8-K
TEXAS CAPITAL BANCSHARES INC/TX (TCBI)
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 Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 2020
TEXAS CAPITAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-34657 | 75-2679109 |
|---|---|---|
| (State or other jurisdiction of<br><br>incorporation) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>Identification Number) |
2000 McKinney Avenue, Suite 700, Dallas, Texas, U.S.A.
(Address of principal executive offices)
75201
(Zip Code)
Registrant's telephone number, including area code: (214)
932-6600
N/A
(Former name or former address, if changed since last report)
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)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | TCBI | Nasdaq Stock Market |
| 6.50% Non-Cumulative Perpetual Preferred Stock Series A, par value $0.01 per share | TCBIP | Nasdaq Stock Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 April 22, 2020, Texas Capital Bancshares, Inc. issued a press release and made available presentation slides regarding its operating and financial results for its fiscal quarter ended March 31, 2020. 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 April 22, 2020 announcing Texas Capital Bancshares, Inc.'s operating and financial results for its fiscal quarter ended March 31, 2020 |
| --- | --- |
| 99.2 | Presentation dated April 22, 2020 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal quarter ended March 31, 2020 |
| --- | --- |
Forward Looking Statements
This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and the future performance of TCBI. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. 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 volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and loan losses, volatility in the mortgage industry, our business strategies, and our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for loan losses and provision for credit losses, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies, the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between IBTX and TCBI, the outcome of any legal proceedings that may be instituted against IBTX or TCBI, delays in completing the transaction, the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where IBTX and TCBI do business, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, the ability to complete the transaction and integration of IBTX and TCBI successfully. 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, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, TCBI disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
Additional Information about the Merger and Where to Find It
In connection with the proposed merger between IBTX and TCBI, IBTX filed a registration statement on Form S-4 with the SEC to register the shares of IBTX’s capital stock to be issued in connection with the merger. The registration statement includes a joint proxy statement/prospectus. The registration statement has not yet become effective. After the Form S-4 is effective, a definitive joint proxy statement/prospectus will be sent to the shareholders of IBTX and TCBI seeking their approval of the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THESE DOCUMENTS DO AND WILL CONTAIN IMPORTANT INFORMATION ABOUT IBTX, TCBI AND THE PROPOSED TRANSACTION.
Investors and security holders may obtain copies of these documents free of charge through the website maintained by the SEC at www.sec.gov or from IBTX at its website, www.ibtx.com, or from TCBI at its website, www.texascapitalbank.com. Documents filed with the SEC by IBTX will be available free of charge by accessing the Investor Relations page of IBTX’s website at www.ibtx.com or, alternatively, by directing a request by telephone or mail to Independent Bank Group, Inc., 7777 Henneman Way, McKinney, Texas 75070, (972) 562-9004, and documents filed with the SEC by TCBI will be available free of charge by accessing TCBI’s website at www.texascapitalbank.com under the tab “About Us,” and then under the heading “Investor Relations” or, alternatively, by directing a request by telephone or mail to Texas Capital Bancshares, Inc., 2000 McKinney Avenue, Suite 700, Dallas, Texas 75201, (214) 932-6600.
Participants in the Solicitation
IBTX, TCBI and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of IBTX and TCBI in connection with the proposed transaction under the rules of the SEC. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Additional information about IBTX, and its directors and executive officers, may be found in IBTX’s annual report on Form 10-K filed with the SEC on March 2, 2020, as amended by IBTX’s Form 10-K/A filed with the SEC on March 6, 2020, and other documents filed by IBTX with the SEC. Additional information about TCBI, and its directors and executive officers, may be found in TCBI’s annual report on Form 10-K filed with the SEC on February 12, 2020, as amended by TCBI’s Form 10-K/A filed with the SEC on March 2, 2020, and other documents filed by TCBI with the SEC. These documents can be obtained free of charge from the sources described above.
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: | April 22, 2020 | TEXAS CAPITAL BANCSHARES, INC. | |
|---|---|---|---|
| By: | /s/ Julie Anderson | ||
| Julie Anderson<br>Chief Financial Officer |
Exhibit
Exhibit 99.1
INVESTOR CONTACT
Julie Anderson, 214.932.6773
julie.anderson@texascapitalbank.com
MEDIA CONTACT
Shannon Wherry, 469.399.8527
shannon.wherry@texascapitalbank.com
TEXAS CAPITAL BANCSHARES, INC. ANNOUNCES OPERATING RESULTS FOR Q1 2020
DALLAS - April 22, 2020 - Texas Capital Bancshares, Inc. (NASDAQ: TCBI), the parent company of Texas Capital Bank, announced operating results for the first quarter of 2020.
"Our focus during this unprecedented time is on keeping our employees safe and continuing to serve our clients and communities," said Keith Cargill, CEO. "We have taken deliberate actions to ensure that our balance sheet remains strong, including increases in liquidity and reserves supported by a strong capital position. We remain committed to a timely closing of our pending merger with Independent Bank Group and believe our combined strength will enable us to better serve our clients and build long-term shareholder value."
| • | Strong balance sheet positioning in the first quarter of 2020 included deliberate increases in liquidity and funding sources to support current and future client needs. |
|---|---|
| • | Over 90% of employees working virtually since early March with little to no impact on client experience. |
| --- | --- |
| • | Net loss of $16.7 million ($0.38 per share) reported for the first quarter of 2020 attributable to a $96.0 million ($1.50 per share) provision for credit losses driven by the adoption of CECL on January 1, 2020, coupled with increases in charge-offs and criticized loans and reserve build related to the global COVID-19 pandemic, MSR impairment of $10.0 million ($0.16 per share) and merger-related expenses of $7.3 million ($0.11 per share). |
| --- | --- |
FINANCIAL SUMMARY
(Dollars and shares in thousands)
| Q1 2020 | Q1 2019 | % Change | ||||||
|---|---|---|---|---|---|---|---|---|
| QUARTERLY OPERATING RESULTS | ||||||||
| Net income/(loss) | $ | (16,687 | ) | $ | 82,839 | (120 | )% | |
| Net income/(loss) available to common stockholders | $ | (19,125 | ) | $ | 80,401 | (124 | )% | |
| Diluted earnings/(loss) per common share | $ | (0.38 | ) | $ | 1.60 | (124 | )% | |
| Diluted common shares | 50,475 | 50,345 | — | % | ||||
| ROA | (0.20 | )% | 1.26 | % | ||||
| ROE | (2.85 | )% | 13.58 | % | ||||
| BALANCE SHEET | ||||||||
| LHS | $ | 774,064 | $ | 1,901,637 | (59 | )% | ||
| LHI, mortgage finance | 7,588,803 | 6,299,710 | 20 | % | ||||
| LHI | 16,857,579 | 17,061,590 | (1 | )% | ||||
| Total LHI | 24,446,382 | 23,361,300 | 5 | % | ||||
| Total loans | 25,220,446 | 25,262,937 | — | % | ||||
| Total assets | 35,879,416 | 28,383,111 | 26 | % | ||||
| Demand deposits | 9,420,303 | 6,743,607 | 40 | % | ||||
| Total deposits | 27,134,263 | 20,650,127 | 31 | % | ||||
| Stockholders’ equity | 2,803,533 | 2,581,942 | 9 | % |
DETAILED FINANCIALS
During the first quarter of 2020, all of us have faced an unprecedented time as our country deals with the health challenges of COVID-19. Actions by US federal, state and foreign governments to address the pandemic, including travel bans and school, business and entertainment venue closures, have resulted in economic weakness and market volatility. Significant uncertainties as to future economic conditions exist, and we have acted in a deliberate way to ensure that we have the balance sheet strength to serve our clients. Our actions include record levels of on balance sheet liquidity and increased capital ratio levels. Additionally, the economic pressures, coupled with the implementation of an expected loss methodology as required by CECL have contributed to an increased provision for credit losses for the first quarter of 2020. We are more committed than ever to meeting the demands of our clients. We have responded quickly and nimbly to address changing economic pressures and our infrastructure has been resilient in dealing with the many demands of a dispersed workforce. Just as we were able to make quick and deliberate decisions to address near-term challenges, we will be equally ready when the world returns to more normal times and we will capitalize on the lessons learned from these unprecedented times.
For the first quarter of 2020, we reported a net loss of $16.7 million and net loss available to common stockholders of $19.1 million, compared to net income of $82.8 million and net income available to common stockholders of $80.4 million for the same period in 2019. On a fully diluted basis, earnings/(loss) per common share were $(0.38) for the quarter ended March 31, 2020 compared to $1.60 for the same period of 2019. The decline in net income for the first quarter of 2020 resulted primarily from a $76.0 million increase in the provision for credit losses. The first quarter of 2020 also includes $10.0 million in MSR impairment ($0.16 per share) and $7.3 million ($0.11 per share) in merger-related expenses.
During the first quarter of 2020, we adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which replaces the incurred loss methodology with an expected loss methodology that is referred to as the Current Expected Credit Loss ("CECL") methodology. Upon adoption, the allowance for credit losses was increased by $9.1 million, with no impact to the consolidated statement of income. We recorded a $96.0 million provision for credit losses for the first quarter of 2020 utilizing the newly adopted CECL methodology, a significant increase from prior quarters. The increase resulted primarily from increases in criticized loans and charge-offs, as well as the impact of reserve build related to the COVID-19 pandemic. Of the $96.0 million provision, $55.0 million related to two large energy loans that were previously identified as problem loans that experienced further deterioration during the first quarter of 2020 exacerbated by the sharp decline in commodity prices, and approximately $30.0 million related to COVID-19 reserve build. In total, $1.8 billion of loans in categories that are expected to be more significantly impacted by COVID-19 were proactively downgraded, primarily to lower pass-rated grades. We recorded $57.7 million in net charge-offs during the first quarter of 2020, including $37.3 million in energy charge-offs and $15.6 million in leveraged lending charge-offs, all of which were loans that have been previously identified, compared to $12.8 million during the fourth quarter of 2019 and $4.6 million during the first quarter of 2019. Criticized loans totaled $675.9 million at March 31, 2020, compared to $584.1 million at December 31, 2019 and $602.8 million at March 31, 2019.
Non-performing assets ("NPAs") totaled $219.2 million at March 31, 2020, a decrease of $6.2 million compared to the fourth quarter of 2019 and an increase of $85.5 million compared to the first quarter of 2019. The year-over-year increase is primarily related to our energy and leveraged lending portfolios, with non-accrual energy loans and non-accrual leveraged lending loans totaling $151.9 million (69% of total NPAs) and $50.0 million (23% of total NPAs), respectively, at March 31, 2020. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the first quarter of 2020 was 0.90 percent, compared to 0.91 percent for the fourth quarter of 2019 and 0.57 percent for the first quarter of 2019.
Net interest income was $228.3 million for the first quarter of 2020, compared to $248.4 million for the fourth quarter of 2019 and $235.6 million for the first quarter of 2019. The linked quarter decrease in net interest income was due primarily to decreases in yields on loans and liquidity assets, as well as a decrease in average total loans, partially offset by a decrease in funding costs. Net interest margin for the first quarter of 2020 was 2.78 percent, a decrease of 17 basis points from the fourth quarter of 2020 and a decrease of 95 basis points from the first quarter of 2019. LHI yields, excluding mortgage finance loans, decreased 27 basis points from the fourth quarter of 2019, and decreased 93 basis points compared to the first quarter of 2019. Mortgage finance LHI yields for the first quarter of 2020 decreased 3 basis points compared to the fourth quarter of 2019 and decreased 66 basis points compared to the first quarter of 2019. The shift in earning assets, primarily the increase in liquidity assets, also contributed to the decrease in net interest margin. Total cost of deposits for the first quarter of 2020 decreased 9 basis points to 0.90 percent compared to 0.99 percent for the fourth quarter of 2019, and decreased 43 basis points from 1.33 percent for the first quarter of 2019.
Non-interest income decreased $6.0 million, or 34 percent, during the first quarter of 2020 compared to the fourth quarter of 2019, and decreased $18.2 million, or 61 percent, compared to the first quarter of 2019. The linked quarter decrease is primarily related to decreases in net gain/(loss) on sale of LHS and other non-interest income, partially offset by an increase in swap fees. The year-over-year decrease is primarily related to decreases in net gain/(loss) on sale of LHS and other non-interest income, partially offset by increases in brokered loan fees, servicing income and swap fees.
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Non-interest expense for the first quarter of 2020 increased $6.7 million, or 4 percent, compared to the fourth quarter of 2019, and increased $25.0 million, or 18 percent, compared to the first quarter of 2019. The linked quarter increase in non-interest expense was primarily related to increases in servicing-related expenses and merger-related expenses, partially offset by decreases in salaries and employee benefits, marketing and legal and professional expenses. The year-over-year increase was primarily due to increases in legal and professional and communications and technology expenses, as well as servicing-related expenses and merger-related expenses, partially offset by a decrease in marketing expense.
Texas Capital Bank is well capitalized under regulatory guidelines as of March 31, 2020. Our CET 1, tier 1 capital, total capital and leverage ratios were 9.3%, 10.2%, 12.0% and 8.5%, respectively, at March 31, 2020, compared to 8.9%, 9.8%, 11.4% and 8.4%, respectively, at December 31, 2019. At March 31, 2020, our ratio of tangible common equity to total tangible assets was 7.3% percent compared 8.2% at December 31, 2019.
About Texas Capital Bancshares, Inc.
Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 1000® Index and the S&P MidCap 400®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and entrepreneurs. Headquartered in Dallas, the bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio. On December 9, 2019, Texas Capital Bancshares, Inc. (“TCBI”), announced that it had entered into an Agreement and Plan of Merger with Independent Bank Group, Inc. (“IBTX”), which provides that, upon the terms and subject to the conditions set forth therein, TCBI will merge with and into IBTX (the “Merger”), with IBTX as the surviving entity in the Merger. For additional information see the related filings by TCBI with the Securities and Exchange Commission (“SEC”).
Forward Looking Statements
This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and the future performance of TCBI. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. 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 volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and credit losses, volatility in the mortgage industry, our business strategies, and our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for credit losses and provision for credit losses, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies, the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between IBTX and TCBI, the outcome of any legal proceedings that may be instituted against IBTX or TCBI, delays in completing the transaction, the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where IBTX and TCBI do business, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, the ability to complete the transaction and integration of IBTX and TCBI successfully. 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, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, TCBI disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.
3
Additional Information About the Merger and Where to Find It
In connection with the proposed merger between IBTX and TCBI, IBTX filed a registration statement on Form S-4 with the SEC to register the shares of IBTX’s capital stock to be issued in connection with the merger. The registration statement includes a joint proxy statement/prospectus. The registration statement has not yet become effective. After the Form S-4 is effective, a definitive joint proxy statement/prospectus will be sent to the shareholders of IBTX and TCBI seeking their approval of the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THESE DOCUMENTS DO AND WILL CONTAIN IMPORTANT INFORMATION ABOUT IBTX, TCBI AND THE PROPOSED TRANSACTION.
Investors and security holders may obtain copies of these documents free of charge through the website maintained by the SEC at www.sec.gov or from IBTX at its website, www.ibtx.com, or from TCBI at its website, www.texascapitalbank.com. Documents filed with the SEC by IBTX will be available free of charge by accessing the Investor Relations page of IBTX’s website at www.ibtx.com or, alternatively, by directing a request by telephone or mail to Independent Bank Group, Inc., 7777 Henneman Way, McKinney, Texas 75070, (972) 562-9004, and documents filed with the SEC by TCBI will be available free of charge by accessing TCBI’s website at www.texascapitalbank.com under the tab “About Us,” and then under the heading “Investor Relations” or, alternatively, by directing a request by telephone or mail to Texas Capital Bancshares, Inc., 2000 McKinney Avenue, Suite 700, Dallas, Texas 75201, (214) 932-6600.
Participants in the Solicitation
IBTX, TCBI and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of IBTX and TCBI in connection with the proposed transaction under the rules of the SEC. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Additional information about IBTX, and its directors and executive officers, may be found in IBTX’s annual report on Form 10-K filed with the SEC on March 2, 2020, as amended by IBTX’s Form 10-K/A filed with the SEC on March 6, 2020, and other documents filed by IBTX with the SEC. Additional information about TCBI, and its directors and executive officers, may be found in TCBI’s annual report on Form 10-K filed with the SEC on February 12, 2020, as amended by TCBI’s Form 10-K/A filed with the SEC on March 2, 2020, and other documents filed by TCBI with the SEC. These documents can be obtained free of charge from the sources described above.
4
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| Interest income | $ | 306,008 | $ | 337,757 | $ | 355,101 | $ | 346,893 | $ | 325,561 | |||||
| Interest expense | 77,689 | 89,372 | 102,933 | 103,340 | 89,947 | ||||||||||
| Net interest income | 228,319 | 248,385 | 252,168 | 243,553 | 235,614 | ||||||||||
| Provision for credit losses | 96,000 | 17,000 | 11,000 | 27,000 | 20,000 | ||||||||||
| Net interest income after provision for credit losses | 132,319 | 231,385 | 241,168 | 216,553 | 215,614 | ||||||||||
| Non-interest income | 11,780 | 17,761 | 20,301 | 24,364 | 30,014 | ||||||||||
| Non-interest expense | 165,417 | 158,690 | 149,370 | 141,561 | 140,378 | ||||||||||
| Income/(loss) before income taxes | (21,318 | ) | 90,456 | 112,099 | 99,356 | 105,250 | |||||||||
| Income tax expense/(benefit) | (4,631 | ) | 16,539 | 23,958 | 21,387 | 22,411 | |||||||||
| Net income/(loss) | (16,687 | ) | 73,917 | 88,141 | 77,969 | 82,839 | |||||||||
| Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | ||||||||||
| Net income/(loss) available to common stockholders | $ | (19,125 | ) | $ | 71,480 | $ | 85,703 | $ | 75,532 | $ | 80,401 | ||||
| Diluted earnings/(loss) per common share | $ | (0.38 | ) | $ | 1.42 | $ | 1.70 | $ | 1.50 | $ | 1.60 | ||||
| Diluted common shares | 50,474,802 | 50,461,723 | 50,416,402 | 50,383,870 | 50,345,399 | ||||||||||
| CONSOLIDATED BALANCE SHEET DATA | |||||||||||||||
| Total assets | $ | 35,879,416 | $ | 32,548,069 | $ | 33,526,437 | $ | 29,970,384 | $ | 28,383,111 | |||||
| LHI | 16,857,579 | 16,476,413 | 16,772,824 | 16,924,535 | 17,061,590 | ||||||||||
| LHI, mortgage finance | 7,588,803 | 8,169,849 | 7,951,432 | 7,415,363 | 6,299,710 | ||||||||||
| LHS | 774,064 | 2,577,134 | 2,674,225 | 1,057,586 | 1,901,637 | ||||||||||
| Liquidity assets^(1)^ | 9,498,189 | 4,263,766 | 4,993,185 | 3,480,902 | 2,154,155 | ||||||||||
| Investment securities | 228,784 | 239,871 | 238,022 | 240,851 | 230,749 | ||||||||||
| Demand deposits | 9,420,303 | 9,438,459 | 10,289,572 | 7,685,340 | 6,743,607 | ||||||||||
| Total deposits | 27,134,263 | 26,478,593 | 27,413,303 | 22,999,077 | 20,650,127 | ||||||||||
| Other borrowings | 5,195,267 | 2,541,766 | 2,639,967 | 3,607,234 | 4,497,892 | ||||||||||
| Subordinated notes | 282,219 | 282,129 | 282,038 | 281,948 | 281,858 | ||||||||||
| Long-term debt | 113,406 | 113,406 | 113,406 | 113,406 | 113,406 | ||||||||||
| Stockholders’ equity | 2,803,533 | 2,832,258 | 2,757,433 | 2,668,452 | 2,581,942 | ||||||||||
| End of period shares outstanding | 50,407,778 | 50,337,741 | 50,317,654 | 50,297,552 | 50,263,611 | ||||||||||
| Book value | $ | 52.64 | $ | 53.29 | $ | 51.82 | $ | 50.07 | $ | 48.38 | |||||
| Tangible book value^(2)^ | $ | 52.28 | $ | 52.93 | $ | 51.46 | $ | 49.71 | $ | 48.02 | |||||
| SELECTED FINANCIAL RATIOS | |||||||||||||||
| Net interest margin | 2.78 | % | 2.95 | % | 3.16 | % | 3.41 | % | 3.73 | % | |||||
| Return on average assets | (0.20 | )% | 0.85 | % | 1.06 | % | 1.05 | % | 1.26 | % | |||||
| Return on average common equity | (2.85 | )% | 10.68 | % | 13.22 | % | 12.20 | % | 13.58 | % | |||||
| Non-interest income to average earning assets | 0.14 | % | 0.21 | % | 0.25 | % | 0.34 | % | 0.47 | % | |||||
| Efficiency ratio^(3)^ | 68.9 | % | 59.6 | % | 54.8 | % | 52.8 | % | 52.8 | % | |||||
| Efficiency ratio, adjusted^(4)^ | 65.8 | % | 57.7 | % | 51.2 | % | 49.5 | % | 50.1 | % | |||||
| Non-interest expense to average earning assets | 2.00 | % | 1.87 | % | 1.86 | % | 1.97 | % | 2.21 | % | |||||
| Tangible common equity to total tangible assets^(5)^ | 7.3 | % | 8.2 | % | 7.7 | % | 8.3 | % | 8.5 | % | |||||
| Common Equity Tier 1 | 9.3 | % | 8.9 | % | 8.6 | % | 8.7 | % | 8.6 | % | |||||
| Tier 1 capital | 10.2 | % | 9.8 | % | 9.5 | % | 9.6 | % | 9.6 | % | |||||
| Total capital | 12.0 | % | 11.4 | % | 11.1 | % | 11.3 | % | 11.4 | % | |||||
| Leverage | 8.5 | % | 8.4 | % | 8.6 | % | 9.2 | % | 10.0 | % | |||||
| (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) | Non-interest expense, excluding deposit-related marketing fees and servicing related expenses, divided by the sum of net interest income and non-interest income, net of deposit-related marketing fees and servicing related expenses. Deposit-related marketing fees totaled $5.2 million, $9.4 million, $11.9 million, $11.6 million and $9.1 million for the first quarter of 2020, as well as the fourth, third, second and first quarters of 2019, respectively. | ||||||||||||||
| --- | --- | ||||||||||||||
| (5) | 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. | ||||||||||||||
| --- | --- |
5
| TEXAS CAPITAL BANCSHARES, INC. | |||||||
|---|---|---|---|---|---|---|---|
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
| (Dollars in thousands) | |||||||
| March 31, 2019 | %<br><br>Change | ||||||
| Assets | |||||||
| Cash and due from banks | 162,386 | $ | 177,137 | (8 | )% | ||
| Interest-bearing deposits | 2,129,155 | 345 | % | ||||
| Federal funds sold and securities purchased under resale agreements | 25,000 | 20 | % | ||||
| Securities, available-for-sale | 230,749 | (1 | )% | ||||
| LHS, at fair value | 1,901,637 | (59 | )% | ||||
| LHI, mortgage finance | 6,299,710 | 20 | % | ||||
| LHI (net of unearned income) | 17,061,590 | (1 | )% | ||||
| Less: Allowance for credit losses on loans | 208,573 | 16 | % | ||||
| LHI, net | 23,152,727 | 5 | % | ||||
| Mortgage servicing rights, net | 44,088 | 60 | % | ||||
| Premises and equipment, net | 24,200 | 23 | % | ||||
| Accrued interest receivable and other assets | 679,966 | 31 | % | ||||
| Goodwill and intangibles, net | 18,452 | (3 | )% | ||||
| Total assets | 35,879,416 | $ | 28,383,111 | 26 | % | ||
| Liabilities and Stockholders’ Equity | |||||||
| Liabilities: | |||||||
| Deposits: | |||||||
| Non-interest bearing | 9,420,303 | $ | 6,743,607 | 40 | % | ||
| Interest bearing | 13,906,520 | 27 | % | ||||
| Total deposits | 20,650,127 | 31 | % | ||||
| Accrued interest payable | 24,488 | (31 | )% | ||||
| Other liabilities | 233,398 | 43 | % | ||||
| Federal funds purchased and repurchase agreements | 897,892 | (67 | )% | ||||
| Other borrowings | 3,600,000 | 36 | % | ||||
| Subordinated notes, net | 281,858 | — | % | ||||
| Trust preferred subordinated debentures | 113,406 | — | % | ||||
| Total liabilities | 25,801,169 | 28 | % | ||||
| Stockholders’ equity: | |||||||
| Preferred stock, .01 par value, 1,000 liquidation value: | |||||||
| Authorized shares - 10,000,000 | |||||||
| Issued shares - 6,000,000 shares issued at March 31, 2020 and 2019 | 150,000 | — | % | ||||
| Common stock, .01 par value: | |||||||
| Authorized shares - 100,000,000 | |||||||
| Issued shares - 50,408,195 and 50,264,028 at March 31, 2020 and 2019, respectively | 503 | — | % | ||||
| Additional paid-in capital | 969,079 | 1 | % | ||||
| Retained earnings | 1,461,893 | 14 | % | ||||
| Treasury stock (shares at cost: 417 at March 31, 2020 and 2019) | ) | (8 | ) | — | % | ||
| Accumulated other comprehensive income, net of taxes | 475 | N/M | |||||
| Total stockholders’ equity | 2,581,942 | 9 | % | ||||
| Total liabilities and stockholders’ equity | 35,879,416 | $ | 28,383,111 | 26 | % |
All values are in US Dollars.
6
| TEXAS CAPITAL BANCSHARES, INC. | ||||||
|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||
| (Dollars in thousands except per share data) | ||||||
| Three Months Ended March 31, | ||||||
| 2020 | 2019 | |||||
| Interest income | ||||||
| Interest and fees on loans | $ | 283,625 | $ | 312,703 | ||
| Investment securities | 2,183 | 1,460 | ||||
| Federal funds sold and securities purchased under resale agreements | 614 | 379 | ||||
| Interest-bearing deposits in other banks | 19,586 | 11,019 | ||||
| Total interest income | 306,008 | 325,561 | ||||
| Interest expense | ||||||
| Deposits | 62,174 | 69,054 | ||||
| Federal funds purchased | 669 | 3,516 | ||||
| Other borrowings | 9,582 | 11,854 | ||||
| Subordinated notes | 4,191 | 4,191 | ||||
| Trust preferred subordinated debentures | 1,073 | 1,332 | ||||
| Total interest expense | 77,689 | 89,947 | ||||
| Net interest income | 228,319 | 235,614 | ||||
| Provision for credit losses | 96,000 | 20,000 | ||||
| Net interest income after provision for credit losses | 132,319 | 215,614 | ||||
| Non-interest income | ||||||
| Service charges on deposit accounts | 3,293 | 2,979 | ||||
| Wealth management and trust fee income | 2,467 | 2,009 | ||||
| Brokered loan fees | 8,015 | 5,066 | ||||
| Servicing income | 4,746 | 2,734 | ||||
| Swap fees | 2,757 | 1,031 | ||||
| Net gain/(loss) on sale of LHS | (13,000 | ) | (505 | ) | ||
| Other | 3,502 | 16,700 | ||||
| Total non-interest income | 11,780 | 30,014 | ||||
| Non-interest expense | ||||||
| Salaries and employee benefits | 76,667 | 77,823 | ||||
| Net occupancy expense | 8,712 | 7,879 | ||||
| Marketing | 8,460 | 11,708 | ||||
| Legal and professional | 17,466 | 10,030 | ||||
| Communications and technology | 13,608 | 9,198 | ||||
| FDIC insurance assessment | 5,849 | 5,122 | ||||
| Servicing-related expenses | 16,354 | 5,382 | ||||
| Merger-related expenses | 7,270 | — | ||||
| Other | 11,031 | 13,236 | ||||
| Total non-interest expense | 165,417 | 140,378 | ||||
| Income/(loss) before income taxes | (21,318 | ) | 105,250 | |||
| Income tax expense/(benefit) | (4,631 | ) | 22,411 | |||
| Net income/(loss) | (16,687 | ) | 82,839 | |||
| Preferred stock dividends | 2,438 | 2,438 | ||||
| Net income/(loss) available to common stockholders | $ | (19,125 | ) | $ | 80,401 | |
| Basic earnings/(loss) per common share | $ | (0.38 | ) | $ | 1.60 | |
| Diluted earnings/(loss) per common share | $ | (0.38 | ) | $ | 1.60 |
7
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF CREDIT LOSS EXPERIENCE | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||
| Allowance for credit losses on loans: | |||||||||||||||
| Beginning balance | $ | 195,047 | $ | 190,138 | $ | 214,572 | $ | 208,573 | $ | 191,522 | |||||
| Impact of CECL adoption | 8,585 | — | — | — | — | ||||||||||
| Loans charged-off: | |||||||||||||||
| Commercial | 20,653 | 13,968 | 21,124 | 4,880 | 4,865 | ||||||||||
| Energy | 37,730 | 797 | 16,655 | 15,173 | — | ||||||||||
| Real estate | — | — | — | 177 | — | ||||||||||
| Total charge-offs | 58,383 | 14,765 | 37,779 | 20,230 | 4,865 | ||||||||||
| Recoveries: | |||||||||||||||
| Commercial | 257 | 1,754 | 799 | 224 | 277 | ||||||||||
| Energy | 423 | 209 | 107 | — | — | ||||||||||
| Real estate | — | — | — | — | — | ||||||||||
| Total recoveries | 680 | 1,963 | 906 | 224 | 277 | ||||||||||
| Net charge-offs | 57,703 | 12,802 | 36,873 | 20,006 | 4,588 | ||||||||||
| Provision for credit losses on loans | 95,029 | 17,711 | 12,439 | 26,005 | 21,639 | ||||||||||
| Ending balance | $ | 240,958 | $ | 195,047 | $ | 190,138 | $ | 214,572 | $ | 208,573 | |||||
| Allowance for off-balance sheet credit losses: | |||||||||||||||
| Beginning balance | $ | 8,640 | $ | 9,351 | $ | 10,790 | $ | 9,795 | $ | 11,434 | |||||
| Impact of CECL adoption | 563 | — | — | — | — | ||||||||||
| Provision for off-balance sheet credit losses | 971 | (711 | ) | (1,439 | ) | 995 | (1,639 | ) | |||||||
| Ending balance | $ | 10,174 | $ | 8,640 | $ | 9,351 | $ | 10,790 | $ | 9,795 | |||||
| Total allowance for credit losses | $ | 251,132 | $ | 203,687 | $ | 199,489 | $ | 225,362 | $ | 218,368 | |||||
| Total provision for credit losses | $ | 96,000 | $ | 17,000 | $ | 11,000 | $ | 27,000 | $ | 20,000 | |||||
| Allowance for credit losses on loans to LHI | 0.99 | % | 0.79 | % | 0.77 | % | 0.88 | % | 0.89 | % | |||||
| Allowance for credit losses on loans to average LHI | 1.02 | % | 0.79 | % | 0.76 | % | 0.90 | % | 0.96 | % | |||||
| Net charge-offs to average LHI^(1)^ | 0.98 | % | 0.21 | % | 0.58 | % | 0.34 | % | 0.09 | % | |||||
| Net charge-offs to average LHI for last twelve months^(1)^ | 0.53 | % | 0.31 | % | 0.41 | % | 0.27 | % | 0.36 | % | |||||
| Total provision for credit losses to average LHI^(1)^ | 1.63 | % | 0.27 | % | 0.17 | % | 0.45 | % | 0.37 | % | |||||
| Total allowance for credit losses to LHI | 1.03 | % | 0.83 | % | 0.81 | % | 0.93 | % | 0.93 | % | |||||
| (1) | Interim period ratios are annualized. | ||||||||||||||
| --- | --- |
8
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||
| Non-performing assets (NPAs): | |||||||||||||||
| Non-accrual loans | $ | 219,165 | $ | 225,384 | $ | 120,686 | $ | 114,084 | $ | 133,690 | |||||
| Other real estate owned (OREO) | — | — | — | — | — | ||||||||||
| Total LHI NPAs | $ | 219,165 | $ | 225,384 | $ | 120,686 | $ | 114,084 | $ | 133,690 | |||||
| Non-accrual loans to LHI | 0.90 | % | 0.91 | % | 0.49 | % | 0.47 | % | 0.57 | % | |||||
| Total LHI NPAs to LHI plus OREO | 0.90 | % | 0.91 | % | 0.49 | % | 0.47 | % | 0.57 | % | |||||
| Total LHI NPAs to earning assets | 0.63 | % | 0.71 | % | 0.37 | % | 0.39 | % | 0.49 | % | |||||
| Allowance for credit losses on loans to non-accrual loans | 1.1x | .9x | 1.6x | 1.9x | 1.6x | ||||||||||
| Loans past due 90 days and still accruing^(1)^ | $ | 21,274 | $ | 17,584 | $ | 29,648 | $ | 15,212 | $ | 12,245 | |||||
| Loans past due 90 days to LHI | 0.09 | % | 0.07 | % | 0.12 | % | 0.06 | % | 0.05 | % | |||||
| LHS past due 90 days and still accruing^(2)^ | $ | 9,014 | $ | 8,207 | $ | 9,187 | $ | 11,665 | $ | 13,693 | |||||
| (1) | At March 31, 2020, loans past due 90 days and still accruing includes premium finance loans of $8.6 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. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | 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. | ||||||||||||||
| --- | --- |
9
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 1st Quarter | 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||
| Interest income | |||||||||||||||
| Interest and fees on loans | $ | 283,625 | $ | 312,147 | $ | 329,344 | $ | 329,842 | $ | 312,703 | |||||
| Investment securities | 2,183 | 2,618 | 2,316 | 2,260 | 1,460 | ||||||||||
| Federal funds sold and securities purchased under resale agreements | 614 | 439 | 554 | 157 | 379 | ||||||||||
| Interest-bearing deposits in other banks | 19,586 | 22,553 | 22,887 | 14,634 | 11,019 | ||||||||||
| Total interest income | 306,008 | 337,757 | 355,101 | 346,893 | 325,561 | ||||||||||
| Interest expense | |||||||||||||||
| Deposits | 62,174 | 70,987 | 80,967 | 72,529 | 69,054 | ||||||||||
| Federal funds purchased | 669 | 1,319 | 1,835 | 5,202 | 3,516 | ||||||||||
| Other borrowings | 9,582 | 11,712 | 14,703 | 20,124 | 11,854 | ||||||||||
| Subordinated notes | 4,191 | 4,191 | 4,191 | 4,191 | 4,191 | ||||||||||
| Trust preferred subordinated debentures | 1,073 | 1,163 | 1,237 | 1,294 | 1,332 | ||||||||||
| Total interest expense | 77,689 | 89,372 | 102,933 | 103,340 | 89,947 | ||||||||||
| Net interest income | 228,319 | 248,385 | 252,168 | 243,553 | 235,614 | ||||||||||
| Provision for credit losses | 96,000 | 17,000 | 11,000 | 27,000 | 20,000 | ||||||||||
| Net interest income after provision for credit losses | 132,319 | 231,385 | 241,168 | 216,553 | 215,614 | ||||||||||
| Non-interest income | |||||||||||||||
| Service charges on deposit accounts | 3,293 | 2,785 | 2,707 | 2,849 | 2,979 | ||||||||||
| Wealth management and trust fee income | 2,467 | 2,342 | 2,330 | 2,129 | 2,009 | ||||||||||
| Brokered loan fees | 8,015 | 8,645 | 8,691 | 7,336 | 5,066 | ||||||||||
| Servicing income | 4,746 | 4,030 | 3,549 | 3,126 | 2,734 | ||||||||||
| Swap fees | 2,757 | 1,559 | 1,196 | 601 | 1,031 | ||||||||||
| Net gain/(loss) on sale of LHS | (13,000 | ) | (7,757 | ) | (6,011 | ) | (5,986 | ) | (505 | ) | |||||
| Other | 3,502 | 6,157 | 7,839 | 14,309 | 16,700 | ||||||||||
| Total non-interest income | 11,780 | 17,761 | 20,301 | 24,364 | 30,014 | ||||||||||
| Non-interest expense | |||||||||||||||
| Salaries and employee benefits | 76,667 | 80,262 | 80,106 | 76,889 | 77,823 | ||||||||||
| Net occupancy expense | 8,712 | 9,075 | 8,125 | 7,910 | 7,879 | ||||||||||
| Marketing | 8,460 | 12,807 | 14,753 | 14,087 | 11,708 | ||||||||||
| Legal and professional | 17,466 | 21,032 | 11,394 | 10,004 | 10,030 | ||||||||||
| Communications and technology | 13,608 | 13,801 | 10,805 | 11,022 | 9,198 | ||||||||||
| FDIC insurance assessment | 5,849 | 5,613 | 5,220 | 4,138 | 5,122 | ||||||||||
| Servicing-related expenses | 16,354 | 2,960 | 8,165 | 6,066 | 5,382 | ||||||||||
| Merger-related expenses | 7,270 | 1,370 | — | — | — | ||||||||||
| Other | 11,031 | 11,770 | 10,802 | 11,445 | 13,236 | ||||||||||
| Total non-interest expense | 165,417 | 158,690 | 149,370 | 141,561 | 140,378 | ||||||||||
| Income/(loss) before income taxes | (21,318 | ) | 90,456 | 112,099 | 99,356 | 105,250 | |||||||||
| Income tax expense/(benefit) | (4,631 | ) | 16,539 | 23,958 | 21,387 | 22,411 | |||||||||
| Net income/(loss) | (16,687 | ) | 73,917 | 88,141 | 77,969 | 82,839 | |||||||||
| Preferred stock dividends | 2,438 | 2,437 | 2,438 | 2,437 | 2,438 | ||||||||||
| Net income/(loss) available to common shareholders | $ | (19,125 | ) | $ | 71,480 | $ | 85,703 | $ | 75,532 | $ | 80,401 |
10
| TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QUARTERLY FINANCIAL SUMMARY - UNAUDITED | ||||||||||||||||||||||||||||||
| Consolidated Daily Average Balances, Average Yields and Rates | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 1st Quarter 2020 | 4th Quarter 2019 | 3rd Quarter 2019 | 2nd Quarter 2019 | 1st Quarter 2019 | ||||||||||||||||||||||||||
| Average<br><br>Balance | Revenue/<br><br>Expense | Yield/<br><br>Rate | Average<br><br>Balance | Revenue/<br><br>Expense | Yield/<br><br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br>Expense | Yield/<br>Rate | ||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||
| Investment securities - Taxable | $ | 42,799 | $ | 274 | 2.57 | % | $ | 40,904 | $ | 693 | 6.72 | % | $ | 39,744 | $ | 357 | 3.56 | % | $ | 38,887 | $ | 287 | 2.96 | % | $ | 30,625 | $ | 274 | 3.62 | % |
| Investment securities - Non-taxable^(2)^ | 195,578 | 2,417 | 4.97 | % | 197,591 | 2,437 | 4.89 | % | 200,090 | 2,480 | 4.92 | % | 192,115 | 2,498 | 5.21 | % | 114,341 | 1,501 | 5.33 | % | ||||||||||
| Federal funds sold and securities purchased under resale agreements | 199,727 | 614 | 1.24 | % | 102,320 | 439 | 1.70 | % | 100,657 | 554 | 2.18 | % | 28,436 | 157 | 2.22 | % | 63,652 | 379 | 2.41 | % | ||||||||||
| Interest-bearing deposits in other banks | 6,225,948 | 19,586 | 1.27 | % | 5,387,000 | 22,553 | 1.66 | % | 4,184,217 | 22,887 | 2.17 | % | 2,491,827 | 14,634 | 2.36 | % | 1,823,106 | 11,019 | 2.45 | % | ||||||||||
| LHS, at fair value | 3,136,381 | 27,480 | 3.52 | % | 3,567,836 | 33,411 | 3.72 | % | 2,555,269 | 26,206 | 4.07 | % | 2,494,883 | 27,607 | 4.44 | % | 2,122,302 | 25,303 | 4.84 | % | ||||||||||
| LHI, mortgage finance loans | 7,054,682 | 55,324 | 3.15 | % | 7,870,888 | 63,114 | 3.18 | % | 8,118,025 | 68,660 | 3.36 | % | 7,032,963 | 63,523 | 3.62 | % | 4,931,879 | 46,368 | 3.81 | % | ||||||||||
| LHI^(1)(2)^ | 16,598,775 | 201,781 | 4.89 | % | 16,667,259 | 216,686 | 5.16 | % | 16,901,391 | 235,557 | 5.53 | % | 16,781,733 | 239,829 | 5.73 | % | 16,866,456 | 242,155 | 5.82 | % | ||||||||||
| Less allowance for credit<br><br>losses on loans | 201,837 | — | — | 189,353 | — | — | 212,898 | — | — | 206,654 | — | — | 192,122 | — | — | |||||||||||||||
| LHI, net of allowance | 23,451,620 | 257,105 | 4.41 | % | 24,348,794 | 279,800 | 4.56 | % | 24,806,518 | 304,217 | 4.87 | % | 23,608,042 | 303,352 | 5.15 | % | 21,606,213 | 288,523 | 5.42 | % | ||||||||||
| Total earning assets | 33,252,053 | 307,476 | 3.72 | % | 33,644,445 | 339,333 | 4.00 | % | 31,886,495 | 356,701 | 4.44 | % | 28,854,190 | 348,535 | 4.84 | % | 25,760,239 | 326,999 | 5.15 | % | ||||||||||
| Cash and other assets | 976,520 | 974,866 | 1,000,117 | 940,793 | 894,797 | |||||||||||||||||||||||||
| Total assets | $ | 34,228,573 | $ | 34,619,311 | $ | 32,886,612 | $ | 29,794,983 | $ | 26,655,036 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Transaction deposits | $ | 3,773,067 | $ | 13,582 | 1.45 | % | $ | 3,817,294 | $ | 16,428 | 1.71 | % | $ | 3,577,905 | $ | 18,442 | 2.04 | % | $ | 3,475,404 | $ | 18,037 | 2.08 | % | $ | 3,263,976 | $ | 16,001 | 1.99 | % |
| Savings deposits | 11,069,429 | 35,961 | 1.31 | % | 11,111,326 | 40,603 | 1.45 | % | 10,331,078 | 45,586 | 1.75 | % | 8,896,537 | 40,994 | 1.85 | % | 8,751,200 | 41,673 | 1.93 | % | ||||||||||
| Time deposits | 2,842,535 | 12,631 | 1.79 | % | 2,453,655 | 13,956 | 2.26 | % | 2,706,434 | 16,939 | 2.48 | % | 2,227,460 | 13,498 | 2.43 | % | 2,010,476 | 11,380 | 2.30 | % | ||||||||||
| Total interest bearing deposits | 17,685,031 | 62,174 | 1.41 | % | 17,382,275 | 70,987 | 1.62 | % | 16,615,417 | 80,967 | 1.93 | % | 14,599,401 | 72,529 | 1.99 | % | 14,025,652 | 69,054 | 2.00 | % | ||||||||||
| Other borrowings | 3,020,255 | 10,251 | 1.37 | % | 2,822,465 | 13,031 | 1.83 | % | 2,896,477 | 16,538 | 2.27 | % | 4,018,231 | 25,326 | 2.53 | % | 2,412,254 | 15,370 | 2.58 | % | ||||||||||
| Subordinated notes | 282,165 | 4,191 | 5.97 | % | 282,074 | 4,191 | 5.89 | % | 281,979 | 4,191 | 5.90 | % | 281,889 | 4,191 | 5.96 | % | 281,799 | 4,191 | 6.03 | % | ||||||||||
| Trust preferred subordinated debentures | 113,406 | 1,073 | 3.80 | % | 113,406 | 1,163 | 4.07 | % | 113,406 | 1,237 | 4.33 | % | 113,406 | 1,294 | 4.58 | % | 113,406 | 1,332 | 4.76 | % | ||||||||||
| Total interest bearing liabilities | 21,100,857 | 77,689 | 1.48 | % | 20,600,220 | 89,372 | 1.72 | % | 19,907,279 | 102,933 | 2.05 | % | 19,012,927 | 103,340 | 2.18 | % | 16,833,111 | 89,947 | 2.17 | % | ||||||||||
| Demand deposits | 10,003,495 | 10,933,887 | 9,992,406 | 7,929,266 | 7,047,120 | |||||||||||||||||||||||||
| Other liabilities | 270,868 | 278,964 | 264,506 | 220,305 | 223,142 | |||||||||||||||||||||||||
| Stockholders’ equity | 2,853,353 | 2,806,240 | 2,722,421 | 2,632,485 | 2,551,663 | |||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 34,228,573 | $ | 34,619,311 | $ | 32,886,612 | $ | 29,794,983 | $ | 26,655,036 | ||||||||||||||||||||
| Net interest income^(2)^ | $ | 229,787 | $ | 249,961 | $ | 253,768 | $ | 245,195 | $ | 237,052 | ||||||||||||||||||||
| Net interest margin | 2.78 | % | 2.95 | % | 3.16 | % | 3.41 | % | 3.73 | % | ||||||||||||||||||||
| (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. | |||||||||||||||||||||||||||||
| --- | --- |
11
earnings1qfinal
Q1-2020 Earnings April 22, 2020
Forward Looking Statements This communication may be deemed to include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and the future performance of TCBI. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “forecast,” “could,” “projects,” “intend” and similar expressions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. 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 volatility in oil and gas prices, the material risks and uncertainties for the U.S. and world economies, and for our business, resulting from the COVID-19 pandemic, expectations regarding rates of default and credit losses, volatility in the mortgage industry, our business strategies, and our expectations about future financial performance, future growth and earnings, the appropriateness of our allowance for credit losses and provision for credit losses, the impact of changing regulatory requirements and legislative changes on our business, increased competition, interest rate risk, new lines of business, new product or service offerings and new technologies, the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between IBTX and TCBI, the outcome of any legal proceedings that may be instituted against IBTX or TCBI, delays in completing the transaction, the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where IBTX and TCBI do business, the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities, potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction, the ability to complete the transaction and integration of IBTX and TCBI successfully. 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, our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. The information contained in this communication speaks only as of its date. Except to the extent required by applicable law or regulation, TCBI disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. 2
Additional Statements Additional Information About the Merger and Where to Find It In connection with the proposed merger between IBTX and TCBI, IBTX filed a registration statement on Form S-4 with the SEC to register the shares of IBTX’s capital stock to be issued in connection with the merger. The registration statement includes a joint proxy statement/prospectus. The registration statement has not yet become effective. After the Form S-4 is effective, a definitive joint proxy statement/prospectus will be sent to the shareholders of IBTX and TCBI seeking their approval of the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4, THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THESE DOCUMENTS DO AND WILL CONTAIN IMPORTANT INFORMATION ABOUT IBTX, TCBI AND THE PROPOSED TRANSACTION. Investors and security holders may obtain copies of these documents free of charge through the website maintained by the SEC at www.sec.gov or from IBTX at its website, www.ibtx.com, or from TCBI at its website, www.texascapitalbank.com. Documents filed with the SEC by IBTX will be available free of charge by accessing the Investor Relations page of IBTX’s website at www.ibtx.com or, alternatively, by directing a request by telephone or mail to Independent Bank Group, Inc., 7777 Henneman Way, McKinney, Texas 75070, (972) 562-9004, and documents filed with the SEC by TCBI will be available free of charge by accessing TCBI’s website at www.texascapitalbank.com under the tab “About Us,” and then under the heading “Investor Relations” or, alternatively, by directing a request by telephone or mail to Texas Capital Bancshares, Inc., 2000 McKinney Avenue, Suite 700, Dallas, Texas 75201, (214) 932-6600. Participants in the Solicitation IBTX, TCBI and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of IBTX and TCBI in connection with the proposed transaction under the rules of the SEC. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Additional information about IBTX, and its directors and executive officers, may be found in IBTX’s annual report on Form 10-K filed with the SEC on March 2, 2020, as amended by IBTX’s Form 10-K/A filed with the SEC on March 6, 2020, and other documents filed by IBTX with the SEC. Additional information about TCBI, and its directors and executive officers, may be found in TCBI’s annual report on Form 10-K filed with the SEC on February 12, 2020, as amended by TCBI’s Form 10-K/A filed with the SEC on March 2, 2020, and other documents filed by TCBI with the SEC. These documents can be obtained free of charge from the sources described above. 3
Texas Capital is in a Strong Position to Support Our Clients & Community Key Messages Balance Sheet Strength ◼ We continue to deepen our middle-market, commercial bank Capital 2007–2019 Annual Avg. Q4 2019 Q1 2020 relationships and currently have a very diversified loan portfolio 12.0% 11.1% 11.4% ◼ We have countercyclical lines of business and powerful levers to pull in 10.2% 9.8% this environment including mortgage finance, diversified corporate 9.3% 9.5% 8.9% banking, non-retail oriented commercial real estate, lender finance and 8.0% insurance premium finance (collectively 91% of our loan portfolio) ◼ Our capital and liquidity are higher than pre Great Recession levels Common Equity Tier 1 Tier 1 Capital Total Capital and we are poised to serve our clients and gain market share as we Liquidity have in prior downturns 28% 117% ◼ Current reserve levels are at 57% of our Fed 2019 DFAST Severely 93% 90% 14% Adverse results and we have the earnings power to support additional 9% reserves that may be needed over the crisis cycle ◼ We are working proactively with clients to accommodate loan forbearance requests which totaled less than 3% of the loan portfolio Cash + Securities / Assets Loans HFI / Deposits as of 3/31/2020. Asset Quality ◼ Participation in the SBA Paycheck Protection Program resulted in $689 million of approvals as of 4/20/2020. The majority of these fundings will 1.43% 1.19% 1.18% 0.99% 1.08% take place in Q2-2020 0.93% 0.79% 0.71% 0.63% ◼ Net loss of $17 million for Q1 2020; includes $30 million of COVID-19 provision, $10 million of MSR impairment and $7 million of merger- related expenses Reserves / Loans HFI Reserves / Loans HFI NPAs / Earning Assets (Excl. Mortgage Finance) ◼ Texas has announced a plan to reopen its economy with Phase 1 beginning Friday, April 24 4
Liquidity Build and Balance Sheet Positioning Intentional Build of Liquid Assets Provides Flexibility ◼ In addition to continued execution of our core deposit Liquid Assets growth strategy, we took advantage of market opportunities in Q1-2020 to selectively add on-balance sheet liquidity at favorable interest rates ◼ These moves were done in anticipation of SBA Paycheck Protection Program, Main Street Lending Program, and expected line drawdowns ◼ While the intention is to operate with above average liquidity during this uncertain economic environment, opportunities do exist to improve core earnings by reducing or replacing higher cost funding sources over the next several quarters Balance Sheet Positioning ◼ Multi-year transition leaves the balance sheet well-prepared for a range of possible outcomes. $9.5 billion of balance sheet liquidity at Q1-2020 up 341% compared to Q1-2019 ◼ Continued deliberate reductions in more cyclical categories such as Leveraged Lending and Energy (down 8% and 7% from Q4-2019, respectively) coupled with adherence to internal CRE concentrations are intended to dampen the portfolio’s overall credit sensitivity to macro-economic events ◼ Lower-risk Mortgage Finance assets provide a natural hedge to declining interest rates while facilitating active balance sheet management in times of economic uncertainty 5
Loan Portfolio Growth Outlook Period-End Loan Composition 2 ◼ LHI (excluding MFLs) at quarter-end of $16.9 billion were up $381 $25.2B in balances million (2%) from Q4-2019, while average balances were down $68 million reflecting increased client activity late in the quarter ◼ Average total MFLs 1 of $10.2 billion for Q1-2020 were down $1.2 billion (10.9%) from Q4-2019 driven by expected seasonality; mid- quarter changes in interest rates drove strong late-quarter volumes ◼ Average total MFLs 1 represent 38% of average total loans for Q1- 2020 compared to 41% for Q4-2019 ◼ Q1-2020 average utilization rates largely in line with historical; while quarter-end experienced an uptick as cumulative gross draws built steadily late in the quarter, as was expected Average Loans & Yields Daily Utilization Trends 1 3 1 Includes mortgage finance LHI and mortgage correspondent aggregation (“MCA”) loans held for sale (“LHS”) 6 2 Includes total LHI and LHS 3 Includes gross cumulative daily draws; cumulative effect of daily paydowns excluded
Deposits and Fundings Highlights Funding Costs ◼ Ending deposits increased $656 million reflecting intentional liquidity build. Average total deposits of $27.7 billion for Q1-2020 were down $628 million (2%) from Q4-2019. ◼ Continued focus on cost-effective deposit growth with new verticals and core client relationships ◼ Modest growth in brokered deposits at favorable cost ◼ Decrease in total funding costs of 11 bps resulting from continued decline in rates (full-quarter benefit expected in Q2-2020) ◼ Immediate repricing down of $9.2 billion in indexed deposits ◼ Initiatives already directed at other interest-bearing deposits have achieved 34 bps in savings and more is expected ◼ Ample opportunity to shed higher cost funding sources over the coming quarters Period-End Deposits Balances Upcoming Maturities CD Maturity FHLB Maturity 7
Q1-2020 Earnings Overview Net Interest Income & Margin Commentary Net Interest Margin Detail ◼ Modest contraction in net interest income driven by lower rates across the curve and continued asset mix- shift ◼ Incremental liquidity build resulted in short-term pressure on NIM ◼ Meaningful decrease in funding costs with opportunity to continue to reduce ◼ Loan yields move with LIBOR, but Net Interest Income Interest Net potential to improve spreads and implement floors Provision for Credit Losses 1 Commentary Criticized Loans ◼ Q1-2020 provision impacted by two $675.9M specific energy loans ($55 million) and proactive risk grade migration, primarily to lower pass-rated grades, in categories expected to be more significantly impacted by COVID-19 ($30 million) ◼ $58 million in Q1-2020 net charge- offs; predominately previously identified energy ($37 million) and Credit Expense Credit leveraged lending loans ($16 million) ◼ Additional reserve could be required in future quarters as impact of COVID- 19 continues to evolve 1 $9 million Day 1 increase to allowance upon adoption of CECL in Q1-2020; Day 1 impact, net of tax, recorded as a decrease to retained earnings and not included in current period provision expense 8
Q1-2020 Earnings Overview Non-interest Income Commentary Fee Income Details ◼ Both Q-o-Q and Y-o-Y decline driven primarily by net loss on sale of LHS; $13 million loss recorded Q1-2020, compared to $8 million for Q4-2019 and $1 million for Q1-2019 ◼ Lower expected LHS volumes should limit near-term volatility ◼ Continued focus on diversifying non- interest income interest - interest income streams evidenced by the following Y-o-Y increases in customer-driven fee income: Non ◼ Deposit Service Charges +11% ◼ Wealth Management Fees +23% ◼ Swap Fees +167% Non-interest Expense Commentary Salary and Employee Benefits ◼ Elevated Q1-2020 costs driven by MSR impairment of $10 million ($0.16 per share) and merger- related expenses of $7 million ($0.11 per share) ◼ Q1-2020 included $8 million related to Bask Bank ◼ Disciplined core expense interest expense interest - management experience; continued flattening in controllable expenses, primarily salaries and employee Non benefits 9
Loan Portfolio Detail – Mortgage Finance Commentary MWH + MCA Annualized Interest Income ◼ Q1-2020 Mortgage Warehouse balances increased 20% year-over- year reflecting the Bank’s desire to continue capitalizing on unprecedented mortgage demand ◼ Despite economic uncertainly, the outlook for strong risk-adjusted earnings remains favorable, particularly when considering the liquidity benefits (both deposits and FHLB borrowing capacity) associated with the business ◼ When combined with MCA, annualized quarterly interest income has increased almost 65% from Q1-2018 to Q1-2020 ◼ Proven track-record of adjusting risk profile based on market liquidity; underlying portfolio quality remains the priority Average Mortgage Warehouse Loans and Yields 1 1 10
Loan Portfolio Detail – C&I excl. Energy & Leverage Commentary ◼ Diverse, well-established C&I portfolio equally balanced between differentiated national verticals and core market offerings reflective of the relationship banking approach synonymous with TCBI since inception. As of Q1-2020, this segment was 35% of total LHI ($), providing strong risk-adjusted returns, historically favorable credit characteristics, and components of counter-cyclicality ◼ Limited exposure to industries initially most impacted by current environment ◼ 1.4% in Retail Trade, 1.1% in Accommodation and Food Services, 1.3% in Arts Entertainment & Recreation, 1.8% in Mining, Quarrying & Oil and Gas Extraction. 94.4% resides in a diversified set of other industries ◼ Proactively working with clients across sectors to assess short-medium term changes to financial condition ◼ National verticals are managed as lines of business with specialized Bankers, dedicated underwriting, and heightened portfolio monitoring ◼ Two of these business, Lender Finance and Bank Direct Capital Finance (approximately $3.0 billion in Q1-2020 balances), have historically had low charge-offs (3 bps on average) and typically perform well during times of economic stress Historical Credit Performance - C&I NCOs excl. Energy & Leveraged *Source: SNL Financial as of 4Q 2019 1Peers include: ASB, BXS, BKU, BOKF, CBSH, CFR, FHN, FINN, FULT, HWC, IBKC, ISBC, SNV, 11 UMBF, WBS, WTFC
Loan Portfolio Detail – CRE Commentary Moderating Late Cycle Growth Thru cycle credit performance ◼ CRE managed as a line of business facilitating achievement of % Loan Growth NCO Rate concentration objectives by product and geography. Underwriting 1 1 focus on strong sponsors and developers with significant upfront cash equity (~65% loan-to-cost) ◼ Track record of proactive portfolio management evidenced by changes in growth rates thru-cycle and strong credit performance during periods of stress ◼ Construction in most markets where projects are being financed is considered essential, and the related construction is progressing, largely on schedule. Anticipating modest balance sheet growth in near-term due to existing construction fundings and slowing of what was previously a record pace of pay-offs Property Types2 Statistics Commentary Trailing 24 mo. Bal $ / CAGR $2.0B Commit, $1.1B Bal ◼ Largest exposure, expected to be least affected. Generally Class A properties Multi Family $620M / 57% 30% Total CRE ◼ Rent collection rates remain high; virtual leasing could slow project lease up $0.8B Commit, $0.6B Bal ◼ Office occupancies are expected to soften as tenant revisit their space needs going Office 17% Total CRE forward; initial borrower feedback is positive for rent collection from anchor tenants $55M / 6% $0.6B Commit, $0.3B Bal ◼ Primarily construction which is deemed “essential” and progressing as planned Senior Housing 9% Total CRE ◼ Occupancy / leasing will likely slow as a result of COVID protocols in facilities -$156M / -18% $0.6B Commit, $0.4B Bal ◼ Performance expected to remain consistent due to continued shift to e-commerce Industrial -$82M / -11% 10% Total CRE ◼ Average loan-to-cost even lower than portfolio average of ~65% $0.4B Commit, $0.3B Bal ◼ Likely to be the most impacted portfolio; loss exposure limited by low loan-to-cost Hospitality -$13M / -2% 9% Total CRE ◼ Consistent w/ our proactive approach, many of these loans already downgraded $0.4B Commit, $0.3B Bal ◼ Strong performance during the Great Recession; anticipate similar results Self Storage $72M / 16% 9% Total CRE during this cycle $0.3B Commit, $0.3B Bal ◼ Expect this to be second most impacted portfolio. Quality of anchor/essential Retail -$47M / -11% 8% Total CRE tenants (i.e., large grocery stores) in most properties is a mitigating factor *Source: SNL Financial as of 4Q 2019. Based on regulatory definition of Total CRE Balances 1Peers include: ASB, BXS, BKU, BOKF, CBSH, CFR, FHN, FINN, FULT, HWC, IBKC, ISBC, SNV, UMBF, WBS, WTFC. 12 2Other collateral types comprise 9% of total outstanding balances
Loan Portfolio Detail – Energy Commentary Portfolio Management ◼ Portfolio composition remains focused on privately held or private ◼ ~70% of E&P clients are hedged 50% or more in 2020 equity backed E&P clients with an avg loan size of $17.5 million ◼ This compares favorably to the 2015-2016 downturn when ◼ While economics vary by individual property set, approximately ~40% of E&P clients were hedged 50% or more 40% of E&P exposure located in lowest cost production areas such as the Permian Basin and Eagle Ford ◼ ~40% of E&P clients are hedged 50% or more in 2021 ◼ Spring borrowing base redeterminations (based on forward market ◼ At Q1-2020 total reserves assigned to energy loans were 8.8%, prices) are 20% complete which is comparable to the total cumulative losses from 2014-2019 Period-End Portfolio Composition Reserve Build $1.3B in balances NPAs % 1 4.5% 3.9% 4.1% 8.8% 11.4% 1Ratios calculated as a % of total energy loans 13
Loan Portfolio Detail – Leveraged Lending Commentary Portfolio Management ◼ Diversified portfolio with some exposure to industries believed to be ◼ Senior leverage typically in the 3.0x-4.0x range; leverage trends most impacted by COVID-19; others may be effected depending on relatively in line with previous quarters but proactively monitoring their varying degrees of either reliance on consumer spending or for signs of weakness supply chain risks ◼ Significant reductions in originations in the past 12 months, coupled with meaningful runoff have reduced overall exposure; ◼ Many of these clients are well positioned to benefit from both the runoff will likely slow in current environment and some additional PPP to subsidize near-term liquidity pressures, and the Main Street advances could keep overall portfolio flat until economic activity Lending Program to provide for more permanent working capital begins to normalize financing ◼ Remaining portfolio characteristics: ~70 clients, average loan size ◼ Includes $97 million of ABL loans which generally have good ~ $2-3 million, and average commitment ~$3-4 million collateral coverage and are further governed by a borrowing base. ◼ Allocated reserve is 6.6% which represents 13 times the reserve Of the $81 million in outstanding loans to Mining, Quarrying, and Oil allocated to general C&I credits; percentages can fluctuate as and Gas Extraction, $64 million benefit from the ABL structure identified issues are resolved which may result in charge-offs Period-End Portfolio Composition Reserve Build $0.8B in balances 1 NPAs % 1 2.6% 2.4% 2.8% 8.7% 6.4% 1 Ratios calculated as a % of total leveraged lending loans 14