TCBI Q4 2018 Earnings January 23, 2019
Certain matters discussed within or in connection with these materials may contain “forward-looking statements” as defined in federal securities laws, which are subject to risks and uncertainties and are based on Texas Capital’s current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and similar expressions. A number of factors, many of which are beyond our control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the credit quality of our loan portfolio, general economic conditions in the United States and in our markets, including the continued impact on our customers from declines and volatility in oil and gas prices, the financial impact of the Tax Cuts and Jobs Act on our results of operations, rates of default or loan losses, volatility in the mortgage industry, the success or failure of our business strategies, future financial performance, future growth and earnings, the appropriateness of our allowance for loan losses and provision for credit losses, the impact of increased regulatory requirements and legislative changes on our business, increased competition, interest rate risk, the success or failure of new lines of business and new product or service offerings and the impact of new technologies. These and other factors that could cause results to differ materially from those described in the forward-looking statements, as well as a discussion of the risks and uncertainties that may affect our business, can be found in our Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this presentation. Texas Capital is under no obligation, and expressly disclaims any obligation, to update, alter or revise its forward-looking statements, whether as a result of new information, future events or otherwise. 2
Leveraging Our Success “Providing a premier and differentiated client experience to companies in high-value business segments that desire a broad relationship with the Bank” 2017-2018 2007-2013 • Established multiple new products (e.g., ABL, Franchise) and began • Navigated Great Recession prepared to development of new deposit-rich capitalize on market opportunities verticals • Positioned Mortgage Warehouse and • Initiated national treasury-led Builder Finance business to become industry vertical products industry leaders 2014-2016 • Celebrated 20th anniversary • Established Syndicated Finance capability and launched Inflection Point • Diversified into mortgage and holistic Treasury & Liquidity strategy correspondent aggregation and began • Surpassed $10B in assets re-engineering private wealth offering • Launched capital markets-focused capability • Initiated data strategy investments to 2003 improve operational efficiency and • Houston office opened support core management capabilities • Reached $2B in assets • Navigated energy downturn • Successful IPO completed 1998-2000 • Formed the Bank on December 18, 1998 • Establishes offices in three of the five major Texas metros (Dallas, Ft Worth, Austin) 3
Opening Remarks & Financial Highlights Total Loans Total Deposits Net Income EPS ROE ROA HFI Operating Results $22.6 billion $20.6 billion $71.9 million $1.38 11.82% 1.09% • Net interest income grew 4% from Q3-2018 and 14% from Q4-2017 Net Interest Income • Net interest margin increased 8 bps from 3.70% at Q3-2018 to 3.78% due to increase in yield on earning assets and Margin • LIBOR movement reflected in core LHI yields; stabilized mortgage finance yields • Average LHI, excluding MFLs, growth of 2% from Q3-2018 ($311.9 million); 11% from Q4-2017 ($1.6 billion) Balance Sheet • Average MFLs increased 2% from Q3-2018 ($167.6 million); 14% from Q4-2017 ($849.7 million) Growth • Average total deposits increased 1% from Q3-2018 ($143.3 million); 2% from Q4-2017 ($444.1 million) M • Net revenue decreased 1% from Q3-2018 and increased 11% from Q4-2017 Operating • Non-interest expense decreased 5% from Q3-2018 and decreased 2% from Q4-2017 Leverage • Improvement in full year operating leverage as compared to 2017; net revenue up 19% and non-interest expense up 13% NCOs / average total LHI of .37% for full year 2018 compared to .16% for full year 2017 • Credit Small number of deals that were previously identified, primarily leveraged • Quality Non-accrual loans / total LHI of .36%, compared to .49% in both Q3-2018 and Q4-2017 • 4
Energy and Leveraged Lending Update Energy Outstandings 12/31/18 Energy Outstanding energy loans represented 8% of total loans, or $1.8 • 3% billion, at Q4-2018 compared to 6%, or $1.3 billion, at Q4-2017 Total E&P Non-accruals totaled $37.5 million at Q4-2018 compared to $65.2 • 3% 10% million at Q4-2017 Total Midstream Criticized energy loans totaled $83.4 million (5% of outstanding • energy loans) at Q4-2018 compared to $93.3 million (7%) at Q4- 8% Total Salt Water 2017 Disposal 1% Allocated reserves of $36.7 million represents 2% of outstanding Total Subscription • energy loans Total Service By continuing to move up market, and thereby working with larger, 75% • well capitalized borrowers, we experienced significant loan growth Total Other in 2018 with an emphasis on oil concentrations primarily in the Permian Basin. C&I Leveraged Outstanding C&I leveraged loans represented 4% of total loans, or C&I Leveraged Outstandings 12/31/18 • $1.2 billion, at Q4-2018 compared to 6%, or $1.1 billion, at Q4-2017 Non-accruals totaled $28.8 million (2% of outstanding C&I • Accommodation and Food Services leveraged loans) at Q4-2018, compared to $30.1 million (3%) at Q4- 9% 2017 7% Arts, Entertainment, and Recreation Criticized loans totaled $151.0 million (12% of outstanding C&I • 37% leveraged loans) at Q4-2018, compared to $104.0 million (9%) at Manufacturing Q4-2017; increase primarily in special mention 23% Allocated reserves of $62.6 million represents 5% of outstanding • Professional, Scientific, and Technical C&I leveraged loans Services Wholesale Trade No significant concentration in any industry; NCOs in 2018 were in • 11% 13% the health care and quick serve restaurant (QSR) industries Other Services - includes 11 industries, Senior leverage greater than 3.0x and total leverage greater than • all individually 5% or less 4.0x, slightly over 50% of the portfolio at Q4-2018 5
Mortgage Finance Core Strengths Technology investments have allowed for scalability • Historically low credit risk • Strong funding opportunities • Other product offerings developed to serve the industry • Commitment to clients in the industry allow for increased market share • Efficiency Earnings & Combined Yield 6.0 60 50.0% 45.0% 13.50% 4.0 5.4 5.0 50 3.8 3.5 5.1 40.0% 5.0 4.0 49.7 4.9 47.3 11.50% 47.1 35.0% 4.0 40 44.5 3.4 4.1 Avg Balance ($B) Income ($M) 30.0% 9.50% 37.4 3.0 30 25.0% 7.50% 15.0% 20.0% 2.0 12.1% 12.1% 12.2% 20 15.0% 4.16% 9.2% 4.04% 5.50% 3.99% 3.91% 3.77% 10.0% 1.0 10 3.50% 5.0% 0.0 0 0.0% 1.50% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 1M LIBOR* 1.34% 1.66% 1.97% 2.11% 2.35% MFLs Efficiency Ratio Interest Income Fees (NIR) Combined Yield *Average of quarter’s daily 1M LIBOR rates 6
Net Interest Income & Margin Earning Asset & Margin Trends Quarterly Change NII ($MM) NIM (%) 4.40% $232.2 Q3 2018 3.70% $25.0 $1.9 $2.0 10.1 Increase in LHI yields .16 $1.7 $3.2 $23.6 $23.1 4.20% 1.3 Increase in MF loan yields .02 $2.6 $22.1 $21.1 .6 Increase in LHS yields .01 $20.0 $20.5 4.00% .1 Decrease in liquidity .01 3.93% (8.6) Increase in funding costs (.13) Portfolio Balances ($B) 3.78% 3.71% 3.70% $15.0 3.80% Increase in MF & LHI loan 5.0 - balances - Other .01 3.60% 3.47% 240.7 Q4 2018 3.78% $10.0 NIM Highlights 3.40% LIBOR moves reflected in traditional LHI yields • $5.0 Mortgage finance yields stabilized in Q4-2018 • 3.20% Rate of increase in total funding costs declined 1 bp from • Q3-2018; increase of 16 bps during Q4-2018 compared to 17 bps during Q3-2018 $- 3.00% No significant impact from earning asset shifts • Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total Loans Other Earning Assets NIM 7
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