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| EX-99.1 - EXHIBIT 99.1 EARNINGS RELEASE - TEXAS CAPITAL BANCSHARES INC/TX | a04192017exhibit991.htm |
| 8-K - 8-K - TEXAS CAPITAL BANCSHARES INC/TX | a04192017-8k.htm |
TCBI Q1 2017
Earnings
April 19, 2017
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, 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
3
Opening Remarks & Financial Highlights
Core
Earnings
Power
Strong
Balanced
Growth
Credit
Quality
• Solid traditional LHI growth in Q1-2017
• Mortgage finance balances down significantly as a result of seasonal impact and higher rates, offset
partially by significant growth in MCA
• More dramatic seasonal impact experienced in average DDAs and total deposits as base has grown
• Solid net revenue contribution despite seasonal impact, YOY net revenue growth significant
• Operating leverage acceptable with improvements expected later in the year
• Benefit of increase in rates, before decline in mortgage finance volumes, is as expected; additional rate
move will be impactful
• Credit metrics remain acceptable with Q1-2017 provision of $9 million as a result of continued
improvement in criticized loan balances
• NCOs for Q1-2017 $5.7 million, or 18 bps
• Meaningful decline in NPA levels since Q4-2016
• High allowance coverage ratios
Operating
Results
Net Income
$42.5 million
EPS
$0.80
ROE
CE
8.60%
Total
LHI
$16.7 billion
Total
Deposits
$16.6 billion
4
Energy & Houston Update
Energy Exposure
• Outstanding energy loans represented 5% of total loans, or $968.5 million, at Q1-2017 compared to $996.1 million at Q4-
2016
• Conservative underwriting provided appropriate protection from industry weakness
• Strong reserve position
‐ Allocated reserve of $57.4 million represents 6% of energy loans
‐ $7.1 million of energy net charge-offs in Q1-2017 previously reserved
‐ Strongest position compared to other energy lending peers in criticized assets, reserve coverage to criticized assets and
exposure to unfunded commitments
• Decrease in energy non-accruals
‐ Non-accruals $100.9 million at Q1-2017 compared to $121.5 million at Q4-2016
‐ Criticized energy loans decreased to 16% of energy loans at Q1-2017 from 20 % at Q4-2016
‐ Total criticized energy loans at Q1-2017 $154.9 million, includes classified of $137.9 million and all NPAs
Houston CRE
• Diversified exposure representing 5% of total LHI
• Limited new commitments since year-end 2014
• Credit quality remains strong with $3 million “special mention”, no substandard or nonaccrual at Q1-2017 compared to $8.3
million “special mention” $159,000 substandard, and no non-accrual at Q4-2016
• Confident of position due to conservative underwriting standards – still watching carefully
8
,
8
1
2
8
,
7
4
3
6
,
1
0
1
1
0
,
5
0
4
-
2,000
4,000
6,000
8,000
10,000
12,000
Texas Regions National Businesses
$
M
i
l
l
i
o
n
s
Loans Deposits
5
Update on Geographic Diversification
Note: (1) Texas Regions loan balances include balances from the Energy business (2) Unemployment data through February 28, 2017
• While cities directly involved in the oil/gas industry
are more exposed to the energy downturn, Texas as a
whole and TCBI markets are more resilient, due to
improvement in its economic diversification, corporate
relocations and strong population growth
• Many of our national lines of business have been
operating for many years, increasing our geographic
diversification as each gained additional market share
• National Business balances include Mortgage Finance,
Builder Finance, Lender Finance, Public Finance,
ABL, Franchise Finance, BDCF and national
depository businesses
• Our national LOBs include Texas clients, but Texas
clients represent less than 20% of their total business
Major Texas Metro Areas
Unemployment
Rate(2)
Austin-Round Rock 3.7%
DFW-Arlington 4.3%
Houston metro 5.9%
San Antonio 4.2%
(1)
Net Interest Income & Margin
6
• Net interest income decrease of 5% from Q4-2016; 13%
increase from Q1-2016
• Adjusted NIM net of effect of liquidity is 3.83%
• Loan fees, including syndication fees, slightly less than
Q4-2016
• Total Average Liquidity Assets 18% of earning assets
with yield of 80 bps and slight decrease in average since
Q4-2016 which was favorable to NIM; overall levels
significantly reduce NIM and ROA with minor benefit
to NII
Quarterly Change
NII ($MM) NIM (%)
$171.2 Q4 2016 3.11%
3.9 Mix shift from MFLs to LHI .08
5.6 Increase in LHI net loan yields .11
1.4 Increase in MF loan yields .03
- Decrease in liquidity assets .07
(3.8) Decrease in day count -
(3.9) Increase in funding costs (.08)
(1.1) Decrease in loans fees (.02)
3.1 Increase in LHI balances
(12.1) Decrease in MF balances -
- Other (.01)
$164.3 Q1 2017 3.29%
Earning Asset & Margin Trends
$15.6
$16.7
$17.5 $17.8
$16.6
$3.0
$3.2
$3.6
$4.1
$3.6
3.77% 3.82% 3.82% 3.84%
3.99%
3.13% 3.18% 3.14% 3.11%
3.29%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
$-
$5.0
$10.0
$15.0
$20.0
$25.0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
P
o
r
t
f
o
l
i
o
B
a
l
a
n
c
e
s
(
$
B
)
Loans Other Earning Assets Total Loan Spread NIM
NIM Highlights
Loan Growth
7
• Broad-based growth in average traditional LHI – Growth of $278.7 million (2%) from Q4-2016 and $1.1 billion (9%) from Q1-2016
• Strong growth at end of the quarter; period-end balance $318.4 million higher than Q1-2017 average balance
• Decrease in average MFL balances of $1.5 billion from Q4-2016
• Less than recent trends, average total MFLs represent 23% of average total loans at Q1-2017 compared to 24% at period end
Growth Highlights
Average Balance Trends ($B) Total Loan Composition
($17.6Billion at 3/31/17)
$11.9 $12.3 $12.6
$12.7 $13.0
$3.9
$4.6
$5.1 $5.3 $3.8
4.25% 4.35% 4.34% 4.39% 4.53%
-5.00%
-3.00%
-1.00%
1.00%
3.00%
5.00%
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
$22.0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
P
o
r
t
f
o
l
i
o
B
a
l
a
n
c
e
s
(
$
B
)
LHI (excl. MFLs) Total MFLs LHI (excl. MFL) Yield
Deposit Growth
8
Average Balance Trends ($B) Funding Costs
• Core funding costs – deposits and borrowed funds increased by 9 bps from .25% at Q4-2016 to .34% at Q1-2017 compared to increase in average
earning assets yield of 27 bps
• Continued deposit growth strategy
‐ Decrease in linked quarter deposits resulting from seasonal impacts, with liquidity still maintained at a high level
‐ Slightly lower liquidity favorable to NIM in Q1-2017, but will fluctuate from quarter to quarter based on levels of liquidity assets, use of
borrowed funds and related loan mix
‐ Significant asset sensitivity and duration of low-cost funding over past several years
Growth Highlights
$8.9 $9.1 $9.0 $9.5 $9.4
$6.7
$7.8
$8.8
$9.1
$7.5
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
D
e
p
o
s
i
t
B
a
l
a
n
c
e
s
(
$
B
)
Interest-Bearing Deposits DDAs
0.23%
0.21% 0.20%
0.22%
0.32%
0.32%
0.30% 0.29%
0.31%
0.40%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
Avg Cost of Deposits Total Funding Costs
Non-interest Expense
9
Quarterly Change NIE - Efficiency
Non-interest expense ($MM)
Increase/
(Decrease)
Q4 2016 $106.5
Salaries and employee benefits – FAS 123R
(includes stock price changes) (2.8)
Salaries and employee benefits – non-LTI
incentives and annual incentive pool (3.1)
Salaries and employee benefits – FICA and
seasonal payroll related items 3.0
Salaries and employee benefits – continued
build out 0.6
FDIC assessment (0.6)
Other professional – can vary from quarter to
quarter 1.0
All other – includes occupancy, technology,
marketing, MSR amortization and impairment 1.4
Q1 2017 $106.0
• Changes in Salaries & Benefits expense were major
components of net change
• Reduction in 123R expense – ($2.8 million)
• Expected expense for 2017
approximately $19 million compared to
2016 plan of $16 million
• 2016 actual $2.1 million less than plan
due to stock price changes
• Q1-2017 expense of $4.6 million
compared to $7.4 million in Q4-2016
• Annual incentive accrual ramps in line with
plan progress generally lower in Q1
• Increase in Efficiency Ratio to 58.8% driven by
reduction in Net Revenue
• Growth in traditional LHI and MCA offset by
MF contraction
• Seasonal reduction in purchase financing
exacerbated by sharp decrease in refinancing
activity
• Contrast to Q1-2015 and 2016 when low rates
drove surge in refinancing activity
Performance Summary - Quarterly
10
(in thousands) Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016
Net interest income $ 163,359 $ 171,223 $ 166,739 $ 157,069 $ 144,783
Non-interest income 17,110 18,835 16,716 13,932 11,297
Net revenue 180,469 190,058 183,455 171,001 156,080
Provision for credit losses 9,000 9,000 22,000 16,000 30,000
Non-interest expense 106,094 106,523 94,799 94,255 86,820
Income before income taxes 65,375 74,535 66,656 60,746 39,260
Income tax expense 22,833 26,149 23,931 21,866 14,132
Net income 42,542 48,386 42,725 38,880 25,128
Preferred stock dividends 2,438 2,437 2,438 2,437 2,438
Net income available to common shareholders $ 40,104 $ 45,949 $ 40,287 $ 36,443 $ 22,690
Diluted EPS $ .80 $ .96 $ .87 $ .78 $ .49
Net interest margin 3.29% 3.11% 3.14% 3.18% 3.13%
Net interest margin excl. liquidity assets 3.83% 3.69% 3.68% 3.68% 3.63%
ROA .83% .85% .78% .77% .53%
ROA excl. liquidity assets .89% .97% .87% .84% .57%
ROE 8.60% 10.82% 10.20% 9.65% 6.13%
Efficiency 58.8% 56.0% 51.7% 55.1% 55.6%
2017 Outlook
11
Business
Driver
2017 Outlook v. 2016 Results Comments & Changes since January
25, 2017
Average LHI High single to low double-digit percent growth –
Average LHI –
Mortgage Finance $3.2-3.5 billion average for final 9 months of 2017 Decreased from flat for the year
Loans held for sale
(MCA) $1.2 billion average outstandings Increased from $1.0 billion average outstandings
Average Deposits Low teens percent growth Decreased from low to mid-teens percent growth
Net Revenue Low to mid-teens percent growth Decreased from mid to high teens percent growth
Net Interest
Margin
3.25% to 3.35%
3.80% to 3.90%, excluding effect of liquidity assets
Increased from 3.20 to 3.30% and 3.70% to 3.80%,
excluding effect of liquidity assets
Provision Expense Low-$50 to low-$60 million level Decreased from low-$60 to mid-$70 million level
NIE Low-teens percent growth –
Efficiency Ratio Mid 50’s Reduced from low 50’s
Asset Quality
12
• Total credit cost of $9.0 million for Q1-2017, compared to $9.0
million in Q4-2016 and $30.0 million in Q1-2016
• NCOs $5.7 million, or 18bps, in Q1-2017 compared to $20.8
million, or 65 bps, in Q4-2016 and 25 bps in Q1-2016
• NPL ratio at 1.10% and at manageable level
• $7.1 million in charge-offs related to energy; energy NPAs at $100.9
million for Q1-2017 compared to $121.5 million in Q4-2016
Asset Quality Highlights
Non-accrual loans Q1 2017
Commercial $ 142,087
Construction –
Real estate 4,179
Consumer 200
Equipment leases 83
Total non-accrual loans 146,549
Non-accrual loans as % of LHI
excluding MF
1.10%
Non-accrual loans as % of total
LHI
.88%
OREO 18,833
Total Non-accruals + OREO $ 165,382
Non-accrual loans + OREO as % of
loans excluding MF + OREO
1.24%
Reserve to non-accrual total LHI 1.2x
NCO / Average Traditional LHI
Combined
Reserves/
Trad’l LHI
1.09% 1.06% 1.28% 1.38% 1.37%
0.66% 0.68%
0.10%
0.38%
0.18%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
2013 2014 2015 2016 YTD 2017
Closing Comments
• Solid core earnings despite mortgage headwinds
• Consistent traditional LHI growth experienced in Q1-2017
• Remain optimistic about pipeline despite the fact that we’re not seeing any growth from Trump effect, as clients wait
for tangible changes
• Prospect of additional short term rate hike positive for our asset sensitive balance sheet
• Energy portfolio properly reserved for remaining losses; remain confident in underwriting standards, portfolio
composition and reserve level
• Lower provision in Q1-2017 reflective of continued improvement in criticized loan levels
• MFL balances down significantly resulting from seasonality and lack of refinance activity as rates were rising; first
time in several years the market has experienced the full effects of seasonality
• Continued focus on future ROE improvement from existing business with efficiencies, improved non-interest
income from new LOBs and targeted growth in highest return businesses
13
Q&A
14
Appendix
15
Average Balances, Yields & Rates - Quarterly
16
(in thousands) Q1 2017 Q4 2016 Q1 2016
Avg. Bal. Yield Rate Avg. Bal. Yield Rate Avg. Bal. Yield Rate
Assets
Securities $ 32,129 2.86% $ 25,539 3.59% $ 29,102 3.61%
Liquidity assets 3,589,166 .80% 4,066,084 .54% 2,953,589 .50%
Loans held for sale 1,064,322 3.63% 944,484 3.33% 126,084 3.49%
LHI, mortgage finance 2,757,566 3.40% 4,371,475 3.19% 3,724,513 3.14%
LHI 12,980,544 4.53% 12,701,868 4.39% 11,910,788 4.25%
Total LHI, net of reserve 15,568,792 4.38% 16,892,616 4.13% 15,494,176 4.02%
Total earning assets 20,254,409 3.70% 21,928,723 3.43% 18,602,951 3.46%
Total assets $20,861,171 $22,524,394 $19,108,976
Liabilities and Stockholders’ Equity
Total interest bearing deposits $ 9,425,919 .57% $ 9,466,871 .45% $ 8,850,004 .40%
Other borrowings 1,333,685 .69% 1,553,010 .52% 1,346,998 .39%
Total long-term debt 394,482 5.16% 394,391 5.04% 394,119 5.01%
Total interest bearing liabilities 11,154,086 .75% 11,414,272 .61% 10,591,121 .57%
Demand deposits 7,547,338 9,129,668 6,730,586
Stockholders’ equity 2,041,870 1,839,301 1,638,851
Total liabilities and stockholders’ equity $20,861,171 .40% $22,524,394 .31% $19,108,976 .32%
Net interest margin 3.29% 3.11% 3.13%
Net interest margin excl. liquidity assets 3.83% 3.69% 3.63%
Total deposits and borrowed funds $18,306,942 .34% $20,149,549 .25% $16,927,588 .24%
Loan spread 3.99% 3.84% 3.77%
Average Balance Sheet - Quarterly
17
(in thousands) QTD Average
Q1/Q4 %
Change
YOY %
ChangeQ1 2017 Q4 2016 Q1 2016
Total assets $20,861,171 $22,524,394 $19,108,976 (7)% 9%
Loans held for sale 1,064,322 944,484 126,084 13% 744%
Loans held for investment 12,980,544 12,701,868 11,910,788 2% 9%
Loans held for investment, mortgage
finance
2,757,566 4,371,475 3,724,513 (37)% (26)%
Total loans held for investment 15,738,110 17,073,343 15,635,301 (8)% 1%
Total loans 16,802,432 18,017,827 15,761,385 (7)% 7%
Liquidity assets 3,589,166 4,066,084 2,953,589 (12)% 22%
Demand deposits 7,547,338 9,129,668 6,730,586 (17)% 12%
Total deposits 16,973,257 18,596,539 15,580,590 (9)% 9%
Stockholders’ equity 2,041,870 1,839,301 1,638,851 11% 25%
Period End Balance Sheet
18
(in thousands) Period End
Q1/Q4 %
Change
YOY %
ChangeQ1 2017 Q4 2016 Q1 2016
Total assets $20,864,874 $21,697,134 $20,210,893 (4)% 3%
Loans held for sale 884,647 968,929 94,702 (9)% 834%
Loans held for investment 13,298,918 13,001,011 12,059,849 2% 10%
Loans held for investment, mortgage
finance
3,371,598 4,497,338 4,981,304 (25)% (32)%
Total loans held for investment 16,670,516 17,498,349 17,041,153 (5)% (2)%
Total loans 17,555,163 18,467,278 17,135,855 (5)% 2%
Liquidity assets 2,804,921 2,725,645 2,644,418 3% 6%
Demand deposits 7,094,696 7,994,201 7,455,107 (11)% (5)%
Total deposits 16,605,380 17,016,831 16,298,847 (2)% 2%
Stockholders’ equity 2,050,442 2,009,557 1,647,088 2% 24%