Bay Street News

Texas Capital Bancshares, Inc. Announces Operating Results for 2018

Bay Street

DALLAS, Jan. 23, 2019 (GLOBE NEWSWIRE) — 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 2018.

“We are pleased with our 2018 operating results, highlights of which include record earnings increasing 53% year over year, continued loan growth and improvements in operating leverage,” said Keith Cargill, President and CEO. “We are committed to being proactive in regard to both credit quality and ensuring that our balance sheet is well positioned ahead of an eventual economic slowdown. We are confident in the continued success of our strategic initiatives for 2019, which include diversifying our funding profile and growing risk-appropriate earnings, as well as developing our talent and leveraging our people with improved technology to deliver premier client experience.”

FINANCIAL SUMMARY
(dollars and shares in thousands)

  2018   2017   % Change
ANNUAL OPERATING RESULTS          
Net income $ 300,824     $ 197,063     53 %
Net income available to common stockholders $ 291,074     $ 187,313     55 %
Diluted EPS $ 5.79     $ 3.73     55 %
Diluted shares 50,273     50,260     — %
ROA 1.19 %   0.87 %    
ROE 13.14 %   9.51 %    
QUARTERLY OPERATING RESULTS          
Net income $ 71,891     $ 44,742     61 %
Net income available to common stockholders $ 69,454     $ 42,305     64 %
Diluted EPS $ 1.38     $ 0.84     64 %
Diluted shares 50,333     50,312     — %
ROA 1.09 %   0.71 %    
ROE 11.82 %   8.18 %    
BALANCE SHEET          
LHS $ 1,969,474     $ 1,011,004     95 %
LHI, mortgage finance 5,877,524     5,308,160     11 %
LHI 16,690,550     15,366,252     9 %
Total LHI 22,568,074     20,674,412     9 %
Total loans 24,537,548     21,688,725     13 %
Total assets 28,257,767     25,075,645     13 %
Demand deposits 7,317,161     7,812,660     (6)%
Total deposits 20,606,113     19,123,180     8 %
Stockholders’ equity 2,500,394     2,202,721     14 %

DETAILED FINANCIALS
Texas Capital Bancshares, Inc. reported net income of $300.8 million and net income available to common stockholders of $291.1 million for the year ended December 31, 2018, compared to net income of $197.1 million and net income available to common stockholders of $187.3 million for the year ended December 31, 2017. For the fourth quarter of 2018, net income was $71.9 million and net income available to common stockholders was $69.5 million, compared to net income of $44.7 million and net income available to common stockholders of $42.3 million for the same period in 2017. On a fully diluted basis, earnings per common share were $5.79 for the year ended December 31, 2018 compared to $3.73 for the same period in 2017. Diluted earnings per common share were $1.38 for the quarter ended December 31, 2018 compared to $0.84 for the same period of 2017. The increase reflects a $27.1 million increase in net income primarily driven by an increase in net interest income for the fourth quarter of 2018 compared to the fourth quarter of 2017, as well as a decrease in income tax rates as a result of the Tax Cuts and Jobs Act which became effective on January 1, 2018 (the “Tax Act”), offset by an increase in the provision for credit losses. Results for the fourth quarter of 2017 were negatively impacted by a $17.6 million ($0.35 per share) write-off of our deferred tax asset as a result of the Tax Act.

Return on common equity (“ROE”) was 13.14 percent and return on average assets (“ROA”) was 1.19 percent for the year ended December 31, 2018, compared to 9.51 percent and 0.87 percent, respectively, for the year ended December 31, 2017. ROE was 11.82 percent and ROA was 1.09 percent for the fourth quarter of 2018, compared to 14.68 percent and 1.31 percent, respectively, for the third quarter of 2018 and 8.18 percent and 0.71 percent, respectively, for the fourth quarter of 2017. The linked quarter decreases in ROE and ROA for the fourth quarter of 2018 resulted primarily from the increase in the provision for credit losses.

Net interest income was $240.7 million for the fourth quarter of 2018, compared to $232.2 million for the third quarter of 2018 and $210.6 million for the fourth quarter of 2017. The linked quarter and year-over-year increases in net interest income are due primarily to increases in loan yields and growth in total loans. Net interest margin for the fourth quarter of 2018 was 3.78 percent, an increase of 8 basis points from the third quarter of 2018 and an increase of 31 basis points from the fourth quarter of 2017. LHI, excluding mortgage finance, yields were up 24 basis points from the third quarter of 2018, and were up 83 basis points compared to the fourth quarter of 2017. Mortgage finance, excluding MCA, yields for the fourth quarter of 2018 increased 10 basis points compared to the third quarter of 2018 and increased 26 basis points compared to the fourth quarter of 2017. Total cost of deposits for the fourth quarter of 2018 increased 18 basis points to 1.17 percent compared to 0.99 percent for the third quarter of 2018, and increased 64 basis points from 0.53 percent for the fourth quarter of 2017.

Average LHI, excluding mortgage finance loans, for the year ended December 31, 2018 were $16.1 billion, an increase of $2.0 billion, or 14 percent, from 2017. Average LHI, excluding mortgage finance loans, for the fourth quarter of 2018 were $16.6 billion, an increase of $311.9 million, or 2 percent, from the third quarter of 2018 and an increase of $1.6 billion, or 11 percent, from the fourth quarter of 2017. Average total mortgage finance loans, including MCA loans, for the fourth quarter of 2018 were $7.1 billion, an increase of $167.6 million, or 2 percent, from the third quarter of 2018 and an increase of $849.7 million, or 14 percent, from the fourth quarter of 2017.

Average total deposits for the year ended December 31, 2018 were $20.2 billion, an increase of $1.8 billion, or 10 percent, from 2017. Average demand deposits for the year ended December 31, 2018 were $7.9 billion, a decrease of $430.3 million, or 5 percent, from 2017. Average total deposits for the fourth quarter of 2018 increased $143.3 million from the third quarter of 2018 and increased $444.1 million from the fourth quarter of 2017. Average demand deposits for the fourth quarter of 2018 decreased $478.1 million, or 6 percent, to $7.5 billion from $7.9 billion from the third quarter of 2018, and decreased $1.6 billion, or 18 percent, from the fourth quarter of 2017 as a result of the rising interest rate environment and the shift to interest-bearing deposits.

We recorded a $35.0 million provision for credit losses for the fourth quarter of 2018 compared to $13.0 million for the third quarter of 2018 and $2.0 million for the fourth quarter of 2017. The provision for the fourth quarter of 2018 was driven by the consistent application of our methodology. The linked quarter increase resulted from an increase in charge-offs primarily related to several commercial loans, all of which were identified as non-accrual as of September 30, 2018, as well as an increase in total criticized loans. The total allowance for credit losses at December 31, 2018 increased to 1.22 percent of LHI, excluding mortgage finance loans, compared to 1.21 percent at September 30, 2018 and decreased from 1.26 percent at December 31, 2017. In management’s opinion, the allowance is appropriate and is derived from consistent application of the methodology for establishing reserves for the loan portfolio.

We experienced a decrease in non-performing assets (“NPAs”) in the fourth quarter of 2018 compared to the third quarter of 2018 and fourth quarter of 2017, decreasing the ratio of total NPAs to total LHI plus other real estate owned (“OREO”) to 0.36 percent compared to 0.49 percent for the third quarter of 2018 and 0.55 percent for the fourth quarter of 2017. Net charge-offs for the fourth quarter of 2018 were $32.6 million compared to $2.0 million for the third quarter of 2018 and $964,000 for the fourth quarter of 2017. The increase in charge-offs was primarily related to several commercial loans, all of which were identified as non-accrual as of September 30, 2018. For the fourth quarter of 2018, net charge-offs were 0.60 percent of average total LHI, compared to 0.04 percent for the third quarter of 2018 and 0.02 percent for the same period in 2017. At December 31, 2018, total OREO was $79,000 compared to $79,000 at September 30, 2018 and $11.7 million at December 31, 2017.

Non-interest income decreased $4.1 million, or 21 percent, during the fourth quarter of 2018 compared to the same period of 2017, and decreased $10.2 million, or 40 percent, compared to the third quarter of 2018. The linked quarter decrease is primarily related to decreases in the gain on sale of loans held for sale and servicing income. The year-over-year decrease primarily related to decreases in the gain on sale of loans and servicing income, offset by an increase in other non-interest income.

Non-interest expense for the fourth quarter of 2018 decreased $6.3 million, or 5 percent, compared to the third quarter of 2018, and decreased $3.3 million, or 2 percent, compared to the fourth quarter of 2017. The linked quarter decrease in non-interest expense was primarily related to decreases in salaries and employee benefits, FDIC insurance assessment and servicing related expenses, offset by increases in legal and professional expenses, communications and technology expenses and allowance and other carrying costs for OREO expenses. The year-over-year decrease was primarily due to decreases in allowance and other carrying costs for OREO, servicing related expenses and FDIC insurance assessment, offset by increases in legal and professional, communications and technology and marketing expenses.

Stockholders’ equity increased by 14 percent from $2.2 billion at December 31, 2017 to $2.5 billion at December 31, 2018, primarily due to the retention of net income. Texas Capital Bank is well capitalized under regulatory guidelines. At December 31, 2018, our ratio of tangible common equity to total tangible assets was 8.3% percent.
               
ABOUT TEXAS CAPITAL BANCSHARES, INC.
Texas Capital Bancshares, Inc. (NASDAQ®: TCBI), a member of the Russell 2000® 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.

This news release may be deemed to include forward-looking statements which are based on management’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. The information contained in this release speaks only as of its date. We are under no obligation, and expressly disclaim such obligation, to update, alter or revise our forward-looking statements, whether as a result of new information, future events, or otherwise.

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
  2018 2018 2018 2018 2017
CONSOLIDATED STATEMENTS OF INCOME          
Interest income $ 321,718   $ 301,754   $ 286,852   $ 253,869   $ 249,519  
Interest expense 81,045   69,579   55,140   43,569   38,870  
Net interest income 240,673   232,175   231,712   210,300   210,649  
Provision for credit losses 35,000   13,000   27,000   12,000   2,000  
Net interest income after provision for credit losses 205,673   219,175   204,712   198,300   208,649  
Non-interest income 15,280   25,518   17,279   19,947   19,374  
Non-interest expense 129,862   136,143   132,131   126,960   133,138  
Income before income taxes 91,091   108,550   89,860   91,287   94,885  
Income tax expense 19,200   22,998   18,424   19,342   50,143  
Net income 71,891   85,552   71,436   71,945   44,742  
Preferred stock dividends 2,437   2,438   2,437   2,438   2,437  
Net income available to common stockholders $ 69,454   $ 83,114   $ 68,999   $ 69,507   $ 42,305  
           
Diluted EPS $ 1.38   $ 1.65   $ 1.38   $ 1.38   $ 0.84  
Diluted shares 50,333,412   50,381,349   50,096,015   50,353,497   50,311,962  
CONSOLIDATED BALANCE SHEET DATA          
Total assets $ 28,257,767   $ 27,127,107   $ 27,781,910   $ 24,449,147   $ 25,075,645  
LHI 16,690,550   16,569,538   16,536,721   15,741,772   15,366,252  
LHI, mortgage finance 5,877,524   5,477,787   5,923,058   4,689,938   5,308,160  
LHS 1,969,474   1,651,930   1,276,768   1,088,565   1,011,004  
Liquidity assets(1) 2,865,874   2,615,570   3,288,107   2,296,673   2,727,581  
Investment securities 120,216   117,389   24,408   24,929   23,511  
Demand deposits 7,317,161   7,031,460   7,648,125   7,413,340   7,812,660  
Total deposits 20,606,113   20,385,637   20,334,871   18,764,533   19,123,180  
Other borrowings 4,541,174   3,686,818   4,520,849   2,835,540   3,165,040  
Subordinated notes 281,767   281,677   281,586   281,496   281,406  
Long-term debt 113,406   113,406   113,406   113,406   113,406  
Stockholders’ equity 2,500,394   2,426,442   2,343,530   2,273,429   2,202,721  
           
End of period shares outstanding 50,200,710   50,177,260   50,151,064   49,669,774   49,643,344  
Book value $ 46.82   $ 45.37   $ 43.74   $ 42.75   $ 41.35  
Tangible book value(2) $ 46.45   $ 45.00   $ 43.36   $ 42.37   $ 40.97  
SELECTED FINANCIAL RATIOS          
Net interest margin 3.78 % 3.70 % 3.93 % 3.71 % 3.47 %
Return on average assets 1.09 % 1.31 % 1.16 % 1.22 % 0.71 %
Return on average common equity 11.82 % 14.68 % 12.72 % 13.39 % 8.18 %
Non-interest income to average earning assets 0.24 % 0.40 % 0.29 % 0.35 % 0.32 %
Efficiency ratio(3) 50.7 % 52.8 % 53.1 % 55.1 % 57.9 %
Non-interest expense to average earning assets 2.03 % 2.15 % 2.23 % 2.23 % 2.17 %
Tangible common equity to total tangible assets(4) 8.3 % 8.3 % 7.8 % 8.6 % 8.1 %
Common Equity Tier 1 8.6 % 8.6 % 8.3 % 8.8 % 8.5 %
Tier 1 capital 9.5 % 9.6 % 9.3 % 9.9 % 9.5 %
Total capital 11.3 % 11.5 % 11.1 % 11.9 % 11.5 %
Leverage 9.9 % 9.7 % 9.9 % 9.9 % 9.2 %

(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)         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.

TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
  December 31, 2018 December 31, 2017 %
Change
Assets      
Cash and due from banks $ 214,191   $ 178,010   20  %
Interest-bearing deposits 2,815,684   2,697,581   4  %
Federal funds sold and securities purchased under resale agreements 50,190   30,000   67  %
Securities, available-for-sale 120,216   23,511   411  %
LHS ($1,969.2 million and $1,007.7 million at December 2018 and 2017, respectively, at fair value) 1,969,474   1,011,004   95  %
LHI, mortgage finance 5,877,524   5,308,160   11  %
LHI (net of unearned income) 16,690,550   15,366,252   9  %
Less:  Allowance for loan losses 191,522   184,655   4  %
LHI, net 22,376,552   20,489,757   9  %
Mortgage servicing rights, net 42,474   85,327   (50 )%
Premises and equipment, net 23,802   25,176   (5 )%
Accrued interest receivable and other assets 626,614   516,239   21  %
Goodwill and intangibles, net 18,570   19,040   (2 )%
Total assets $ 28,257,767   $ 25,075,645   13  %
       
Liabilities and Stockholders’ Equity      
Liabilities:      
Deposits:      
Non-interest bearing $ 7,317,161   $ 7,812,660   (6 )%
Interest bearing 13,288,952   11,310,520   17  %
Total deposits 20,606,113   19,123,180   8  %
       
Accrued interest payable 20,675   7,680   169  %
Other liabilities 194,238   182,212   7  %
Federal funds purchased and repurchase agreements  641,174   365,040   76  %
Other borrowings 3,900,000   2,800,000   39  %
Subordinated notes, net 281,767   281,406   —  %
Trust preferred subordinated debentures 113,406   113,406   —  %
Total liabilities 25,757,373   22,872,924   13  %
       
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, 2018 and 2017 150,000   150,000   —  %
Common stock, $.01 par value:      
Authorized shares – 100,000,000      
Issued shares – 50,201,127 and 49,643,761 at December 31, 2018 and 2017, respectively 502   496   1  %
Additional paid-in capital 967,890   961,305   1  %
Retained earnings 1,381,492   1,090,500   27  %
Treasury stock (shares at cost: 417 at December 31, 2018 and 2017) (8 ) (8 ) —  %
Accumulated other comprehensive income, net of taxes 518   428   21  %
Total stockholders’ equity 2,500,394   2,202,721   14  %
Total liabilities and stockholders’ equity $ 28,257,767   $ 25,075,645   13  %

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,
  2018 2017 2018 2017
Interest income        
Interest and fees on loans $ 310,470   $ 238,906   $ 1,124,970   $ 846,292  
Investment securities 1,274   213   2,834   1,066  
Federal funds sold and securities purchased under resale agreements 984   936   3,792   2,542  
Interest-bearing deposits in other banks 8,990   9,464   32,597   29,399  
Total interest income 321,718   249,519   1,164,193   879,299  
Interest expense        
Deposits 61,773   27,625   185,116   79,886  
Federal funds purchased 2,097   723   6,531   2,592  
Other borrowings 11,726   5,380   36,207   15,137  
Subordinated notes 4,191   4,191   16,764   16,764  
Trust preferred subordinated debentures 1,258   951   4,715   3,592  
Total interest expense 81,045   38,870   249,333   117,971  
Net interest income 240,673   210,649   914,860   761,328  
Provision for credit losses 35,000   2,000   87,000   44,000  
Net interest income after provision for credit losses 205,673   208,649   827,860   717,328  
Non-interest income        
Service charges on deposit accounts 3,168   3,109   12,787   12,432  
Wealth management and trust fee income 2,152   1,767   8,148   6,153  
Brokered loan fees 5,408   5,692   22,532   23,331  
Servicing income 2,861   5,270   18,307   15,657  
Swap fees 1,356   586   5,625   3,990  
Gain/(Loss) on sale of LHS (8,087 ) (1,055 ) (15,934 ) (2,387 )
Other 8,422   4,005   26,559   15,080  
Total non-interest income 15,280   19,374   78,024   74,256  
Non-interest expense        
Salaries and employee benefits 69,500   70,192   291,768   264,231  
Net occupancy expense 7,390   6,749   30,342   25,811  
Marketing 10,208   8,438   39,335   26,787  
Legal and professional 13,042   8,756   42,990   29,731  
Communications and technology 8,845   6,590   30,056   31,004  
FDIC insurance assessment 5,423   6,710   24,307   23,510  
Servicing related expenses 2,555   7,177   14,934   15,506  
Allowance and other carrying costs for OREO 7   6,122   474   6,437  
Other 12,892   12,404   50,890   42,859  
Total non-interest expense 129,862   133,138   525,096   465,876  
Income before income taxes 91,091   94,885   380,788   325,708  
Income tax expense 19,200   50,143   79,964   128,645  
Net income 71,891   44,742   300,824   197,063  
Preferred stock dividends 2,437   2,437   9,750   9,750  
Net income available to common stockholders $ 69,454   $ 42,305   $ 291,074   $ 187,313  
         
Basic earnings per common share $ 1.38   $ 0.85   $ 5.83   $ 3.78  
Diluted earnings per common share $ 1.38   $ 0.84   $ 5.79   $ 3.73  

TEXAS CAPITAL BANCSHARES, INC.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
  4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
  2018 2018 2018 2018 2017
Allowance for loan losses:          
Beginning balance $ 190,306   $ 179,096   $ 190,898   $ 184,655   $ 182,929  
Loans charged-off:          
Commercial 34,419   1,301   38,305   5,667   1,999  
Real estate —   —   —   —   —  
Construction —   —   —   —   —  
Consumer —   767   —   —   —  
Leases —   319   —   —   —  
Total charge-offs 34,419   2,387   38,305   5,667   1,999  
Recoveries:          
Commercial 1,399   389   320   360   1,019  
Real estate 26   11   8   24   1  
Construction —   —   —   —   —  
Consumer 360   10   9   59   14  
Leases 1   12   1   19   1  
Total recoveries 1,786   422   338   462   1,035  
Net charge-offs 32,633   1,965   37,967   5,205   964  
Provision for loan losses 33,849   13,175   26,165   11,448   2,690  
Ending balance $ 191,522   $ 190,306   $ 179,096   $ 190,898   $ 184,655  
           
Allowance for off-balance sheet credit losses:          
Beginning balance $ 10,283   $ 10,458   $ 9,623   $ 9,071   $ 9,761  
Provision for off-balance sheet credit losses 1,151   (175 ) 835   552   (690 )
Ending balance $ 11,434   $ 10,283   $ 10,458   $ 9,623   $ 9,071  
           
Total allowance for credit losses $ 202,956   $ 200,589   $ 189,554   $ 200,521   $ 193,726  
           
Total provision for credit losses $ 35,000   $ 13,000   $ 27,000   $ 12,000   $ 2,000  
           
Allowance for loan losses to LHI 0.85 % 0.86 % 0.80 % 0.93 % 0.89 %
Allowance for loan losses to LHI excluding mortgage finance loans(2) 1.15 % 1.15 % 1.08 % 1.21 % 1.20 %
Allowance for loan losses to average LHI 0.88 % 0.87 % 0.86 % 0.98 % 0.92 %
Allowance for loan losses to average LHI excluding mortgage finance loans(2) 1.15 % 1.17 % 1.13 % 1.24 % 1.23 %
Net charge-offs to average LHI(1) 0.60 % 0.04 % 0.73 % 0.11 % 0.02 %
Net charge-offs to average LHI excluding mortgage finance loans(1)(2) 0.78 % 0.05 % 0.96 % 0.14 % 0.03 %
Net charge-offs to average LHI for last twelve months(1) 0.37 % 0.22 % 0.28 % 0.15 % 0.16 %
Net charge-offs to average LHI, excluding mortgage finance loans, for last twelve months(1)(2) 0.48 % 0.29 % 0.36 % 0.20 % 0.21 %
Total provision for credit losses to average LHI(1) 0.64 % 0.24 % 0.52 % 0.25 % 0.04 %
Total provision for credit losses to average LHI excluding mortgage finance loans(1)(2) 0.83 % 0.32 % 0.68 % 0.32 % 0.05 %
Total allowance for credit losses to LHI 0.90 % 0.91 % 0.84 % 0.98 % 0.94 %
Total allowance for credit losses to LHI, excluding mortgage finance loans(2) 1.22 % 1.21 % 1.15 % 1.27 % 1.26 %
  1. Interim period ratios are annualized.
  2. The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.
TEXAS CAPITAL BANCSHARES, INC.          
SUMMARY OF NON-PERFORMING ASSETS AND PAST DUE LOANS      
(Dollars in thousands)          
  4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
  2018 2018 2018 2018 2017
           
Non-performing assets (NPAs):          
Non-accrual loans $ 80,375   $ 107,532   $ 83,295   $ 123,542   $ 101,444  
Other real estate owned (OREO) 79   79   9,526   9,558   11,742  
Total LHI NPAs $ 80,454   $ 107,611   $ 92,821   $ 133,100   $ 113,186  
           
Non-accrual loans to LHI 0.36 % 0.49 % 0.37 % 0.60 % 0.49 %
Non-accrual loans to LHI excluding mortgage finance loans(1) 0.48 % 0.65 % 0.50 % 0.78 % 0.66 %
Total LHI NPAs to LHI plus OREO 0.36 % 0.49 % 0.41 % 0.65 % 0.55 %
Total LHI NPAs to LHI excluding mortgage finance loans plus OREO(1) 0.48 % 0.65 % 0.56 % 0.85 % 0.74 %
Total LHI NPAs to earning assets 0.29 % 0.41 % 0.35 % 0.56 % 0.47 %
Allowance for loan losses to non-accrual loans 2.4x        1.8x        2.2x        1.5x        1.8x       
           
Loans past due 90 days and still accruing(2) $ 9,353   $ 11,295   $ 7,357   $ 13,563   $ 8,429  
           
Loans past due 90 days to LHI 0.04 % 0.05 % 0.03 % 0.07 % 0.04 %
Loans past due 90 days to LHI excluding mortgage finance loans(1) 0.06 % 0.07 % 0.04 % 0.09 % 0.05 %
           
LHS past due 90 days and still accruing(3) $ 16,829   $ 25,238   $ 27,858   $ 35,226   $ 19,737  
  1. The indicated ratios are presented with and excluding the mortgage finance loans because the risk profile of our mortgage finance loans is different than our other loans held for investment. No provision for credit losses is allocated to these loans based on the internal risk grade assigned.
  2. At December 31, 2018, loans past due 90 days and still accruing includes premium finance loans of $9.2 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.
  3. 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.
TEXAS CAPITAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
           
  4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
  2018 2018 2018 2018 2017
Interest income          
Interest and fees on loans $ 310,470   $ 291,189   $ 279,447   $ 243,864   $ 238,906  
Investment securities 1,274   1,161   193   206   213  
Federal funds sold and securities purchased under resale agreements 984   1,018   745   1,045   936  
Interest-bearing deposits in other banks 8,990   8,386   6,467   8,754   9,464  
Total interest income 321,718   301,754   286,852   253,869   249,519  
Interest expense          
Deposits 61,773   52,034   39,607   31,702   27,625  
Federal funds purchased 2,097   1,800   1,665   969   723  
Other borrowings 11,726   10,317   8,484   5,680   5,380  
Subordinated notes 4,191   4,191   4,191   4,191   4,191  
Trust preferred subordinated debentures 1,258   1,237   1,193   1,027   951  
Total interest expense 81,045   69,579   55,140   43,569   38,870  
Net interest income 240,673   232,175   231,712   210,300   210,649  
Provision for credit losses 35,000   13,000   27,000   12,000   2,000  
Net interest income after provision for credit losses 205,673   219,175   204,712   198,300   208,649  
Non-interest income          
Service charges on deposit accounts 3,168   3,477   3,005   3,137   3,109  
Wealth management and trust fee income 2,152   2,065   2,007   1,924   1,767  
Brokered loan fees 5,408   6,141   5,815   5,168   5,692  
Servicing income 2,861   4,987   4,967   5,492   5,270  
Swap fees 1,356   1,355   1,352   1,562   586  
Gain/(Loss) on sale of LHS (8,087 ) (444 ) (5,230 ) (2,173 ) (1,055 )
Other 8,422   7,937   5,363   4,837   4,005  
Total non-interest income 15,280   25,518   17,279   19,947   19,374  
Non-interest expense          
Salaries and employee benefits 69,500   77,327   72,404   72,537   70,192  
Net occupancy expense 7,390   8,362   7,356   7,234   6,749  
Marketing 10,208   10,214   10,236   8,677   8,438  
Legal and professional 13,042   10,764   11,654   7,530   8,756  
Communications and technology 8,845   7,435   7,143   6,633   6,590  
FDIC insurance assessment 5,423   6,524   6,257   6,103   6,710  
Servicing related expenses 2,555   4,207   4,367   3,805   7,177  
Allowance and other carrying costs for OREO 7   (1,864 ) 176   2,155   6,122  
Other 12,892   13,174   12,538   12,286   12,404  
Total non-interest expense 129,862   136,143   132,131   126,960   133,138  
Income before income taxes 91,091   108,550   89,860   91,287   94,885  
Income tax expense 19,200   22,998   18,424   19,342   50,143  
Net income 71,891   85,552   71,436   71,945   44,742  
Preferred stock dividends 2,437   2,438   2,437   2,438   2,437  
Net income available to common shareholders $ 69,454   $ 83,114   $ 68,999   $ 69,507   $ 42,305  

TEXAS CAPITAL BANCSHARES, INC.
QUARTERLY FINANCIAL SUMMARY – UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands)
  4th Quarter 2018   3rd Quarter 2018   2nd Quarter 2018   1st Quarter 2018   4th Quarter 2017
  Average
Balance		 Revenue/
Expense		 Yield/
Rate		   Average
Balance		 Revenue/
Expense		 Yield/
Rate		   Average
Balance		 Revenue/
Expense		 Yield/
Rate		   Average
Balance		 Revenue/
Expense		 Yield/
Rate		   Average
Balance		 Revenue/
Expense		 Yield/
Rate
Assets                                      
Investment securities – Taxable $ 23,977   $ 259   4.29 %   $ 24,221   $ 191   3.14 %   $ 24,514   $ 193   3.15 %   $ 23,854   $ 206   3.50 %   $ 23,678   $ 213   3.57 %
Investment securities – Non-taxable(2) 93,394   1,285   5.46 %   91,298   1,228   5.33 %   —   —   — %   —   —   — %   —   —   — %
Federal funds sold and securities purchased under resale agreements 173,654   984   2.25 %   203,972   1,018   1.98 %   166,613   745   1.79 %   261,641   1,045   1.62 %   292,544   936   1.27 %
Interest-bearing deposits in other banks 1,585,763   8,990   2.25 %   1,697,787   8,386   1.96 %   1,498,474   6,467   1.73 %   2,302,938   8,754   1.54 %   2,924,942   9,464   1.28 %
LHS, at fair value 2,049,395   24,407   4.72 %   1,484,459   17,272   4.62 %   1,516,047   17,026   4.50 %   1,187,594   12,535   4.28 %   1,144,124   11,507   3.99 %
LHI, mortgage finance loans 5,046,540   47,305   3.72 %   5,443,829   49,715   3.62 %   4,898,411   47,056   3.85 %   4,097,995   37,362   3.70 %   5,102,107   44,477   3.46 %
LHI(1)(2) 16,643,559   239,995   5.72 %   16,331,622   225,604   5.48 %   15,883,317   216,755   5.47 %   15,425,323   195,333   5.14 %   15,010,041   185,039   4.89 %
Less allowance for loan
  losses		 182,814   —   —     179,227   —   —     189,238   —   —     184,238   —   —     183,233   —   —  
LHI, net of allowance 21,507,285   287,300   5.30 %   21,596,224   275,319   5.06 %   20,592,490   263,811   5.14 %   19,339,080   232,695   4.88 %   19,928,915   229,516   4.57 %
Total earning assets 25,433,468   323,225   5.04 %   25,097,961   303,414   4.80 %   23,798,138   288,242   4.86 %   23,115,107   255,235   4.48 %   24,314,203   251,636   4.11 %
Cash and other assets 828,156         877,954         808,099         797,506         766,622      
Total assets $ 26,261,624         $ 25,975,915         $ 24,606,237         $ 23,912,613         $ 25,080,825      
Liabilities and Stockholders’ Equity                                      
Transaction deposits $ 3,233,960   $ 15,150   1.86 %   $ 3,253,310   $ 13,642   1.66 %   $ 2,889,834   $ 10,295   1.43 %   $ 2,792,954   $ 8,651   1.26 %   $ 2,469,984   $ 5,845   0.94 %
Savings deposits 8,354,332   36,913   1.75 %   7,820,742   29,930   1.52 %   7,784,937   25,454   1.31 %   7,982,256   21,958   1.12 %   8,403,473   20,655   0.98 %
Time deposits 1,886,016   9,710   2.04 %   1,778,831   8,462   1.89 %   979,735   3,858   1.58 %   506,375   1,093   0.88 %   533,312   1,125   0.84 %
Total interest bearing deposits 13,474,308   61,773   1.82 %   12,852,883   52,034   1.61 %   11,654,506   39,607   1.36 %   11,281,585   31,702   1.14 %   11,406,769   27,625   0.96 %
Other borrowings 2,290,520   13,823   2.39 %   2,275,640   12,117   2.11 %   2,113,391   10,149   1.93 %   1,721,914   6,649   1.57 %   1,852,750   6,103   1.31 %
Subordinated notes 281,708   4,191   5.90 %   281,619   4,191   5.90 %   281,527   4,191   5.97 %   281,437   4,191   6.04 %   281,348   4,191   5.91 %
Trust preferred subordinated debentures 113,406   1,258   4.40 %   113,406   1,237   4.33 %   113,406   1,193   4.22 %   113,406   1,027   3.67 %   113,406   951   3.33 %
Total interest bearing liabilities 16,159,942   81,045   1.99 %   15,523,548   69,579   1.78 %   14,162,830   55,140   1.56 %   13,398,342   43,569   1.32 %   13,654,273   38,870   1.13 %
Demand deposits 7,462,392         7,940,503         8,017,578         8,147,721         9,085,819      
Other liabilities 157,278         116,302         100,074         110,698         138,050      
Stockholders’ equity 2,482,012         2,395,562         2,325,755         2,255,852         2,202,683      
Total liabilities and stockholders’ equity $ 26,261,624         $ 25,975,915         $ 24,606,237         $ 23,912,613         $ 25,080,825      
Net interest income(2)   $ 242,180         $ 233,835         $ 233,102         $ 211,666         $ 212,766    
Net interest margin     3.78 %       3.70 %       3.93 %       3.71 %       3.47 %

(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.

INVESTOR CONTACT
Heather Worley, 214.932.6646
heather.worley@texascapitalbank.com