total liabilities and stockholders’ equity
$
26,261,624

 
 
 
$
25,975,915

 
 
 
$
24,606,237

 
 
 
$
23,912,613

 
 
 
$
25,080,825

 
 
Net interest income(2)
 
$
242,180

 
 
 
$
233,835

 
 
 
$
233,102

 
 
 
$
211,666

 
 
 
$
212,766

 
Net interest margin
 


3.78
%
 
 
 
3.70
%
 
 
 
3.93
%
 
 
 
3.71
%
 
 
 
3.47
%
(1)
The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income.
(2)
Taxable equivalent rates used where applicable.

10

(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2 EARNINGS PRESENTATION)

q42018earningswebcast
TCBI Q4 2018 Earnings January 23, 2019


 
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


 
Leveraging Our Success “Providing a premier and differentiated client experience to companies in high-value business segments that desire a broad relationship with the Bank” 2017-2018 2007-2013 • Established multiple new products (e.g., ABL, Franchise) and began • Navigated Great Recession prepared to development of new deposit-rich capitalize on market opportunities verticals • Positioned Mortgage Warehouse and • Initiated national treasury-led Builder Finance business to become industry vertical products industry leaders 2014-2016 • Celebrated 20th anniversary • Established Syndicated Finance capability and launched Inflection Point and holistic Treasury & Liquidity strategy • Diversified into mortgage • Surpassed $10B in assets correspondent aggregation and began re-engineering private wealth offering • Launched capital markets-focused capability 2003 • Initiated data strategy investments to improve operational efficiency and • Houston office opened support core management capabilities • Reached $2B in assets • Navigated energy downturn • Successful IPO completed 1998-2000 • Formed the Bank on December 18, 1998 • Establishes offices in three of the five major Texas metros (Dallas, Ft Worth, Austin) 3


 
Opening Remarks & Financial Highlights Total Loans Total Deposits Net Income EPS ROE ROA Operating HFI Results $22.6 billion $20.6 billion $71.9 million $1.38 11.82% 1.09% • Net interest income grew 4% from Q3-2018 and 14% from Q4-2017 Net Interest Income • Net interest margin increased 8 bps from 3.70% at Q3-2018 to 3.78% due to increase in yield on earning assets and Margin • LIBOR movement reflected in core LHI yields; stabilized mortgage finance yields • Average LHI, excluding MFLs, growth of 2% from Q3-2018 ($311.9 million); 11% from Q4-2017 ($1.6 billion) Balance Sheet • Average MFLs increased 2% from Q3-2018 ($167.6 million); 14% from Q4-2017 ($849.7 million) Growth • Average total deposits increased 1% from Q3-2018 ($143.3 million); 2% from Q4-2017 ($444.1 million) M • Net revenue decreased 1% from Q3-2018 and increased 11% from Q4-2017 Operating • Non-interest expense decreased 5% from Q3-2018 and decreased 2% from Q4-2017 Leverage • Improvement in full year operating leverage as compared to 2017; net revenue up 19% and non-interest expense up 13% • NCOs / average total LHI of .37% for full year 2018 compared to .16% for full year 2017 Credit • Small number of deals that were previously identified, primarily leveraged Quality • Non-accrual loans / total LHI of .36%, compared to .49% in both Q3-2018 and Q4-2017 4


 
Energy and Leveraged Lending Update Energy Outstandings 12/31/18 Energy • Outstanding energy loans represented 8% of total loans, or $1.8 3% billion, at Q4-2018 compared to 6%, or $1.3 billion, at Q4-2017 Total E&P • Non-accruals totaled $37.5 million at Q4-2018 compared to $65.2 3% 10% million at Q4-2017 Total Midstream • Criticized energy loans totaled $83.4 million (5% of outstanding energy loans) at Q4-2018 compared to $93.3 million (7%) at Q4- 8% Total Salt Water 1% Disposal 2017 Total Subscription • Allocated reserves of $36.7 million represents 2% of outstanding energy loans 75% Total Service • By continuing to move up market, and thereby working with larger, well capitalized borrowers, we experienced significant loan growth Total Other in 2018 with an emphasis on oil concentrations primarily in the Permian Basin. C&I Leveraged C&I Leveraged Outstandings 12/31/18 • Outstanding C&I leveraged loans represented 4% of total loans, or $1.2 billion, at Q4-2018 compared to 6%, or $1.1 billion, at Q4-2017 • Non-accruals totaled $28.8 million (2% of outstanding C&I 9% Accommodation and Food Services leveraged loans) at Q4-2018, compared to $30.1 million (3%) at Q4- 7% 2017 Arts, Entertainment, and Recreation • Criticized loans totaled $151.0 million (12% of outstanding C&I 37% leveraged loans) at Q4-2018, compared to $104.0 million (9%) at Manufacturing Q4-2017; increase primarily in special mention 23% Professional, Scientific, and Technical • Allocated reserves of $62.6 million represents 5% of outstanding Services C&I leveraged loans Wholesale Trade 11% • No significant concentration in any industry; NCOs in 2018 were in 13% the health care and quick serve restaurant (QSR) industries Other Services - includes 11 industries, • all individually 5% or less Senior leverage greater than 3.0x and total leverage greater than 4.0x, slightly over 50% of the portfolio at Q4-2018 5


 
Mortgage Finance Core Strengths • Technology investments have allowed for scalability • Historically low credit risk • Strong funding opportunities • Other product offerings developed to serve the industry • Commitment to clients in the industry allow for increased market share Efficiency Earnings & Combined Yield 6.0 50.0% 60 45.0% 13.50% 5.0 5.4 50 4.0 40.0% 3.8 3.5 5.1 5.0 4.0 4.9 49.7 11.50% 35.0% 47.1 47.3 4.0 40 44.5 3.4 30.0% 4.1 9.50% 37.4 3.0 25.0% 30 7.50% 15.0% 20.0% 2.0 12.1% 12.2% 20 12.1% 15.0% 5.50% 9.2% 3.77% 4.04% 4.16% 3.91% 3.99% 10.0% Income ($M) 1.0 10 3.50% 5.0% AvgBalance ($B) 0.0% 0.0 0 1.50% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 1M LIBOR* 1.34% 1.66% 1.97% 2.11% 2.35% MFLs Efficiency Ratio Interest Income Fees (NIR) Combined Yield *Average of quarter’s daily 1M LIBOR rates 6


 
Net Interest Income & Margin Earning Asset & Margin Trends Quarterly Change NII ($MM) NIM (%) 4.40% $25.0 $232.2 Q3 2018 3.70% $1.9 $2.0 10.1 Increase in LHI yields .16 $1.7 $23.6 $3.2 $23.1 4.20% $2.6 1.3 Increase in MF loan yields .02 $22.1 $21.1 .6 Increase in LHS yields .01 $20.0 $20.5 3.93% 4.00% .1 Decrease in liquidity .01 (8.6) Increase in funding costs (.13) 3.78% $15.0 3.71% 3.70% 3.80% Increase in MF & LHI loan 5.0 - balances - Other .01 Portfolio Balances Balances ($B) Portfolio 3.60% 3.47% $10.0 240.7 Q4 2018 3.78% 3.40% NIM Highlights • LIBOR moves reflected in traditional LHI yields $5.0 • Mortgage finance yields stabilized in Q4-2018 3.20% • Rate of increase in total funding costs declined 1 bp from Q3-2018; increase of 16 bps during Q4-2018 compared to 17 bps during Q3-2018 $- 3.00% • No significant impact from earning asset shifts Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total Loans Other Earning Assets NIM 7


 
Loan Growth Average Balance Trends ($B) Total Loan Composition ($24.5Billion at 12/31/18) $24.0 8.00% 7.80% Business Assets $22.0 $6.9 7.60% 29% $6.4 $7.1 7.40% $20.0 $6.2 $5.3 7.20% Energy $18.0 7.00% 6.80% 5% $16.0 $16.6 6.60% $15.9 $16.3 6.40% Highly Liquid $14.0 $15.4 Unsecured $15.0 6.20% 4% Assets 6.00% 1% $12.0 5.72% 5.80% Owner Occupied 5.47% 5.48% 5.60% R/E $10.0 5% 5.14% 5.40% PortfolioBalances ($B) $8.0 4.89% 5.20% Residential R/E 5.00% Mkt. Risk $6.0 4.80% 5% 4.60% $4.0 4.40% 4.20% $2.0 Total Mortgage 4.00% Comml R/E Mkt. Finance $- 3.80% Risk 32% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 15% Other Assets LHI (excl. MFLs) Total MFLs LHI (excl. MFL) Yield 4% Growth Highlights • Growth in average traditional LHI; up $311.9 million (2%) from Q3-2018 and $1.6 billion (11%) from Q4-2017 • Modest growth in traditional LHI at end of the quarter; period-end balance $47.0 million higher than Q4-2018 average balance • Increase in average total MFL balances of $167.6 million (2%) from Q3-2018 and $849.7 million (14%) from Q4-2017 • Average total MFLs represent 30% of average total loans at Q4-2018 compared to 30% in Q3-2018 and 32% at period end 8


 
Deposit Growth Average Balance Trends ($B) Funding Costs 1.40% $22.0 1.23% $20.0 $9.1 $7.9 $7.5 1.20% $8.0 1.07% $18.0 $8.1 1.17% 1.00% $16.0 0.90% 0.99% $14.0 0.80% 0.74% $12.0 $13.5 $12.9 0.62% 0.81% $11.7 $10.0 $11.4 $11.3 0.60% 0.66% Deposit Balances ($B) Balances Deposit $8.0 0.53% 0.40% $6.0 $4.0 0.20% $2.0 $- 0.00% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Interest-Bearing Deposits DDAs Avg Cost of Deposits Total Funding Costs Growth Highlights • Deposit costs increased 18 bps during Q4-2018 and total funding costs increased 16 bps; compared to increases of 18 bps and 17 bps, respectively, in Q3-2018 • Slight increase in linked quarter average deposits with growth in interest-bearing • Continued focus on cost-effective deposit growth with new verticals and core client relationships • No meaningful change in deposit betas observed during Q4-2018 9


 
Non-interest Expense Quarterly Change Annual Change Increase/ Increase/ Non-interest expense ($MM) (Decrease) Non-interest expense ($MM) (Decrease) Q3 2018 $136.1 YTD 2017 $465.9 Salaries and employee benefits – FAS 123R Salaries and employee benefits – FAS 123R (includes stock price changes) (3.1) (includes stock price changes) (5.1) Salaries and employee benefits – non-LTI Salaries and employee benefits – non-LTI incentives and annual incentive pool (1.2) incentives and annual incentive pool 5.8 Salaries and employee benefits – FICA and Salaries and employee benefits – severance 4.1 seasonal payroll related items (1.9) Salaries and employee benefits – continued Salaries and employee benefits – severance (2.0) build out 22.7 Salaries and employee benefits – salaries only .4 Legal and professional 13.3 Legal and professional 2.3 Marketing 12.5 OREO related costs 1.9 OREO related costs (6.0) All other – includes occupancy, marketing, All other – includes occupancy, technology, technology, FDIC insurance assessment and FDIC assessment and servicing related servicing related expenses (2.6) expenses 11.9 Q4 2018 $129.9 YTD 2018 $525.1 NIE - Efficiency • Full year 2018 efficiency ratio (excluding OREO expenses) of 52.9% compared to prior year of 55.0%; 50.7% for Q4-2018 compared to 53.6% for Q3-2018 • Slowing of core operating expense growth in 2018 establishing a lower baseline for further moderation of growth in 2019 10


 
Asset Quality Allowance for Credit Losses NCO/Average Total LHI $220.0 3.5x 3.4x3.5x 3.4x3.3x 1.40% $200.0 3.3x 3.2x $200.5 $200.6 $203.0 3.2x 3.1x $180.0 $193.7 $189.6 3.x 1.20% 2.9x3.x 2.8x2.9x $160.0 2.8x 2.7x 2.6x2.7x 1.00% 2.6x $140.0 2.4x 2.5x 2.4x2.5x 2.2x 2.3x2.4x $120.0 2.3x 0.80% 2.2x 1.8x 2.1x $100.0 2.x 0.60% ALLL ALLL ($M) 1.8x 1.9x 1.8x1.9x $80.0 1.5x 1.8x 1.7x 0.37% 1.6x 0.40% $60.0 1.5x 0.29% 1.5x1.4x 1.3x1.4x 0.16% $40.0 1.2x1.3x 0.20% 1.2x 0.05% 0.07% 1.1x $20.0 1.x 1.x .9x 0.00% .8x $- .8x 2014 2015 2016 2017 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 ALLL ALLL to Non-accrual Loans Combined Criticized Loans as % of Total LHI Reserves/ .76% .90% 1.03% .94% .90% $500.0 5.00% Total LHI $442.1 $400.0 4.00% Asset Quality Highlights $369.6 $364.0 $359.6 • Credit cost of $35.0 million for Q4-2018, compared to $11.0 million ($13.0 $339.1 $300.0 3.00% million provision, net $2.0 million reversal of OREO valuation allowance) in Q3-2018 and $8.1 million ($2.0 million provision, $6.1 million OREO 1.96% write-down) in Q4-2017 1.81% 1.62% $200.0 1.64% 1.63% 2.00% • NCOs $32.6 million, or 60 bps of average total LHI, in Q4-2018 compared Criticized Loans Criticized Loans ($M) to $2.0 million, or 4 bps, in Q3-2018 and 2 bps in Q4-2017 $100.0 1.00% • Q4-2018 NCOs related to small number of deals; previously identified • NPL ratio decreased to .36% of total LHI compared to Q3-2018 • Criticized levels remain low and favorable to industry levels $- 0.00% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Criticized Loans Criticized Loans as a % of Total LHI 11


 
Performance Summary - Quarterly (in thousands) Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Net interest income $ 240,673 $ 232,175 $ 231,712 $ 210,300 $ 210,649 Non-interest income 15,280 25,518 17,279 19,947 19,374 Net revenue 255,953 257,693 248,991 230,247 230,023 Provision for credit losses 35,000 13,000 27,000 12,000 2,000 OREO write-down - (2,000) - 2,000 6,111 Non-interest expense 129,862 138,143 132,131 124,960 127,027 Income before income taxes 91,091 108,550 89,860 91,287 94,885 Income tax expense 19,200 22,998 18,424 19,342 50,143 Net income 71,891 85,552 71,436 71,945 44,742 Preferred stock dividends 2,437 2,438 2,437 2,438 2,437 Net income available to common shareholders $ 69,454 $ 83,114 $ 68,999 $ 69,507 $ 42,305 Diluted EPS $ 1.38 $ 1.65 $ 1.38 $ 1.38 $ .84 Net interest margin 3.78% 3.70% 3.93% 3.71% 3.47% ROA 1.09% 1.31% 1.16% 1.22% .71% ROE 11.82% 14.68% 12.72% 13.39% 8.18% ROE, excl. DTA write-off 11.82% 14.68% 12.72% 13.39% 11.58% Efficiency 50.7% 52.8% 53.1% 55.1% 57.9% Efficiency, excl. OREO write-down 50.7% 53.6% 53.1% 54.3% 55.2% 12


 
Performance Summary - Annual (in thousands) 2018 2017 2016 2015 2014 Net interest income $ 914,860 $ 761,328 $ 639,814 $ 556,530 $ 476,965 Non-interest income 78,024 74,256 60,780 47,738 42,511 Net revenue 992,884 835,584 700,594 604,268 519,476 Provision for credit losses 87,000 44,000 77,000 53,250 22,000 OREO write-down - 6,111 - - - Non-interest expense 525,096 459,765 382,397 326,523 285,114 Income before income taxes 380,788 325,708 241,197 224,495 212,362 Income tax expense 79,964 128,645 86,078 79,641 76,010 Net income 300,824 197,063 155,119 144,854 136,352 Preferred stock dividends 9,750 9,750 9,750 9,750 9,750 Net income available to common shareholders $ 291,074 $ 187,313 $ 145,369 $ 135,104 $ 126,602 Diluted EPS $ 5.79 $ 3.73 $ 3.11 $ 2.91 $ 2.88 Net interest margin 3.78% 3.49% 3.14% 3.14% 3.78% ROA 1.19% .87% .74% .79% 1.05% ROE 13.14% 9.51% 9.27% 9.65% 11.31% ROE, excl. DTA write-off 13.14% 10.41% 9.27% 9.65% 11.31% Efficiency 52.9% 55.8% 54.6% 54.0% 54.9% Efficiency, excl. OREO write-down 52.9% 55.0% 54.6% 54.0% 54.9% 13


 
2019 Outlook Business 2019 Outlook v. 2018 Results Driver Average LHI High single digit percent growth Average LHI – Low single digit percent growth Mortgage Finance Loans held for sale $1.9 billion average (MCA) Average Deposits Mid to high single digit percent growth Net Revenue High single digit percent growth Net Interest 3.75% to 3.85% Margin Provision Expense Mid to high $80 million level NIE Mid single digit percent growth Efficiency Ratio Low-50s 14


 
Long-term Outlook Rising-Rate Financial Goals Benefit ~ 10 bps ROA > 1.3% ~1.5% ROCE > 15% (~1.5%) Efficiency Ratio < 50% Fed Fund Target Max Reaches 3.50% Key Assumptions • Continuation of current economic conditions, allowing the Bank to capitalize on Inflection Point initiatives of growing higher return businesses and limiting investments in lower return or non-strategic portfolios • Despite more potential volatility in provision, NCOs remain 20-25 bps of average total LHI • Mortgage Finance brand strengthens and relationships expand, despite additional growth headwinds generated by point in rate cycle • Lower-cost, lower-beta deposit verticals achieve growth and ROI targets • Product enhancements and expanded offerings maintain non-interest income contribution to total revenue, even amidst ex-liquidity NIM expansion • Internal investments yield efficiency benefits and allow Bank to maintain moderate overhead growth over the horizon • Bank remains committed to efficient use of shareholder capital and maintaining liquidity at appropriate levels 15


 
Closing Comments • Inflection Point focuses on further differentiating our reputation for premium client service in the market • Solid traditional LHI growth in 2018, with further risk appropriate growth levels in 2019 • Deposit initiatives launched in 2018 and continued roll-out in 2019 to improve funding mix and cost of funding • Level of loan loss provisioning provided in guidance to ensure we’re strengthening our balance sheet late cycle • Targeted approach in slowing pace of NIE growth, as we continue improving efficiencies through technology and better processes • Record earnings in 2018 with fundamentals in place for continued earnings growth in 2019 16


 
Q&A 17


 
Appendix 18


 
Average Balances, Yields & Rates - Quarterly (in thousands) Q4 2018 Q3 2018 Q4 2017 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 117,371 5.22% $ 115,519 4.87% $ 23,678 3.57% Liquidity assets 1,759,417 2.25% 1,901,759 1.96% 3,217,486 1.28% Loans held for sale 2,049,395 4.72% 1,484,459 4.62% 1,144,124 3.99% LHI, mortgage finance 5,046,540 3.72% 5,443,829 3.62% 5,102,107 3.46% LHI 16,643,559 5.72% 16,331,622 5.48% 15,010,041 4.89% Total LHI, net of reserve 21,507,285 5.30% 21,596,224 5.06% 19,928,915 4.57% Total earning assets 25,433,468 5.04% 25,097,961 4.80% 24,314,203 4.11% Total assets $26,261,624 $25,975,915 $25,080,825 Liabilities and Stockholders’ Equity Total interest bearing deposits $13,474,308 1.82% $12,852,883 1.61% $11,406,769 .96% Other borrowings 2,290,520 2.39% 2,275,640 2.11% 1,852,750 1.31% Total long-term debt 395,114 5.47% 395,025 5.45% 394,754 5.17% Total interest bearing liabilities 16,159,942 1.99% 15,523,548 1.78% 13,654,273 1.13% Demand deposits 7,462,392 7,940,503 9,085,819 Total deposits 20,936,700 1.17% 20,793,386 .99% 20,492,588 .53% Stockholders’ equity 2,482,012 2,395,562 2,202,683 Total liabilities and stockholders’ equity $26,261,624 1.23% $25,975,915 1.07% $25,080,825 .62% Net interest margin 3.78% 3.70% 3.47% Total deposits and borrowed funds $23,227,220 1.29% $23,069,026 1.10% $22,345,338 .60% 19


 
Average Balances, Yields & Rates - Annual (in thousands) 2018 2017 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 70,695 4.75% $ 51,806 2.06% Liquidity assets 1,970,310 1.85% 2,953,040 1.08% Loans held for sale 1,561,530 4.56% 1,016,144 3.85% LHI, mortgage finance 4,875,860 3.72% 4,136,653 3.46% LHI 16,705,007 5.46% 14,040,965 4.77% Total LHI, net of reserve 20,767,004 5.10% 18,003,513 4.52% Total earning assets 24,369,539 4.80% 22,024,503 4.02% Total assets $25,197,689 $22,704,848 Liabilities and Stockholders’ Equity Total interest bearing deposits $12,323,299 1.50% $10,133,206 .79% Other borrowings 2,102,404 2.03% 1,618,238 1.10% Total long-term debt 394,980 5.44% 394,619 5.16% Total interest bearing liabilities 14,820,683 1.68% 12,146,063 .97% Demand deposits 7,890,304 8,320,650 Total deposits 20,213,603 18,453,856 Stockholders’ equity 2,365,449 2,119,191 Total liabilities and stockholders’ equity $25,197,689 .99% $22,704,848 .52% Net interest margin 3.78% 3.49% Total deposits and borrowed funds $22,316,007 1.02% $20,072,094 .49% 20


 
Average Balance Sheet - Quarterly (in thousands) QTD Average Q4/Q3 % YOY % Q4 2018 Q3 2018 Q4 2017 Change Change Total assets $26,261,624 $25,975,915 $25,080,825 1% 5% Loans held for sale 2,049,395 1,484,459 1,144,124 38% 79% Loans held for investment 16,643,559 16,331,622 15,010,041 2% 11% Loans held for investment, mortgage 5,046,540 5,443,829 5,102,107 finance (7)% (1)% Total loans held for investment 21,690,099 21,775,451 20,112,148 0% 8% Total loans 23,739,494 23,259,910 21,256,272 2% 12% Liquidity assets 1,759,417 1,901,759 3,217,486 (7)% (45)% Demand deposits 7,462,392 7,940,503 9,085,819 (6)% (18)% Total deposits 20,936,700 20,793,386 20,492,588 1% 2% Stockholders’ equity 2,482,012 2,395,562 2,202,683 4% 13% 21


 
Period End Balance Sheet (in thousands) Period End Q4/Q3 % YOY % Q4 2018 Q3 2018 Q4 2017 Change Change Total assets $28,257,767 $27,127,107 $25,075,645 4% 13% Loans held for sale 1,969,474 1,651,930 1,011,004 19% 95% Loans held for investment 16,690,550 16,569,538 15,366,252 1% 9% Loans held for investment, mortgage 5,877,524 5,477,787 5,308,160 7% 11% finance Total loans held for investment 22,568,074 22,047,325 20,674,412 2% 9% Total loans 24,537,548 23,699,255 21,685,416 4% 13% Liquidity assets 2,865,874 2,615,570 2,727,581 10% 5% Demand deposits 7,317,161 7,031,460 7,812,660 4% (6)% Total deposits 20,606,113 20,385,637 19,123,180 1% 8% Stockholders’ equity 2,500,394 2,426,442 2,202,721 3% 14% 22


 
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