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): January 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 January 22, 2020, 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, 2019. 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 22, 2019 announcing Texas Capital Bancshares, Inc.'s operating and financial results for its fiscal quarter and year ended December 31, 2019 |
| --- | --- |
| 99.2 | Presentation given January 22, 2019 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal quarter and year ended December 31, 2019 |
| --- | --- |
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 Texas Capital Bancshares, Inc. (“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, delays in completing the pending merger between TCBI and Independent Bank Group, Inc. (“IBTX”), the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, 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, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger or new lines of business, new product or service offerings and 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, 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 on January 21, 2020 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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on April 23, 2019, 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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 7, 2019, 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: | January 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 2019
DALLAS - January 22, 2020 - 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 2019.
“We are pleased with our 2019 results as we finished the year with a meaningful improvement in year-over-year EPS, despite headwinds from interest rate decreases, and a continued focus on proactively dealing with credit to strengthen our balance sheet and future earning power," said Keith Cargill, CEO. "Our results this year highlight the continued strength of our organic business model having gained meaningful market share over the past 7 years while more than tripling our balance sheet and more than doubling EPS. We are confident that our pending merger with Independent Bank Group will better position us to drive long-term shareholder value, improve client experience and invest even more effectively in our talent, technology and communities due to the scale advantage and complementary strengths we each offer."
| • | Average mortgage finance loans, including mortgage correspondent aggregation ("MCA") loans held for sale ("LHS"), increased 7% on a linked quarter basis and increased 61% from the fourth quarter of 2018. |
|---|---|
| • | Average demand deposits and average total deposits increased 9% and 6%, respectively, on a linked quarter basis and increased 47% and 35%, respectively from the fourth quarter of 2018. |
| --- | --- |
| • | Average loans held for investment ("LHI"), excluding mortgage finance loans, decreased 1% on a linked quarter basis and increased less than 1% from the fourth quarter of 2018, reflecting planned reductions in our leveraged lending and energy balances. |
| --- | --- |
| • | Net income and EPS for full year 2019 both increased 7% compared to full year 2018. |
| --- | --- |
FINANCIAL SUMMARY
(Dollars and shares in thousands)
| 2019 | 2018 | % Change | ||||||
|---|---|---|---|---|---|---|---|---|
| ANNUAL OPERATING RESULTS | ||||||||
| Net income | $ | 322,866 | $ | 300,824 | 7 | % | ||
| Net income available to common stockholders | $ | 313,116 | $ | 291,074 | 8 | % | ||
| Diluted EPS | $ | 6.21 | $ | 5.79 | 7 | % | ||
| Diluted shares | 50,419 | 50,273 | — | % | ||||
| ROA | 1.04 | % | 1.19 | % | ||||
| ROE | 12.38 | % | 13.14 | % | ||||
| QUARTERLY OPERATING RESULTS | ||||||||
| Net income | $ | 73,917 | $ | 71,891 | 3 | % | ||
| Net income available to common stockholders | $ | 71,480 | $ | 69,454 | 3 | % | ||
| Diluted EPS | $ | 1.42 | $ | 1.38 | 3 | % | ||
| Diluted shares | 50,462 | 50,333 | — | % | ||||
| ROA | 0.85 | % | 1.09 | % | ||||
| ROE | 10.68 | % | 11.82 | % | ||||
| BALANCE SHEET | ||||||||
| LHS | $ | 2,577,134 | $ | 1,969,474 | 31 | % | ||
| LHI, mortgage finance | 8,169,849 | 5,877,524 | 39 | % | ||||
| LHI | 16,476,413 | 16,690,550 | (1 | )% | ||||
| Total LHI | 24,646,262 | 22,568,074 | 9 | % | ||||
| Total loans | 27,223,396 | 24,537,548 | 11 | % | ||||
| Total assets | 32,548,069 | 28,257,767 | 15 | % | ||||
| Demand deposits | 9,438,459 | 7,317,161 | 29 | % | ||||
| Total deposits | 26,478,593 | 20,606,113 | 28 | % | ||||
| Stockholders’ equity | 2,832,258 | 2,500,394 | 13 | % |
DETAILED FINANCIALS
Texas Capital Bancshares, Inc. reported net income of $322.9 million and net income available to common stockholders of $313.1 million for the year ended December 31, 2019, compared to net income of $300.8 million and net income available to common stockholders of $291.1 million for the year ended December 31, 2018. For the fourth quarter of 2019, net income was $73.9 million and net income available to common stockholders was $71.5 million, compared to net income of $71.9 million and net income available to common stockholders of $69.5 million for the same period in 2018. On a fully diluted basis, earnings per common share were $6.21 for the year ended December 31, 2019 compared to $5.79 for the same period in 2018. Diluted earnings per common share were $1.42 for the quarter ended December 31, 2019 compared to $1.38 for the same period of 2018. The fourth quarter of 2019 includes $1.3 million, or $.02 per common share, of merger-related expenses.
Return on common equity ("ROE") was 12.38 percent and return on average assets ("ROA") was 1.04 percent for the year ended December 31, 2019, compared to 13.14 percent and 1.19 percent, respectively, for the year ended December 31, 2018. ROE was 10.68 percent and ROA was 0.85 percent for the fourth quarter of 2019, compared to 13.22 percent and 1.06 percent, respectively, for the third quarter of 2019 and 11.82 percent and 1.09 percent, respectively, for the fourth quarter of 2018. The linked quarter decreases in ROE and ROA for the fourth quarter of 2019 resulted primarily from increases in non-interest expense and provision for credit losses, as well as from decreases in net interest and non-interest income.
Net interest income was $248.4 million for the fourth quarter of 2019, compared to $252.2 million for the third quarter of 2019 and $240.7 million for the fourth quarter of 2018. The linked quarter decrease is due primarily to decreases in loan yields and the year over year increase is primarily due to growth in total loans, offset by decreases in loan yields. Net interest margin for the fourth quarter of 2019 was 2.95 percent, a decrease of 21 basis points from the third quarter of 2019 and a decrease of 83 basis points from the fourth quarter of 2018. LHI, excluding mortgage finance loans, yields were down 37 basis points from the third quarter of 2019, and were down 56 basis points compared to the fourth quarter of 2018. Mortgage finance, excluding MCA, yields for the fourth quarter of 2019 decreased 18 basis points compared to the third quarter of 2019 and decreased 54 basis points compared to the fourth quarter of 2018. Total cost of deposits for the fourth quarter of 2019 decreased 22 basis points to 0.99 percent compared to 1.21 percent for the third quarter of 2019, and decreased 18 basis points from 1.17 percent for the fourth quarter of 2018.
Average LHI, excluding mortgage finance loans, for the year ended December 31, 2019 were $16.8 billion, an increase of $728.9 million, or 5 percent, from the same period in 2018. Average LHI, excluding mortgage finance loans, for the fourth quarter of 2019 were $16.7 billion, a decrease of $234.1 million, or 1 percent, from the third quarter of 2019 and an increase of $23.7 million, less than 1 percent, from the fourth quarter of 2018. The linked quarter decrease in average LHI, excluding mortgage finance loans, reflects slower loan growth and planned reductions in our leveraged lending and energy balances. Average total mortgage finance loans, including MCA loans, for the fourth quarter of 2019 were $11.4 billion, an increase of $765.4 million, or 7 percent, from the third quarter of 2019 and an increase of $4.3 billion, or 61 percent, from the fourth quarter of 2018. The linked quarter and year-over-year increases in total mortgage finance loans were due to increases in volumes from continued lower long-term interest rates.
Average total deposits for the year ended December 31, 2019 were $24.7 billion, an increase of $4.4 billion, or 22 percent, from the same period in 2018. Average demand deposits for the year ended December 31, 2019 were $9.0 billion, an increase of $1.1 billion, or 14 percent, from the same period in December 31, 2018. Average total deposits for the fourth quarter of 2019 increased $1.7 billion, or 6 percent, from the third quarter of 2019 and increased $7.4 billion, or 35 percent, from the fourth quarter of 2018. Average demand deposits for the fourth quarter of 2019 increased $941.5 million, or 9 percent, to $10.9 billion from $10.0 billion for the third quarter of 2019, and increased $3.5 billion, or 47 percent, from the fourth quarter of 2018.
We recorded a $17.0 million provision for credit losses for the fourth quarter of 2019 compared to $11.0 million for the third quarter of 2019 and $35.0 million for the fourth quarter of 2018. The provision for the fourth quarter of 2019 was driven by the consistent application of our methodology. The linked quarter increase in the provision resulted from an increase in non-performing assets partially offset by a decline in charge-offs, while the year-over-year decrease resulted from decreases in charge-offs and LHI, excluding mortgage finance, balances. The total allowance for credit losses at December 31, 2019 increased to 0.83 percent of total LHI, compared to 0.81 percent at September 30, 2019 and decreased from 0.90 percent at December 31, 2018. In management’s opinion, the allowance is appropriate and is derived from consistent application of the methodology for establishing reserves for the loan portfolio.
Non-performing assets ("NPAs") increased in the fourth quarter of 2019 compared to the third quarter of 2019 and fourth quarter of 2018, primarily related to our energy and leveraged lending portfolios. The ratio of NPAs to total LHI plus other real estate owned ("OREO") for the fourth quarter of 2019 was 0.91 percent, compared to 0.49 percent for the third quarter of 2019 and 0.36 percent for the fourth quarter of 2018. Net charge-offs for the fourth quarter of 2019 were $12.8 million compared to $36.9 million for the third quarter of 2019 and $32.6 million for the fourth quarter of 2018. Of the $12.8 million charge-offs for the fourth quarter of 2019, $588,000 related to energy and $6.2 million related to leveraged lending. For the fourth quarter of 2019, net charge-offs were 0.21 percent of average total LHI, compared to 0.58 percent for the third quarter of 2019 and 0.60 percent for the same period in 2018.
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Non-interest income decreased $2.5 million, or 13 percent, during the fourth quarter of 2019 compared to the third quarter of 2019, and increased $2.5 million, or 16 percent, compared to the fourth quarter of 2018. 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 increases in servicing income and swap fees. The year-over-year increase is primarily related to increases in brokered loan fees and servicing income, partially offset by a decrease in other non-interest income.
Non-interest expense for the fourth quarter of 2019 increased $9.3 million, or 6 percent, compared to the third quarter of 2019, and increased $28.8 million, or 22 percent, compared to the fourth quarter of 2018. The linked quarter increase in non-interest expense was primarily related to increases in legal and professional expense and communications and technology expense, partially offset by a decrease in servicing related expenses. The year-over-year increase was primarily due to increases in salaries and employee benefits, legal and professional expense, communications and technology expense and marketing expense. The linked quarter and year-over-year increases in legal and professional expense included $1.3 million in merger-related expenses, as well as increases related to investment in Bask Bank and new commercial loan verticals, specifically $6.0 million that is not recurring.
Stockholders’ equity increased by 13 percent from $2.5 billion at December 31, 2018 to $2.8 billion at December 31, 2019, primarily due to the retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines. At December 31, 2019, our ratio of tangible common equity to total tangible assets was 8.2 percent.
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, delays in completing the pending merger between TCBI and IBTX, the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, 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, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger or new lines of business, new product or service offerings and 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, 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 on January 21, 2020 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.
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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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on April 23, 2019, 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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 7, 2019, and other documents filed by TCBI with the SEC. These documents can be obtained free of charge from the sources described above.
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| 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 | |||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| Interest income | $ | 337,757 | $ | 355,101 | $ | 346,893 | $ | 325,561 | $ | 321,718 | |||||
| Interest expense | 89,372 | 102,933 | 103,340 | 89,947 | 81,045 | ||||||||||
| Net interest income | 248,385 | 252,168 | 243,553 | 235,614 | 240,673 | ||||||||||
| Provision for credit losses | 17,000 | 11,000 | 27,000 | 20,000 | 35,000 | ||||||||||
| Net interest income after provision for credit losses | 231,385 | 241,168 | 216,553 | 215,614 | 205,673 | ||||||||||
| Non-interest income | 17,761 | 20,301 | 24,364 | 30,014 | 15,280 | ||||||||||
| Non-interest expense | 158,690 | 149,370 | 141,561 | 140,378 | 129,862 | ||||||||||
| Income before income taxes | 90,456 | 112,099 | 99,356 | 105,250 | 91,091 | ||||||||||
| Income tax expense | 16,539 | 23,958 | 21,387 | 22,411 | 19,200 | ||||||||||
| Net income | 73,917 | 88,141 | 77,969 | 82,839 | 71,891 | ||||||||||
| Preferred stock dividends | 2,437 | 2,438 | 2,437 | 2,438 | 2,437 | ||||||||||
| Net income available to common stockholders | $ | 71,480 | $ | 85,703 | $ | 75,532 | $ | 80,401 | $ | 69,454 | |||||
| Diluted EPS | $ | 1.42 | $ | 1.70 | $ | 1.50 | $ | 1.60 | $ | 1.38 | |||||
| Diluted shares | 50,461,723 | 50,416,402 | 50,383,870 | 50,345,399 | 50,333,412 | ||||||||||
| CONSOLIDATED BALANCE SHEET DATA | |||||||||||||||
| Total assets | $ | 32,548,069 | $ | 33,526,437 | $ | 29,970,384 | $ | 28,383,111 | $ | 28,257,767 | |||||
| LHI | 16,476,413 | 16,772,824 | 16,924,535 | 17,061,590 | 16,690,550 | ||||||||||
| LHI, mortgage finance | 8,169,849 | 7,951,432 | 7,415,363 | 6,299,710 | 5,877,524 | ||||||||||
| LHS | 2,577,134 | 2,674,225 | 1,057,586 | 1,901,637 | 1,969,474 | ||||||||||
| Liquidity assets^(1)^ | 4,263,766 | 4,993,185 | 3,480,902 | 2,154,155 | 2,865,874 | ||||||||||
| Investment securities | 239,871 | 238,022 | 240,851 | 230,749 | 120,216 | ||||||||||
| Demand deposits | 9,438,459 | 10,289,572 | 7,685,340 | 6,743,607 | 7,317,161 | ||||||||||
| Total deposits | 26,478,593 | 27,413,303 | 22,999,077 | 20,650,127 | 20,606,113 | ||||||||||
| Other borrowings | 2,541,766 | 2,639,967 | 3,607,234 | 4,497,892 | 4,541,174 | ||||||||||
| Subordinated notes | 282,129 | 282,038 | 281,948 | 281,858 | 281,767 | ||||||||||
| Long-term debt | 113,406 | 113,406 | 113,406 | 113,406 | 113,406 | ||||||||||
| Stockholders’ equity | 2,832,258 | 2,757,433 | 2,668,452 | 2,581,942 | 2,500,394 | ||||||||||
| End of period shares outstanding | 50,337,741 | 50,317,654 | 50,297,552 | 50,263,611 | 50,200,710 | ||||||||||
| Book value | $ | 53.29 | $ | 51.82 | $ | 50.07 | $ | 48.38 | $ | 46.82 | |||||
| Tangible book value^(2)^ | $ | 52.93 | $ | 51.46 | $ | 49.71 | $ | 48.02 | $ | 46.45 | |||||
| SELECTED FINANCIAL RATIOS | |||||||||||||||
| Net interest margin | 2.95 | % | 3.16 | % | 3.41 | % | 3.73 | % | 3.78 | % | |||||
| Return on average assets | 0.85 | % | 1.06 | % | 1.05 | % | 1.26 | % | 1.09 | % | |||||
| Return on average common equity | 10.68 | % | 13.22 | % | 12.20 | % | 13.58 | % | 11.82 | % | |||||
| Non-interest income to average earning assets | 0.21 | % | 0.25 | % | 0.34 | % | 0.47 | % | 0.24 | % | |||||
| Efficiency ratio^(3)^ | 59.6 | % | 54.8 | % | 52.8 | % | 52.8 | % | 50.7 | % | |||||
| Efficiency ratio, adjusted^(4)^ | 57.7 | % | 51.2 | % | 49.5 | % | 50.1 | % | 48.7 | % | |||||
| Non-interest expense to average earning assets | 1.87 | % | 1.86 | % | 1.97 | % | 2.21 | % | 2.03 | % | |||||
| Tangible common equity to total tangible assets^(5)^ | 8.2 | % | 7.7 | % | 8.3 | % | 8.5 | % | 8.3 | % | |||||
| Common Equity Tier 1 | 8.9 | % | 8.6 | % | 8.7 | % | 8.6 | % | 8.6 | % | |||||
| Tier 1 capital | 9.8 | % | 9.5 | % | 9.6 | % | 9.6 | % | 9.5 | % | |||||
| Total capital | 11.4 | % | 11.1 | % | 11.3 | % | 11.4 | % | 11.3 | % | |||||
| Leverage | 8.4 | % | 8.6 | % | 9.2 | % | 10.0 | % | 9.9 | % | |||||
| (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 $9.4 million, $11.9 million, $11.6 million, $9.1 million and $7.7 million for the fourth, third, second and first quarters of 2019, as well as for the fourth quarter of 2018, 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) | |||||||
| December 31, 2018 | %<br><br>Change | ||||||
| Assets | |||||||
| Cash and due from banks | 161,817 | $ | 214,191 | (24 | )% | ||
| Interest-bearing deposits | 2,815,684 | 50 | % | ||||
| Federal funds sold and securities purchased under resale agreements | 50,190 | (40 | )% | ||||
| Securities, available-for-sale | 120,216 | 100 | % | ||||
| LHS (2,571.3 million and 1,969.2 million at December 2019 and 2018, respectively, at fair value) | 1,969,474 | 31 | % | ||||
| LHI, mortgage finance | 5,877,524 | 39 | % | ||||
| LHI (net of unearned income) | 16,690,550 | (1 | )% | ||||
| Less: Allowance for loan losses | 191,522 | 2 | % | ||||
| LHI, net | 22,376,552 | 9 | % | ||||
| Mortgage servicing rights, net | 42,474 | 53 | % | ||||
| Premises and equipment, net | 23,802 | 31 | % | ||||
| Accrued interest receivable and other assets | 626,614 | 18 | % | ||||
| Goodwill and intangibles, net | 18,570 | (3 | )% | ||||
| Total assets | 32,548,069 | $ | 28,257,767 | 15 | % | ||
| Liabilities and Stockholders’ Equity | |||||||
| Liabilities: | |||||||
| Deposits: | |||||||
| Non-interest bearing | 9,438,459 | $ | 7,317,161 | 29 | % | ||
| Interest bearing | 13,288,952 | 28 | % | ||||
| Total deposits | 20,606,113 | 28 | % | ||||
| Accrued interest payable | 20,675 | (38 | )% | ||||
| Other liabilities | 194,238 | 48 | % | ||||
| Federal funds purchased and repurchase agreements | 641,174 | (78 | )% | ||||
| Other borrowings | 3,900,000 | (38 | )% | ||||
| Subordinated notes, net | 281,767 | — | % | ||||
| Trust preferred subordinated debentures | 113,406 | — | % | ||||
| Total liabilities | 25,757,373 | 15 | % | ||||
| 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, 2019 and 2018 | 150,000 | — | % | ||||
| Common stock, .01 par value: | |||||||
| Authorized shares - 100,000,000 | |||||||
| Issued shares - 50,338,158 and 50,201,127 at December 31, 2019 and 2018, respectively | 502 | — | % | ||||
| Additional paid-in capital | 967,890 | 1 | % | ||||
| Retained earnings | 1,381,492 | 23 | % | ||||
| Treasury stock (shares at cost: 417 at December 31, 2019 and 2018) | ) | (8 | ) | — | % | ||
| Accumulated other comprehensive income, net of taxes | 518 | 1,628 | % | ||||
| Total stockholders’ equity | 2,500,394 | 13 | % | ||||
| Total liabilities and stockholders’ equity | 32,548,069 | $ | 28,257,767 | 15 | % |
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 December 31, | Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Interest income | ||||||||||||
| Interest and fees on loans | $ | 312,147 | $ | 310,470 | $ | 1,284,036 | $ | 1,124,970 | ||||
| Investment securities | 2,618 | 1,274 | 8,654 | 2,834 | ||||||||
| Federal funds sold and securities purchased under resale agreements | 439 | 984 | 1,529 | 3,792 | ||||||||
| Interest-bearing deposits in other banks | 22,553 | 8,990 | 71,093 | 32,597 | ||||||||
| Total interest income | 337,757 | 321,718 | 1,365,312 | 1,164,193 | ||||||||
| Interest expense | ||||||||||||
| Deposits | 70,987 | 61,773 | 293,537 | 185,116 | ||||||||
| Federal funds purchased | 1,319 | 2,097 | 11,872 | 6,531 | ||||||||
| Other borrowings | 11,712 | 11,726 | 58,393 | 36,207 | ||||||||
| Subordinated notes | 4,191 | 4,191 | 16,764 | 16,764 | ||||||||
| Trust preferred subordinated debentures | 1,163 | 1,258 | 5,026 | 4,715 | ||||||||
| Total interest expense | 89,372 | 81,045 | 385,592 | 249,333 | ||||||||
| Net interest income | 248,385 | 240,673 | 979,720 | 914,860 | ||||||||
| Provision for credit losses | 17,000 | 35,000 | 75,000 | 87,000 | ||||||||
| Net interest income after provision for credit losses | 231,385 | 205,673 | 904,720 | 827,860 | ||||||||
| Non-interest income | ||||||||||||
| Service charges on deposit accounts | 2,785 | 3,168 | 11,320 | 12,787 | ||||||||
| Wealth management and trust fee income | 2,342 | 2,152 | 8,810 | 8,148 | ||||||||
| Brokered loan fees | 8,645 | 5,408 | 29,738 | 22,532 | ||||||||
| Servicing income | 4,030 | 2,861 | 13,439 | 18,307 | ||||||||
| Swap fees | 1,559 | 1,356 | 4,387 | 5,625 | ||||||||
| Net gain/(loss) on sale of LHS | (7,757 | ) | (8,087 | ) | (20,259 | ) | (15,934 | ) | ||||
| Other | 6,157 | 8,422 | 45,005 | 26,559 | ||||||||
| Total non-interest income | 17,761 | 15,280 | 92,440 | 78,024 | ||||||||
| Non-interest expense | ||||||||||||
| Salaries and employee benefits | 80,262 | 69,500 | 315,080 | 291,768 | ||||||||
| Net occupancy expense | 9,075 | 7,390 | 32,989 | 30,342 | ||||||||
| Marketing | 12,807 | 10,208 | 53,355 | 39,335 | ||||||||
| Legal and professional | 22,402 | 13,042 | 53,830 | 42,990 | ||||||||
| Communications and technology | 13,801 | 8,845 | 44,826 | 30,056 | ||||||||
| FDIC insurance assessment | 5,613 | 5,423 | 20,093 | 24,307 | ||||||||
| Servicing related expenses | 2,960 | 2,555 | 22,573 | 14,934 | ||||||||
| Other | 11,770 | 12,899 | 47,253 | 51,364 | ||||||||
| Total non-interest expense | 158,690 | 129,862 | 589,999 | 525,096 | ||||||||
| Income before income taxes | 90,456 | 91,091 | 407,161 | 380,788 | ||||||||
| Income tax expense | 16,539 | 19,200 | 84,295 | 79,964 | ||||||||
| Net income | 73,917 | 71,891 | 322,866 | 300,824 | ||||||||
| Preferred stock dividends | 2,437 | 2,437 | 9,750 | 9,750 | ||||||||
| Net income available to common stockholders | $ | 71,480 | $ | 69,454 | $ | 313,116 | $ | 291,074 | ||||
| Basic earnings per common share | $ | 1.42 | $ | 1.38 | $ | 6.23 | $ | 5.83 | ||||
| Diluted earnings per common share | $ | 1.42 | $ | 1.38 | $ | 6.21 | $ | 5.79 |
7
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF LOAN LOSS EXPERIENCE (UNAUDITED) | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | |||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||
| Allowance for loan losses: | |||||||||||||||
| Beginning balance | $ | 190,138 | $ | 214,572 | $ | 208,573 | $ | 191,522 | $ | 190,306 | |||||
| Loans charged-off: | |||||||||||||||
| Commercial | 14,280 | 37,760 | 20,053 | 4,865 | 34,419 | ||||||||||
| Real estate | 485 | — | 177 | — | — | ||||||||||
| Construction | — | — | — | — | — | ||||||||||
| Consumer | — | — | — | — | — | ||||||||||
| Leases | — | 19 | — | — | — | ||||||||||
| Total charge-offs | 14,765 | 37,779 | 20,230 | 4,865 | 34,419 | ||||||||||
| Recoveries: | |||||||||||||||
| Commercial | 1,953 | 870 | 201 | 266 | 1,399 | ||||||||||
| Real estate | — | — | — | — | 26 | ||||||||||
| Construction | — | — | — | — | — | ||||||||||
| Consumer | 9 | 27 | 23 | 10 | 360 | ||||||||||
| Leases | 1 | 9 | — | 1 | 1 | ||||||||||
| Total recoveries | 1,963 | 906 | 224 | 277 | 1,786 | ||||||||||
| Net charge-offs | 12,802 | 36,873 | 20,006 | 4,588 | 32,633 | ||||||||||
| Provision for loan losses | 17,711 | 12,439 | 26,005 | 21,639 | 33,849 | ||||||||||
| Ending balance | $ | 195,047 | $ | 190,138 | $ | 214,572 | $ | 208,573 | $ | 191,522 | |||||
| Allowance for off-balance sheet credit losses: | |||||||||||||||
| Beginning balance | $ | 9,351 | $ | 10,790 | $ | 9,795 | $ | 11,434 | $ | 10,283 | |||||
| Provision for off-balance sheet credit losses | (711 | ) | (1,439 | ) | 995 | (1,639 | ) | 1,151 | |||||||
| Ending balance | $ | 8,640 | $ | 9,351 | $ | 10,790 | $ | 9,795 | $ | 11,434 | |||||
| Total allowance for credit losses | $ | 203,687 | $ | 199,489 | $ | 225,362 | $ | 218,368 | $ | 202,956 | |||||
| Total provision for credit losses | $ | 17,000 | $ | 11,000 | $ | 27,000 | $ | 20,000 | $ | 35,000 | |||||
| Allowance for loan losses to LHI | 0.79 | % | 0.77 | % | 0.88 | % | 0.89 | % | 0.85 | % | |||||
| Allowance for loan losses to average LHI | 0.79 | % | 0.76 | % | 0.90 | % | 0.96 | % | 0.88 | % | |||||
| Net charge-offs to average LHI^(1)^ | 0.21 | % | 0.58 | % | 0.34 | % | 0.09 | % | 0.60 | % | |||||
| Net charge-offs to average LHI for last twelve months^(1)^ | 0.31 | % | 0.41 | % | 0.27 | % | 0.36 | % | 0.37 | % | |||||
| Total provision for credit losses to average LHI^(1)^ | 0.27 | % | 0.17 | % | 0.45 | % | 0.37 | % | 0.64 | % | |||||
| Total allowance for credit losses to LHI | 0.83 | % | 0.81 | % | 0.93 | % | 0.93 | % | 0.90 | % | |||||
| (1) | Interim period ratios are annualized. | ||||||||||||||
| --- | --- |
8
| TEXAS CAPITAL BANCSHARES, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS (UNAUDITED) | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | |||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||
| Non-performing assets (NPAs): | |||||||||||||||
| Non-accrual loans | $ | 225,384 | $ | 120,686 | $ | 114,084 | $ | 133,690 | $ | 80,375 | |||||
| Other real estate owned (OREO) | — | — | — | — | 79 | ||||||||||
| Total LHI NPAs | $ | 225,384 | $ | 120,686 | $ | 114,084 | $ | 133,690 | $ | 80,454 | |||||
| Non-accrual loans to LHI | 0.91 | % | 0.49 | % | 0.47 | % | 0.57 | % | 0.36 | % | |||||
| Total LHI NPAs to LHI plus OREO | 0.91 | % | 0.49 | % | 0.47 | % | 0.57 | % | 0.36 | % | |||||
| Total LHI NPAs to earning assets | 0.71 | % | 0.37 | % | 0.39 | % | 0.49 | % | 0.29 | % | |||||
| Allowance for loan losses to non-accrual loans | .9x | 1.6x | 1.9x | 1.6x | 2.4x | ||||||||||
| Loans past due 90 days and still accruing^(1)^ | $ | 17,584 | $ | 29,648 | $ | 15,212 | $ | 12,245 | $ | 9,353 | |||||
| Loans past due 90 days to LHI | 0.07 | % | 0.12 | % | 0.06 | % | 0.05 | % | 0.04 | % | |||||
| LHS past due 90 days and still accruing^(2)^ | $ | 8,207 | $ | 9,187 | $ | 11,665 | $ | 13,693 | $ | 16,829 | |||||
| (1) | At December 31, 2019, loans past due 90 days and still accruing includes premium finance loans of $8.5 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) | |||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | 4th Quarter | |||||||||||
| 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||
| Interest income | |||||||||||||||
| Interest and fees on loans | $ | 312,147 | $ | 329,344 | $ | 329,842 | $ | 312,703 | $ | 310,470 | |||||
| Investment securities | 2,618 | 2,316 | 2,260 | 1,460 | 1,274 | ||||||||||
| Federal funds sold and securities purchased under resale agreements | 439 | 554 | 157 | 379 | 984 | ||||||||||
| Interest-bearing deposits in other banks | 22,553 | 22,887 | 14,634 | 11,019 | 8,990 | ||||||||||
| Total interest income | 337,757 | 355,101 | 346,893 | 325,561 | 321,718 | ||||||||||
| Interest expense | |||||||||||||||
| Deposits | 70,987 | 80,967 | 72,529 | 69,054 | 61,773 | ||||||||||
| Federal funds purchased | 1,319 | 1,835 | 5,202 | 3,516 | 2,097 | ||||||||||
| Other borrowings | 11,712 | 14,703 | 20,124 | 11,854 | 11,726 | ||||||||||
| Subordinated notes | 4,191 | 4,191 | 4,191 | 4,191 | 4,191 | ||||||||||
| Trust preferred subordinated debentures | 1,163 | 1,237 | 1,294 | 1,332 | 1,258 | ||||||||||
| Total interest expense | 89,372 | 102,933 | 103,340 | 89,947 | 81,045 | ||||||||||
| Net interest income | 248,385 | 252,168 | 243,553 | 235,614 | 240,673 | ||||||||||
| Provision for credit losses | 17,000 | 11,000 | 27,000 | 20,000 | 35,000 | ||||||||||
| Net interest income after provision for credit losses | 231,385 | 241,168 | 216,553 | 215,614 | 205,673 | ||||||||||
| Non-interest income | |||||||||||||||
| Service charges on deposit accounts | 2,785 | 2,707 | 2,849 | 2,979 | 3,168 | ||||||||||
| Wealth management and trust fee income | 2,342 | 2,330 | 2,129 | 2,009 | 2,152 | ||||||||||
| Brokered loan fees | 8,645 | 8,691 | 7,336 | 5,066 | 5,408 | ||||||||||
| Servicing income | 4,030 | 3,549 | 3,126 | 2,734 | 2,861 | ||||||||||
| Swap fees | 1,559 | 1,196 | 601 | 1,031 | 1,356 | ||||||||||
| Net gain/(loss) on sale of LHS | (7,757 | ) | (6,011 | ) | (5,986 | ) | (505 | ) | (8,087 | ) | |||||
| Other | 6,157 | 7,839 | 14,309 | 16,700 | 8,422 | ||||||||||
| Total non-interest income | 17,761 | 20,301 | 24,364 | 30,014 | 15,280 | ||||||||||
| Non-interest expense | |||||||||||||||
| Salaries and employee benefits | 80,262 | 80,106 | 76,889 | 77,823 | 69,500 | ||||||||||
| Net occupancy expense | 9,075 | 8,125 | 7,910 | 7,879 | 7,390 | ||||||||||
| Marketing | 12,807 | 14,753 | 14,087 | 11,708 | 10,208 | ||||||||||
| Legal and professional | 22,402 | 11,394 | 10,004 | 10,030 | 13,042 | ||||||||||
| Communications and technology | 13,801 | 10,805 | 11,022 | 9,198 | 8,845 | ||||||||||
| FDIC insurance assessment | 5,613 | 5,220 | 4,138 | 5,122 | 5,423 | ||||||||||
| Servicing related expenses | 2,960 | 8,165 | 6,066 | 5,382 | 2,555 | ||||||||||
| Other | 11,770 | 10,802 | 11,445 | 13,236 | 12,899 | ||||||||||
| Total non-interest expense | 158,690 | 149,370 | 141,561 | 140,378 | 129,862 | ||||||||||
| Income before income taxes | 90,456 | 112,099 | 99,356 | 105,250 | 91,091 | ||||||||||
| Income tax expense | 16,539 | 23,958 | 21,387 | 22,411 | 19,200 | ||||||||||
| Net income | 73,917 | 88,141 | 77,969 | 82,839 | 71,891 | ||||||||||
| Preferred stock dividends | 2,437 | 2,438 | 2,437 | 2,438 | 2,437 | ||||||||||
| Net income available to common shareholders | $ | 71,480 | $ | 85,703 | $ | 75,532 | $ | 80,401 | $ | 69,454 |
10
| TEXAS CAPITAL BANCSHARES, INC. | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED DAILY AVERAGE BALANCES, AVERAGE YIELDS AND RATES - UNAUDITED | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 4th Quarter 2019 | 3rd Quarter 2019 | 2nd Quarter 2019 | 1st Quarter 2019 | 4th Quarter 2018 | ||||||||||||||||||||||||||
| 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><br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br><br>Expense | Yield/<br>Rate | Average<br>Balance | Revenue/<br><br>Expense | Yield/<br>Rate | ||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||
| Investment securities - Taxable | $ | 40,904 | $ | 693 | 6.72 | % | $ | 39,744 | $ | 357 | 3.56 | % | $ | 38,887 | $ | 287 | 2.96 | % | $ | 30,625 | $ | 274 | 3.62 | % | $ | 23,977 | $ | 259 | 4.29 | % |
| Investment securities - Non-taxable^(2)^ | 197,591 | 2,437 | 4.89 | % | 200,090 | 2,480 | 4.92 | % | 192,115 | 2,498 | 5.21 | % | 114,341 | 1,501 | 5.33 | % | 93,394 | 1,285 | 5.46 | % | ||||||||||
| Federal funds sold and securities purchased under resale agreements | 102,320 | 439 | 1.70 | % | 100,657 | 554 | 2.18 | % | 28,436 | 157 | 2.22 | % | 63,652 | 379 | 2.41 | % | 173,654 | 984 | 2.25 | % | ||||||||||
| Interest-bearing deposits in other banks | 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 | % | 1,585,763 | 8,990 | 2.25 | % | ||||||||||
| LHS, at fair value | 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 | % | 2,049,395 | 24,407 | 4.72 | % | ||||||||||
| LHI, mortgage finance loans | 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 | % | 5,046,540 | 47,305 | 3.72 | % | ||||||||||
| LHI^(1)(2)^ | 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 | % | 16,643,559 | 239,995 | 5.72 | % | ||||||||||
| Less allowance for loan<br><br>losses | 189,353 | — | — | 212,898 | — | — | 206,654 | — | — | 192,122 | — | — | 182,814 | — | — | |||||||||||||||
| LHI, net of allowance | 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 | % | 21,507,285 | 287,300 | 5.30 | % | ||||||||||
| Total earning assets | 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 | % | 25,433,468 | 323,225 | 5.04 | % | ||||||||||
| Cash and other assets | 974,866 | 1,000,117 | 940,793 | 894,797 | 828,156 | |||||||||||||||||||||||||
| Total assets | $ | 34,619,311 | $ | 32,886,612 | $ | 29,794,983 | $ | 26,655,036 | $ | 26,261,624 | ||||||||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||
| Transaction deposits | $ | 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 | % | $ | 3,233,960 | $ | 15,150 | 1.86 | % |
| Savings deposits | 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 | % | 8,354,332 | 36,913 | 1.75 | % | ||||||||||
| Time deposits | 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 | % | 1,886,016 | 9,710 | 2.04 | % | ||||||||||
| Total interest bearing deposits | 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 | % | 13,474,308 | 61,773 | 1.82 | % | ||||||||||
| Other borrowings | 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 | % | 2,290,520 | 13,823 | 2.39 | % | ||||||||||
| Subordinated notes | 282,074 | 4,191 | 5.89 | % | 281,979 | 4,191 | 5.90 | % | 281,889 | 4,191 | 5.96 | % | 281,799 | 4,191 | 6.03 | % | 281,708 | 4,191 | 5.90 | % | ||||||||||
| Trust preferred subordinated debentures | 113,406 | 1,163 | 4.07 | % | 113,406 | 1,237 | 4.33 | % | 113,406 | 1,294 | 4.58 | % | 113,406 | 1,332 | 4.76 | % | 113,406 | 1,258 | 4.40 | % | ||||||||||
| Total interest bearing liabilities | 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 | % | 16,159,942 | 81,045 | 1.99 | % | ||||||||||
| Demand deposits | 10,933,887 | 9,992,406 | 7,929,266 | 7,047,120 | 7,462,392 | |||||||||||||||||||||||||
| Other liabilities | 278,964 | 264,506 | 220,305 | 223,142 | 157,278 | |||||||||||||||||||||||||
| Stockholders’ equity | 2,806,240 | 2,722,421 | 2,632,485 | 2,551,663 | 2,482,012 | |||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 34,619,311 | $ | 32,886,612 | $ | 29,794,983 | $ | 26,655,036 | $ | 26,261,624 | ||||||||||||||||||||
| Net interest income^(2)^ | $ | 249,961 | $ | 253,768 | $ | 245,195 | $ | 237,052 | $ | 242,180 | ||||||||||||||||||||
| Net interest margin | 2.95 | % | 3.16 | % | 3.41 | % | 3.73 | % | 3.78 | % | ||||||||||||||||||||
| (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
q42019earningswebcbb5
Exhibit 99.2 TCBI Q4 2019 Earnings January 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 Texas Capital Bancshares, Inc. (“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, delays in completing the pending merger between TCBI and Independent Bank Group, Inc. (“IBTX”), the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, 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, the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger or new lines of business, new product or service offerings and new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements. 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. Further information regarding TCBI, IBTX and factors which could affect the forward-looking statements contained herein can be found in TCBI’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its other filings with the Securities and Exchange Commission (“SEC”), and in IBTX’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its other filings with the SEC. 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 on January 21, 2020 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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on April 23, 2019, 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 definitive proxy statement relating to its 2019 Annual Meeting of Shareholders filed with the SEC on March 7, 2019, and other documents filed by TCBI with the SEC. These documents can be obtained free of charge from the sources described above. 3
Opening Remarks & Financial Highlights Total Loans Total Deposits Net Income EPS ROE ROA Operating HFI Results $24.6 billion $26.5 billion $73.9 million $1.42 10.68% .85% • Net interest income decreased 2% from Q3-2019 and increased 3% from Q4-2018; increased 7% for YTD Net Interest 2019 Income and • Net interest margin decreased 21 bps from Q3-2019 to 2.95% and decreased 83 bps from Q4-2018 Margin • LIBOR movement reflected in core LHI yields and mortgage finance yields • Average LHI, excluding MFLs, decreased 1% from Q3-2019 ($234.1 million); increased less than 1% Balance Sheet from Q4-2018 ($23.7 million) Growth • Average total MFLs increased 7% from Q3-2019 ($765.4 million); 61% from Q4-2018 ($4.3 billion) • Average total deposits increased 6% from Q3-2019 ($1.7 billion); 35% from Q4-2018 ($7.4 billion) M • Net revenue decreased 2% from Q3-2019 and increased 4% from Q4-2018 Operating • Non-interest expense increased 6% from Q3-2019 and 22% from Q4-2018; increased 12% for YTD 2019, Leverage which included $1.3 million in merger-related expenses and $15.2 million of investment in Bask Bank and new C&I verticals, of which $6.0 million is non-recurring • Criticized loans were $584.1 million at Q4-2019 compared to $536.3 million at Q3-2019 and $442.0 Credit million at Q4-2018 Quality • NCOs / average total LHI of .21% for Q4-2019 compared to .58% for Q3-2019 and .60% for Q4-2018 • Non-accrual loans / total LHI of .91% for Q4-2019 compared to .49% in Q3-2019 and .36% in Q4-2018 4
Energy and Leveraged Lending Update EnergyEnergy Outstandings Outstandings 12/31/19 Energy • Outstanding energy loans represented 5% of total loans, or $1.4 billion, at Q4-2019 compared to 6%, or $1.5 billion, at Q3- 2019 and 8%, or $1.8 billion, at Q4-2018 10% 1% Total E&P 6% • Non-accruals totaled $125.0 million at Q4-2019 compared to $63.2 million at Q3-2019 and $37.5 million at Q4-2018 Total Midstream • Criticized energy loans totaled $211.4 million (15% of outstanding energy loans) at Q4-2019 compared to $136.0 Total Salt Water Disposal million (9%) at Q3-2019 and $83.4 million (5%) at Q4-2018 • Allocated reserves of $61.8 million represents 4% of Total Other 83% outstanding energy loans C&I Leveraged C&I Leveraged Outstandings 12/31/19 • Outstanding C&I leveraged loans decreased $374.9 million, or 1300 31%, from Q4-2018; expected 25%-30% reduction for full year 1200 2019 achieved $1,216.0 $1,200.2 1100 • Outstanding C&I leveraged loans represented 3% of total 1000 $1,051.8 loans, or $841.1 million, at Q4-2019 compared to 4%, or $1.0 $1,008.1 900 billion, at Q3-2019 and 5%, or $1.2 billion, at Q4-2018 800 $841.1 • Non-accruals totaled $73.2 million (9% of outstanding C&I 700 leveraged loans) at Q4-2019, compared to $28.3 million (3%) at 600 Q3-2019 and $28.8 million (2%) at Q4-2018 500 Ending Ending ($M) Balances • Criticized loans totaled $204.0 million (24% of outstanding 400 C&I leveraged loans) at Q4-2019, compared to $177.1 million 300 (18%) at Q3-2019 and $151.0 million (12%) at Q4-2018 200 • 100 Allocated reserves of $68.4 million represents 8% of 0 outstanding C&I leveraged loans Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 • No significant concentration in any industry 5
Net Interest Income & Margin Average Earning Assets & Net Quarterly Change Interest Income NII ($MM) NIM (%) $5.7 $252.2 Q3 2019 3.16% $30.0 $4.5 17.1 Decrease in funding costs .21 6.3 Increase in loan balances - $2.8 $27.9 $27.4 1.8 Contribution from free funds .02 $25.0 $26.1 $1.9 $2.0 .6 Mix shift from MF to LHI .01 $23.7 $23.6 (.5) Increase in liquidity (.11) $20.0 (6.5) Decrease in MF yields (.08) $252.2 Decrease in Liquidity Asset $248.4 (7.1) (.08) yields $243.6 $240.7 $235.6 $15.0 (15.5) Decrease in LHI loan yields (.18) Portfolio Balances ($B) PortfolioBalances $248.4 Q4 2019 2.95% $10.0 Highlights • Impact of continued downward LIBOR move reflected in traditional LHI yields • Mortgage finance yields impacted by volume pricing $5.0 • MCA/LHS yields impacted by decline in mortgage rates • Total funding costs decreased 22 bps during Q4-2019 $- compared to decrease of 15 bps during Q3-2019 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 • Deposit costs decreased 22 bps during Q4-2019 Total Loans Other Earning Assets Net Interest Income compared to decrease of 8 bps during Q3-2019 6
Loan Growth Average Loans & Yield Loan Composition ($27.2Billion outstanding balance 12/31/19) $28.0 Business Assets $26.0 $10.7 $11.4 $9.5 27% $24.0 Energy $22.0 $7.1 $7.1 5% $20.0 $18.0 Highly Liquid Unsecured Assets 3% $16.0 $16.6 $16.9 $16.8 $16.9 $16.7 1% $14.0 Owner Occupied 5.82% R/E $12.0 5.72% 5.73% 5.53% 4% Portfolio Portfolio Balances($B) $10.0 5.16% Residential R/E $8.0 Mkt. Risk 4% $6.0 $4.0 $2.0 Total Mortgage Comml R/E Mkt. Finance $- Risk 39% Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 13% Other Assets LHI (excl. MFLs) Total MFLs LHI (excl. MFL) Yield 4% Growth Highlights • Average LHI, excluding MFLs, down $234.1 million (1%) from Q3-2019 and up $23.7 million (less than 1%) from Q4-2018 • Decrease in LHI, excluding MFLs, at end of the quarter; period-end balance $190.8 million lower than Q4-2019 average balance • Increase in average total MFL balances of $765.4 million (7%) from Q3-2019 and $4.3 billion (61%) from Q4-2018 • Average total MFLs represent 41% of average total loans for Q4-2019 compared to 39% for Q3-2019 and 39% at period end 7
Deposit Growth Average Deposits Funding Costs 2.00% $28.0 $10.9 $26.0 $10.0 $24.0 $22.0 1.50% 1.38% 1.40% $7.9 $20.0 $7.5 $7.0 1.23% 1.25% $18.0 1.33% 1.29% 1.03% $16.0 $17.4 1.17% 1.21% $16.6 1.00% $14.0 $14.0 $14.6 0.99% $12.0 $13.5 Deposit Balances Deposit($B) Balances $10.0 $8.0 0.50% $6.0 $4.0 $2.0 $- 0.00% Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Interest-Bearing Deposits DDAs Avg Cost of Deposits Total Funding Costs Growth Highlights • Deposit costs decreased 22 bps during Q4-2019 and total funding costs decreased 22 bps; compared to a decrease of 8 bps and 15 bps, respectively, in Q3-2019 • Cost of interest-bearing deposits decreased 31 bps during Q4-2019; compared to a decrease of 6 bps in Q3-2019 • Increase in linked quarter average total deposits with growth in demand deposits improving overall deposit costs • Continued focus on cost-effective deposit growth with new verticals and core client relationships • Decrease in total funding costs resulting from continued decline in rates 8
Non-interest Expense Quarterly Change Annual Change Increase/ Increase/ Non-interest expense ($MM) (Decrease) Non-interest expense ($MM) (Decrease) Q3 2019 $149.4 YTD 2018 $525.1 Salaries and employee benefits, includes: Salaries and employee benefits, includes: – FAS 123R (includes stock price changes) .6 – FAS 123R (includes stock price changes) .7 – non-LTI incentives and annual incentive pool (1.4) – non-LTI incentives and annual incentive pool 2.3 – severance (0.8) – MTM on deferred compensation 3.6 – MTM on deferred compensation 0.7 – salaries and benefits 16.7 – salaries and benefits 1.1 Marketing expense; variable component tied to deposits (1.9) Marketing expense; variable component tied to deposits 14.0 Legal and professional, includes: Legal and professional – merger-related 1.3 – merger-related 1.3 – Bask Bank and new C&I verticals 7.4 – Bask Bank and new C&I verticals 9.1 – variable component related to deposit services 0.7 – variable component related to deposit services 2.2 – general 1.6 – general (1.8) Communications and technology 3.0 Communications and technology 14.8 Servicing related expenses (includes MSR impairment) (5.2) Servicing related expenses (includes MSR impairment) 7.6 All other – includes occupancy and FDIC insurance 2.2 All other – includes occupancy and FDIC insurance (5.6) Q4 2019 $158.7 YTD 2019 $590.0 NIE - Efficiency • Full year 2019 efficiency ratio of 55.0% compared to prior year of 52.9%; 59.6% for Q4-2019 compared to 54.8% for Q3-2019 • Important to understand punitive impact of deposit related marketing fees and servicing expenses on efficiency ratio; adjusted ratio of 52.1% for 2019 compared to 50.7% for 2018; 2019 includes $1.3 million in merger-related expenses and $15.2 million of investment in Bask Bank and new C&I verticals, of which $6.0 million is non-recurring 9
Asset Quality Allowance for Credit Losses NCO/Average Total LHI $240.0 0.80% $220.0 $225.4 $218.4 $200.0 0.70% $203.0 $199.5 $203.7 $180.0 0.60% $160.0 0.93% 0.93% $140.0 0.90% 0.50% $120.0 0.81% 0.83% 0.40% 0.37% ALLL ALLL ($M) $100.0 0.29% 0.31% $80.0 0.30% $60.0 0.20% 0.16% $40.0 $20.0 0.10% 0.07% $- Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 0.00% ALLL Total Allowance for Credit Losses as % of Total LHI 2015 2016 2017 2018 2019 Criticized Loans as % of Total LHI Combined 5.00% Reserves/ .90% 1.03% .94% .90% .83% Total LHI $600.0 $629.1 $602.8 $584.1 4.00% Asset Quality Highlights $500.0 $536.3 • Credit cost of $17.0 million for Q4-2019, compared to $11.0 million in $442.0 Q3-2019 and $35.0 million in Q4-2018 $400.0 3.00% 2.58% 2.58% • NCOs $12.8 million ($588,000 energy and $6.2 million leveraged 2.37% 2.17% lending), or 21 bps of average total LHI, in Q4-2019 compared to $36.9 $300.0 1.96% 2.00% million, or 58 bps, in Q3-2019 and 60 bps in Q4-2018; YTD Q4-2019 Criticized Criticized Loans($M) NCOs $74.3 million ($32.3 million energy and $30.2 million leveraged $200.0 lending) 1.00% • NPL ratio increased to .91% of total LHI at Q4-2019 compared to .49% $100.0 at Q3-2019 and .36% at Q4-2018 $- 0.00% • Criticized loans increased to $584.1 million at Q4-2019 compared to Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 $536.3 million at Q3-2019 and $442.0 million at Q4-2018 Criticized Loans Criticized Loans as a % of Total LHI 10
Performance Summary - Quarterly (in thousands except per share data) Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Net interest income $ 248,385 $ 252,168 $ 243,553 $ 235,614 $ 240,673 Non-interest income 17,761 20,301 24,364 30,014 15,280 Net revenue 266,146 272,469 267,917 265,628 255,953 Provision for credit losses 17,000 11,000 27,000 20,000 35,000 Non-interest expense 158,690 149,370 141,561 140,378 129,862 Income before income taxes 90,456 112,099 99,356 105,250 91,091 Income tax expense 16,539 23,958 21,387 22,411 19,200 Net income 73,917 88,141 77,969 82,839 71,891 Preferred stock dividends 2,437 2,438 2,437 2,438 2,437 Net income available to common shareholders $ 71,480 $ 85,703 $ 75,532 $ 80,401 $ 69,454 Diluted EPS $ 1.42 $ 1.70 $ 1.50 $ 1.60 $ 1.38 Net interest margin 2.95% 3.16% 3.41% 3.73% 3.78% ROA .85% 1.06% 1.05% 1.26% 1.09% ROE 10.68% 13.22% 12.20% 13.58% 11.82% Non-interest expense to average earning assets 1.87% 1.86% 1.97% 2.21% 2.03% Efficiency 59.6% 54.8% 52.8% 52.8% 50.7% Efficiency, adjusted(1) 57.7% 51.2% 49.5% 50.1% 48.7% (1) 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. Marketing fees totaled $9.4 million, $11.9 million, $11.6 million, $9.1 million and $7.7 million for Q4, Q3, Q2 and Q1 2019, as well as for Q4 2018, respectively. 11
Performance Summary - Annual (in thousands except per share data) 2019 2018 2017 2016 2015 Net interest income $ 979,720 $ 914,860 $ 761,328 $ 639,814 $ 556,530 Non-interest income 92,440 78,024 74,256 60,780 47,738 Net revenue 1,072,160 992,884 835,584 700,594 604,268 Provision for credit losses 75,000 87,000 44,000 77,000 53,250 OREO write-down - - 6,111 - - Non-interest expense 589,999 525,096 459,765 382,397 326,523 Income before income taxes 407,161 380,788 325,708 241,197 224,495 Income tax expense 84,295 79,964 128,645 86,078 79,641 Net income 322,866 300,824 197,063 155,119 144,854 Preferred stock dividends 9,750 9,750 9,750 9,750 9,750 Net income available to common shareholders $ 313,116 $ 291,074 $ 187,313 $ 145,369 $ 135,104 Diluted EPS $ 6.21 $ 5.79 $ 3.73 $ 3.11 $ 2.91 Net interest margin 3.28% 3.78% 3.49% 3.14% 3.14% ROA 1.04% 1.19% .87% .74% .79% ROE 12.38% 13.14% 9.51% 9.27% 9.65% Non-interest expense to average earning assets 1.96% 2.15% 2.12% 1.88% 1.84% Efficiency 55.0% 52.9% 55.8% 54.6% 54.0% Efficiency, adjusted(1) 52.1% 50.7% 53.2% 54.0% 53.6% (1) Non-interest expense, excluding OREO write-down, 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. Marketing fees totaled $42.0 million, $28.1 million, $16.3 million, $6.7 million and $5.6 million for YTD 2019, 2018, 2017, 2016 and 2015, respectively. 12
2020 Outlook Business Driver 2020 Outlook Average LHI Mid single digit percent growth Average LHI – Mortgage High teens percent decrease Finance Loans held for sale (MCA) Low $3.0 billion average Average Deposits Flat, due to repositioning Net Revenue Low single digit percent decrease Net Interest Margin 3.05% to 3.15% Provision Expense Low to high $60 million level NIE Mid single digit percent growth Efficiency Ratio High-50s 13
Closing Comments • Commitment to delivering premier client experience to our clients which we believe continues to improve post merger with opportunity to leverage branch network and increase small business market share • Continued runoff in leverage and energy portfolios in Q4-2019 reducing traditional LHI balances; net growth planned in traditional LHI in 2020 with portfolio of single family mortgages sourced from MCA and launch of new C&I verticals • Assuming more normalized level of mortgage finance in 2020, while leveraging MCA channel to add duration to the balance sheet • Most significant deposit initiatives include Bask Bank and commercial escrow, both of which are expected to gain meaningful market share in 2020 • Improved level of provision for loan losses in 2019 versus 2018, with continued improvement expected in 2020; remaining vigilant on improving the overall risk profile of the portfolio and resolving problem loans • Continued focus on management of core operating expenses while continuing to be opportunistic in attracting and hiring top revenue producing talent; committed to investment in Bask Bank which we believe is even more important post merger with an almost $50 billion bank 14
Q&A 15
Appendix 16
Merger of Equals Progress Work Underway to Create the Premier Texas-Based Bank Progress Since Announcement • Integration planning well underway with leaders from both companies working to ensure seamless and timely transition once closing of the merger is achieved, subject to customary closing conditions • Established a joint Integration Management Office leveraging top-tier external advisors with extensive experience in transactions and deep knowledge of financial services • Continued commitment to achieving the synergies and cost savings as originally announced • Filed our registration statement; regulatory merger applications expected to be filed in January 2020 Illustrative Transaction Timeline Announced leadership, Filed registration Further updates to be provided Legal branding, headquarters, statement as work progresses Close and regulators December Today Mid-Year January 22, 2020 2019 2020 Joint Integration Management Office Special Meetings established; teams engaged in integration of Stockholders planning with help from top-tier external advisors 17
Focused on Results Delivering a High Performance Bank in the Country’s Best Markets • Focused on creating a high performance bank that can serve customers of any size in a combined footprint that spans five of the strongest markets in the country • Complementary nature of the two companies creates opportunities to greatly expand our offering to existing customers and to continue growing organically in our core markets • Our shared commitment to consistently delivering a high level of service to our customers will remain a core part of our shared identity once the merger is completed 18 Source: S&P Global. (1) 2025 projected population growth for MSAs with greater than 1 million people. (2) 2019 population.
Average Balances, Yields & Rates - Quarterly (in thousands) Q4 2019 Q3 2019 Q4 2018 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 238,495 5.21% $ 239,834 4.69% $ 117,371 5.22% Liquidity assets 5,489,320 1.66% 4,284,874 2.17% 1,759,417 2.25% Loans held for sale 3,567,836 3.72% 2,555,269 4.07% 2,049,395 4.72% LHI, mortgage finance 7,870,888 3.18% 8,118,025 3.36% 5,046,540 3.72% LHI 16,667,259 5.16% 16,901,391 5.53% 16,643,559 5.72% Total LHI, net of reserve 24,348,794 4.56% 24,806,518 4.87% 21,507,285 5.30% Total earning assets 33,644,445 4.00% 31,886,495 4.44% 25,433,468 5.04% Total assets $34,619,311 $32,886,612 $26,261,624 Liabilities and Stockholders’ Equity Total interest bearing deposits $17,382,275 1.62% $16,615,417 1.93% $13,474,308 1.82% Other borrowings 2,822,465 1.83% 2,896,477 2.27% 2,290,520 2.39% Total long-term debt 395,480 5.37% 395,385 5.45% 395,114 5.47% Total interest bearing liabilities 20,600,220 1.72% 19,907,279 2.05% 16,159,942 1.99% Demand deposits 10,933,887 9,992,406 7,462,392 Total deposits 28,316,162 0.99% 26,607,823 1.21% 20,936,700 1.17% Stockholders’ equity 2,806,240 2,722,421 2,482,012 Total liabilities and stockholders’ equity $34,619,311 1.03% $32,886,612 1.25% $26,261,624 1.23% Net interest margin 2.95% 3.16% 3.78% Total deposits and borrowed funds $31,138,627 1.07% $29,504,300 1.31% $23,227,220 1.29% 19
Average Balances, Yields & Rates - Annual (in thousands) 2019 2018 Avg. Bal. Yield Rate Avg. Bal. Yield Rate Assets Securities $ 213,902 4.92% $ 70,695 4.75% Liquidity assets 3,557,200 2.04% 1,970,310 1.85% Loans held for sale 2,688,677 4.19% 1,561,530 4.56% LHI, mortgage finance 6,999,586 3.45% 4,875,860 3.72% LHI 16,803,930 5.56% 16,075,007 5.46% Total LHI, net of reserve 23,603,232 4.98% 20,767,004 5.10% Total earning assets 30,063,011 4.56% 24,369,539 4.80% Total assets $31,016,005 $25,197,689 Liabilities and Stockholders’ Equity Total interest bearing deposits $15,667,512 1.87% $12,323,299 1.50% Other borrowings 3,038,095 2.31% 2,102,404 2.03% Total long-term debt 395,342 5.51% 394,980 5.44% Total interest bearing liabilities 19,100,949 2.02% 14,820,683 1.68% Demand deposits 8,989,104 7,890,304 Total deposits 24,656,616 20,213,603 Stockholders’ equity 2,679,021 2,365,449 Total liabilities and stockholders’ equity $31,016,005 1.25% $25,197,689 .99% Net interest margin 3.28% 3.78% Total deposits and borrowed funds $27,694,711 1.31% $22,316,007 1.02% 20
Average Balance Sheet - Quarterly (in thousands) QTD Average Q4/Q3 YOY % Q4 2019 Q3 2019 Q4 2018 % Change Change Total assets $34,619,311 $32,886,612 $26,261,624 5% 32% Loans held for sale 3,567,836 2,555,269 2,049,395 40% 74% Loans held for investment 16,667,259 16,901,391 16,643,559 (1)% 0% Loans held for investment, mortgage 7,870,888 8,118,025 5,046,540 (3)% 56% finance Total loans held for investment 24,538,147 25,019,416 21,690,099 (2)% 13% Total loans 28,105,983 27,574,685 23,739,494 2% 18% Liquidity assets 5,489,320 4,284,874 1,759,417 28% 212% Demand deposits 10,933,887 9,992,406 7,462,392 9% 47% Total deposits 28,316,162 26,607,823 20,936,700 6% 35% Stockholders’ equity 2,806,240 2,722,421 2,482,012 3% 13% 21
Period End Balance Sheet (in thousands) Period End Q4/Q3 % YOY % Q4 2019 Q3 2019 Q4 2018 Change Change Total assets $32,548,069 $33,526,437 $28,257,767 (3)% 15% Loans held for sale 2,577,134 2,674,225 1,969,474 (4)% 31% Loans held for investment 16,476,413 16,772,824 16,690,550 (2)% (1)% Loans held for investment, mortgage 8,169,849 7,951,432 5,877,524 3% 39% finance Total loans held for investment 24,646,262 24,724,256 22,568,074 0% 9% Total loans 27,223,396 27,398,481 24,537,548 (1)% 11% Liquidity assets 4,263,766 4,993,185 2,865,874 (15)% 49% Demand deposits 9,438,459 10,289,572 7,317,161 (8)% 29% Total deposits 26,478,593 27,413,303 20,606,113 (3)% 28% Stockholders’ equity 2,832,258 2,757,433 2,500,394 3% 13% 22