Attached files
| file | filename |
|---|---|
| 8-K - 8-K - TEXAS CAPITAL BANCSHARES INC/TX | d884958d8k.htm |
| EX-99.1 - EX-99.1 - TEXAS CAPITAL BANCSHARES INC/TX | d884958dex991.htm |
| EX-99.3 - EX-99.3 - TEXAS CAPITAL BANCSHARES INC/TX | d884958dex993.htm |
 January 21, 2015
TCBI Q4 2014
Earnings
Exhibit 99.2 |
 Certain matters discussed on this call 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 Texas Capital’s control, could cause actual results to differ
materially from future results expressed or implied by
our
forward-looking
statements.
These
risks
and
uncertainties
include
the
risk
of
adverse
impacts
from
general
economic conditions, the effects of recent declines in oil and gas prices on our
customers, competition, changes in interest rates
and
exposure
to
regulatory
and
legislative
changes.
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 Texas
Capital’s business, can be found in our Annual Report on Form 10-K and other filings made by Texas
Capital with the Securities and Exchange Commission. Forward-looking
statements speak only as of the date of this call. 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 |
 Opening Remarks & Financial Highlights
3
Core
Earnings
Power
Strong
Balanced
Growth
Credit
Quality
•
Exceptional growth in traditional LHI balances despite highly competitive
C&I market, with increase in Q4-2014 average balances of $498
million compared to Q3-2014 •
Growth in mortgage finance loans (MFLs) with little evidence of seasonality in
Q4-2014 •
Continued strong growth in demand and total deposits
•
Asset sensitivity position increased with extended duration of low-cost
funding •
Growth in total loans continues to produce strong net revenue
•
Operating leverage improved with rate of growth in net revenue greater than NIE
for full year
•
Business
model
focused
on
organic
growth
demonstrates
ability
to
produce
high
returns on invested capital
•
Credit metrics remain strong with nominal increase in NPAs
•
NCOs at 5 bps in Q4-2014 and 7 bps YTD
•
High allowance coverage ratios
•
Provision primarily related to growth in core LHI |
 4
Energy Commentary
•
TCBI has deep experience in energy lending
•
Executives, lenders, credit policy and engineers, on average, have more than 3
decades of experience •
Since our inception there have been five corrections in energy commodity prices,
with no significant consequences
•
Cumulative energy losses < $300,000 in 15 years
•
Outstanding loans in energy portfolio 6% of total loans
•
Price
decks
are
dynamic,
but
our
underwriting
standards
have
not
changed
since
our
inception
•
Average credit line is approximately 60% funded
•
Agreements generally provide unilateral discretion to reduce borrowing bases as
necessary •
Over 90% of oil-weighted outstandings are hedged
•
Hedged price much higher than lifting costs, providing significant cash flow to
reduce debt •
Collateral comprised of long-lived reserves providing capacity to absorb
price swings •
In-house engineering reviews all credits and reports to Credit Policy
•
Anticipate some downgrades; currently nothing that would drive significant
allocation of loan loss reserves
•
Exposure to oil service
•
Less than 1% of total loans
•
Exposure generally limited to production, not the higher risk drilling and
completion |
 Revenue & Expense
5
•
High returns maintained with effective
deployment of additional capital
•
Improvement in operating leverage and
Efficiency Ratio for full year
•
Strong
capacity
for
Net
Revenue
growth
•
Total loans spread at 3.91%
•
Net Revenue increased 2% from Q3-2014
•
Reduction in NIM driven by growth, liquidity
build and debt issuance in Q1
•
Continued focus on managing growth in NIE
•
Effective utilization of professional resources
and reduction in legal expense
•
Linked quarter net decrease in incentive expense
linked to performance and change in stock price
•
Provision expense related to growth
represents net interest income contribution of
loan growth for 3+ months
Revenue & Expense Trends
Revenue & Expense Highlights
Operating Revenue CAGR: 18%
Net Interest
Income CAGR:
19%
Non-interest Income CAGR: 8%
Non-interest Expense CAGR: 14%
Net Income CAGR: 41%
0
100,000
200,000
300,000
400,000
500,000
600,000
2009
2010
2011
2012
2013
2014
Non-interest Income
Net Interest Income
Non-interest Expense |
 Net Interest Income & Margin
6
•
Net interest income growth of 2%
from Q3-2014 and 14% from Q4-
2013
•
Yields on traditional LHI down
modestly with 5% growth in average
balances from Q3-2014
•
MFL growth benefits NII
•
Yield reduction based on profile of
customers
•
Favorable deposit position
•
High risk-adjusted returns despite
impact on NIM
•
Core
funding
costs
–
deposits
and
borrowed
funds
–
flat
at
17
bps
•
Deposit growth consistent with plan
to increase liquidity
•
Minor benefit to NII
•
Impact on NIM consistent with
objectives
•
Significant increase in asset
sensitivity and duration of low-cost
funding
Net Interest Income & Margin Trends
NIM Highlights
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Net Interest income ($MM)
Net Interest Margin (%)
Earning Asset Yield (%)
Total Loan Spread (%) |
 Analysis of Net Interest Income & Expenses
7
NII ($MM)
NIM (%)
125.7
Q3 2014
3.77%
.1
Increase in liquidity
(.12)
(3.0)
Decrease in LHI loan yields
(.08)
(.6)
Decrease in MF loan yields
(.02)
1.5
Mix shift of MF loans/total loans
.01
3.8
Impact of increase in earning
assets
-
.1
Other
-
$127.6
Q4 2014
3.56%
Non-interest expense ($MM)
Linked quarter
increases/
(decreases)
Q3 2014
$71.9
Salaries
and
employee
benefits
–
related
to stock price changes
(.8)
Salaries and employee benefits –
performance based incentives, LTI and
annual incentive pool
.1
Legal
&
other
professional
–
effective
use of professional services; legal
reduced and varies by quarter
(1.1)
Salaries and employee benefits –
continued build out
2.1
All other –
includes occupancy,
technology and marketing, all with some
one-time and seasonal expenses
1.9
Q4 2014
$74.1 |
 Performance Summary -
Quarterly
8
(in thousands)
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Net interest income
$ 127,582
$ 125,661
$ 115,407
$ 108,315
$ 111,475
Non-interest income
11,226
10,396
10,533
10,356
11,184
Net revenue
138,808
136,057
125,940
118,671
122,659
Provision for credit losses
6,500
6,500
4,000
5,000
5,000
OREO valuation and write-down expense
-
-
-
-
466
Total provision and OREO valuation
6,500
6,500
4,000
5,000
5,466
Non-interest expense
74,117
71,915
69,765
69,317
69,822
Income before income taxes
58,191
57,642
52,175
44,354
47,371
Income tax expense
20,357
20,810
18,754
16,089
17,012
Net income
37,834
36,832
33,421
28,265
30,359
Preferred stock dividends
2,437
2,438
2,437
2,438
2,438
Net income available to common shareholders
$ 35,397
$ 34,394
$ 30,984
$ 25,827
$ 27,921
Diluted EPS
$ .78
$ .78
$ .71
$ .60
$ .67
Net interest margin
3.56%
3.77%
3.87%
3.99%
4.21%
ROA
1.03%
1.07%
1.08%
1.01%
1.10%
ROE
11.41%
12.11%
11.38%
10.20%
11.94%
Efficiency
(1)
53.4%
52.9%
55.4%
58.4%
56.9%
(1) Excludes OREO valuation charge |
 9
Performance Summary -
Annual
9
(in thousands)
2014
2013
2012
2011
2010
Net interest income
$ 476,965
$ 419,513
$ 376,879
$ 302,937
$ 241,674
Non-interest income
42,511
44,024
43,040
32,232
32,263
Net revenue
519,476
463,537
419,919
335,169
273,937
Provision for credit losses
22,000
19,000
11,500
28,500
53,500
OREO valuation and write-down expense
-
920
6,883
6,798
8,504
Total provision and OREO valuation
22,000
19,920
18,383
35,298
62,004
Non-interest expense
285,114
255,809
212,998
181,529
155,120
Income before income taxes
212,362
187,808
188,538
118,342
56,813
Income tax expense
76,010
66,757
67,866
42,366
19,626
Net income
136,352
121,051
120,672
75,976
37,187
Preferred stock dividends
9,750
7,394
-
-
-
Net income available to common shareholders
$ 126,602
$ 113,657
$ 120,672
$ 75,976
$ 31,187
Diluted EPS
$ 2.88
$ 2.72
$ 3.01
$ 1.99
$ 1.00
Net interest margin
3.78%
4.22%
4.41%
4.68%
4.28%
ROA
1.05%
1.17%
1.35%
1.12%
.63%
ROE
11.31%
12.82%
16.93%
13.39%
7.23%
Efficiency
(1)
54.9%
55.2%
49.8%
54.1%
56.6%
(1) Excludes OREO valuation charge |
 2015 Outlook
10
Business Driver
2015 Outlook v. 2014 Results
Average LHI
Low teens percent growth
Average
LHI
–
Mortgage
Finance
Flat to single digit percent growth
Average Deposits
Mid to high teens percent growth
Net Interest Income
Low double-digit percent growth, with continued low interest rates
and impact of days in Q1
Net Interest Margin
3.40% to 3.50%, continued compression with growth and liquidity
build
Net Charge-Offs
Less than 0.25%
NIE
Low to mid-teens percent growth
Efficiency Ratio
Mid –fifties, includes continued development of product extension and
regulatory
compliance
costs,
with
improvement
expected
in
2
half
of
2015
Diluted shares
2015 will include full effect of 2014 common equity offerings
nd |
 Loan & Deposit Growth
11
•
Broad-based
growth
in
average
traditional
LHI
–
Growth
of
$498.1
million
(5%)
from
Q3-2014
and
$1.8
billion
(22%) from Q4-2013
•
Period-end balance $233.6 million higher than Q4-2014 average balance and
20% above Q4-2013 period-end balance
•
MF performance exceeded industry trends with increase in averages of 1% from
Q3-2014 and 55% from Q4- 2013
•
Average DDA increased 8% from Q3-2014 and 53% from Q4-2013
•
Total average deposits increased 8% from Q3-2014 and 36% from
Q4-2013 Growth Highlights
Balance Trends
Total Loan Composition
($14.3 Billion at 12/31/14)
Demand Deposit CAGR: 42%
Total Deposit CAGR: 25%
Loans Held for Investment CAGR: 18%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2009
2010
2011
2012
2013
2014
Demand Deposits
Interest Bearing Deposits
Loans HFI
Business
Assets
28%
Energy
6%
Highly
Liquid
Assets
2%
Mortgage
Finance
29%
Other Assets
3%
Comml R/E
Mkt. Risk
18%
Residential
R/E Mkt.
Risk
7%
Owner
Occupied
R/E
5%
Unsecured
2% |
 Asset Quality
12
•
Total credit cost of $6.5 million for Q4-2014, compared
to $6.5 million in Q3-2014 and $5.5 million in Q4-2013
•
NCOs $1.1 million, or 5 bps, in Q4-2014 compared to 3
bps in Q3-2014 and 6 bps in Q4-2013
•
No OREO valuation charge in Q4-2014 or Q3-2014
compared to $466,000 in Q4-2013
•
Modest increase in non-accruals and OREO now less
than $1 million
Asset Quality Highlights
Non-accrual loans
Q4-2014
Commercial
$ 33,122
Construction
–
Real estate
9,947
Consumer
62
Equipment leases
173
Total non-accrual loans
43,304
Non-accrual loans as % of loans
excluding MF
.43%
Non-accrual loans as % of total
loans
.30%
OREO
568
Total Non-accruals + OREO
$ 43,872
Non-accrual loans + OREO as %
of loans excluding MF + OREO
.43%
Reserve to non-accrual loans
2.3x
NCO / Average Traditional LHI
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
2010
2011
2012
2013
2014
1.14%
0.58%
0.10%
0.07%
0.07% |
 EPS Growth
13
2009^
2010
2011
2012
2013
2014
^Excludes $.15 effect of preferred TARP dividend during
2009. Reported EPS was
$0.56. EPS
Growth (5-yr CAGR of 39%)
$0.71
$1.00
$1.99
$3.01
$2.72
$2.88
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50 |
 Closing Comments
•
Proven
organic
growth
business
model
continues
to
produce
in
key
lines
of
business
with improvements in operating leverage
•
Solid
core
earnings
power
and
strong
asset
growth
experienced
in
2014;
2015
expected
to be challenging year for asset growth
•
Despite drop in energy prices, remain confident about underwriting standards and
performance of energy portfolio
•
Continue to have critical focus on maintaining excellent credit quality which
could limit C&I growth
•
Continued success in building liquidity which will continue in 2015
•
Remain highly asset sensitive based on how we run our business; now better
positioned to take advantage of increases in short-term rates
•
Successful track record of talent acquisition and being opportunistic with
hires •
No real seasonality experienced in Q4-2014 as Mortgage Finance continues to
exceed industry trends with improved market position
•
Strong
build
out
in
2014
and
the
first
half
of
2015
positions
us
for
improving
earnings
trajectory in 2016
14 |
 Q&A
15 |
 Appendix
16 |
 Average Balances, Yields & Rates -
Quarterly
17
(in thousands)
Q4 2014
Q3 2014
Q4 2013
Avg. Bal.
Yield Rate
Avg. Bal.
Yield Rate
Avg. Bal.
Yield Rate
Assets
Securities
$ 42,515
3.80%
$ 46,413
3.86%
$ 65,067
4.25%
Fed funds sold & liquidity investments
882,001
.25%
388,855
.25%
158,594
.21%
Loans held for investment, mortgage finance
3,471,737
3.06%
3,452,782
3.13%
2,238,730
3.59%
Loans held for investment
9,921,323
4.40%
9,423,259
4.52%
8,142,569
4.73%
Total loans, net of reserve
13,296,921
4.08%
12,784,614
4.18%
10,297,290
4.52%
Total earning assets
14,221,437
3.85%
13,219,882
4.06%
10,520,951
4.45%
Total assets
$14,631,072
$13,629,609
$10,899,266
Liabilities and Stockholders’
Equity
Total interest bearing deposits
$ 7,405,436
.28%
$ 6,856,542
.27%
$ 5,887,252
.26%
Other borrowings
251,449
.19%
309,868
.20%
314,018
.20%
Subordinated notes
286,000
5.88%
286,000
5.88%
111,000
6.58%
Long-term debt
113,406
2.19%
113,406
2.19%
113,406
2.21%
Total interest bearing liabilities
8,056,291
.50%
7,565,816
.50%
6,425,676
.40%
Demand deposits
5,047,876
4,669,772
3,289,307
Stockholders’
equity
1,380,646
1,276,603
1,077,822
Total liabilities and stockholders’
equity
$14,631,072
.28%
$13,629,609
.28%
$10,899,266
.24%
Net interest margin
3.56%
3.77%
4.21%
Total deposits and borrowed funds
$12,704,761
.17%
$11,836,182
.16%
$ 9,490,577
.17%
Loan spread
3.91%
4.02%
4.35% |
 18
Average Balances, Yields & Rates -
Annual
18
(in thousands)
2014
2013
Avg. Bal.
Yield Rate
Avg. Bal.
Yield Rate
Assets
Securities
$ 49,200
3.98%
$ 77,178
4.39%
Fed funds sold & liquidity investments
444,673
.25%
144,050
.21%
Loans held for investment, mortgage finance
2,948,938
3.19%
2,342,149
3.75%
Loans held for investment
9,265,435
4.51%
7,471,676
4.73%
Total loans, net of reserve
12,123,010
4.22%
9,735,543
4.53%
Total earning assets
12,616,883
4.08%
9,956,771
4.47%
Total assets
$13,016,611
$10,348,404
Liabilities and Stockholders’
Equity
Total interest bearing deposits
$ 6,677,371
.27%
$ 5,407,810
.26%
Other borrowings
379,877
.20%
653,318
.19%
Subordinated notes
271,617
5.97%
111,000
6.60%
Long-term debt
113,406
2.19%
113,406
2.24%
Total interest bearing liabilities
7,442,271
.50%
6,285,534
.40%
Demand deposits
4,188,173
2,967,063
Stockholders’
equity
1,269,601
1,001,215
Total liabilities and stockholders’
equity
$13,016,611
.29%
$10,348,404
.24%
Net interest margin
3.78%
4.22%
Total deposits and borrowed funds
$11,245,421
.17%
$ 9,028,191
.17%
Loan spread
4.05%
4.36% |
 Average Balance Sheet -
Quarterly
19
(in thousands)
QTD Average
Q4/Q3 %
Change
YOY %
Change
Q4 2014
Q3 2014
Q4 2013
Total assets
$14,631,072
$13,629,609
$10,899,266
7%
34%
Loans held for investment
9,921,323
9,423,259
8,142,569
5%
22%
Loans held for investment, mortgage
finance
3,471,737
3,452,782
2,238,730
1%
55%
Total loans
13,393,060
12,876,041
10,381,299
4%
29%
Securities
42,515
46,413
65,067
(8)%
(35)%
Demand deposits
5,047,876
4,669,772
3,289,307
8%
53%
Total deposits
12,453,312
11,526,314
9,176,559
8%
36%
Stockholders’
equity
1,380,646
1,276,603
1,077,822
8%
28% |
 20
Average Balance Sheet -
Annual
20
(in thousands)
YTD Average
YOY % Change
2014
2013
Total assets
$13,016,611
$10,348,404
26%
Loans held for investment
9,265,435
7,471,676
24%
Loans held for investment, mortgage finance
2,948,938
2,342,149
26%
Total loans
12,214,373
9,813,825
24%
Securities
49,200
77,178
(36)%
Demand deposits
4,188,173
2,967,063
41%
Total deposits
10,865,544
8,374,873
30%
Stockholders’
equity
1,269,601
1,001,215
27% |
 Period End Balance Sheet
21
(in thousands)
Period End
Q4/Q3 %
Change
YOY %
Change
Q4 2014
Q3 2014
Q4 2013
Total assets
$15,899,946
$14,266,503
$11,720,064
11%
36%
Loans held for investment
10,154,887
9,686,422
8,486,603
5%
20%
Loans held for investment, mortgage
finance
4,102,125
3,774,467
2,784,265
9%
47%
Total loans
14,257,012
13,460,889
11,270,868
6%
26%
Securities
41,719
43,938
63,214
(5)%
(34)%
Demand deposits
5,011,619
4,722,479
3,347,567
6%
50%
Total deposits
12,673,300
11,715,808
9,257,379
8%
37%
Stockholders’
equity
1,484,190
1,297,922
1,096,350
14%
35% |