Texas Capital Bancshares Announces Operating Results for Q1 2007

Texas Capital Bancshares, Inc. (Nasdaq:TCBI), the parent company of Texas Capital Bank, announced earnings and operating results for the first quarter of 2007. EPS increased 12% for the quarter Net income increased 10% Loans held for investment grew 28% Total deposits grew 25% "We are pleased to report another good quarter with strong loan growth and excellent credit experience,” said Jody Grant, Chairman of Texas Capital Bancshares. "We continue to evaluate all aspects of our business and make those decisions that optimize the potential for the future.” FINANCIAL SUMMARY (dollars and shares in thousands)   Q1 2007 Q1 2006 % Change  QUARTERLY OPERATING RESULTS Net Income(1) $ 7,586  $ 6,907  10% Diluted EPS(1) $.29  $.26  12% ROA(1) .84% .92% ROE(1) 12.12% 12.71% Diluted Shares 26,441  26,568    BALANCE SHEET Total Assets(1) $3,807,232  $3,158,044  21% Demand Deposits 507,686  481,410  5% Total Deposits 3,086,737  2,463,719  25% Loans Held for Investment 2,885,963  2,263,007  28% Total Loans(1) 3,094,037  2,358,404  31% Stockholders’ Equity 263,616  221,766  19% (1) From continuing operations DETAILED FINANCIALS Texas Capital Bancshares, Inc. reported net income from continuing operations of $7.6 million for the first quarter of 2007 compared to $6.9 million for the first quarter of 2006. On a fully diluted basis, earnings per share from continuing operations were $.29 for the three months ended March 31, 2007, compared to $.26 for the same quarter last year, an increase of 12 percent. Results of discontinued operations were net income of $36,000 and net loss of $264,000 for the first quarter 2007 and 2006, respectively. Due to the minor differences between reported earnings and income from continuing operations, the discussion below relates only to continuing operations. Return on average equity was 12.12 percent and return on average assets was .84 percent for the first quarter of 2007, compared to 12.71 and .92 percent, respectively, for the first quarter of 2006. Net interest income was $31.7 million for the first quarter of 2007, compared to $26.9 million for the first quarter of 2006. The increase was due to an increase in average earning assets of $580.1 million over levels reported in the first quarter of 2006. The increase in average earning assets included a $599.4 million increase in average loans held for investment and an increase of $85.1 million in average loans held for sale, offset by a decrease of $100.5 million in average securities. The net interest margin in the first quarter of 2007 was 3.78 percent, a 9 basis point decrease from the first quarter of 2006 and an 8 basis point decrease from the fourth quarter of 2006. Average total deposits increased by $640.8 million from the first quarter of 2006 and by $129.2 from the fourth quarter of 2006. For the same periods, the average balance of demand deposits decreased by 1.3% to $439.1 million from $445.0 million and decreased $31.6 million from the fourth quarter of 2006. Average interest bearing liabilities increased $570.9 million from the first quarter of 2006, net of a $142.8 million decrease in other borrowings. Key measures of credit quality remained favorable. In the first quarter of 2007, net recoveries were $386,000, compared to net recoveries of $12,000 in the first quarter of 2006 and net charge-offs of $838,000 in the fourth quarter of 2006. For the most recent 12-month period, the net charge-off ratio was .06 percent. Non-accrual loans were $8.8 million, or .31 percent of loans at the end of the first quarter of 2007, compared to $6.0 million, or .27 percent of loans at the end of first quarter of 2006, and $9.1 million, or .33 percent at the end of the fourth quarter of 2006. Loans 90 days past due and still accruing were $4.8 million at the end of the first quarter of 2007 compared to $2.8 million at the end of the first quarter of 2006. At March 31, 2007, the $4.8 million of past due loans included $3.4 million of loans that were paid off in early April, and $928,000 in premium finance loans. The premium finance loans are generally secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date. The Company recorded a $1.2 million provision for loan losses in the first quarter of 2007, compared to $0 in the first quarter of 2006 and $1.0 million in the fourth quarter of 2006. Reserve coverage of historical losses, non-performing assets and classified loans remains strong. In management’s opinion, the reserve is adequate and is derived from consistent application of the methodology for establishing the adequacy of reserves for Texas Capital Bank’s loan portfolio. Non-interest income for the first quarter of 2007 increased $1.4 million, or 37 percent, to $5.1 million from $3.7 million in the first quarter of 2006. The increase is primarily related to a $946,000 increase in rental income on leased equipment from $513,000 to $1.5 million related to expansion of our operating lease portfolio. Trust fee income increased $234,000 due to continued growth of trust assets. Non-interest expense for the first quarter of 2007 increased $4.0 million, or 20 percent, to $24.1 million from $20.1 million in the first quarter of 2006. The increase is primarily related to a $2.8 million increase in salaries and employee benefits to $14.6 million from $11.8 million, of which $825,000 relates to an increase in FAS 123R expense. The remaining increase in salaries and employee benefits resulted from the total number of employees related to the addition of the premium finance business and general business growth. Expansion of the operating lease portfolio resulted in an increase of $826,000 in equipment depreciation expense to $1.2 million from $381,000 in the first quarter of 2007. On March 30, 2007, Texas Capital Bank completed the sale of its TexCap Insurance Services subsidiary; the sale is, accordingly, reported as a discontinued operation. Historical operating results of TexCap and the net after-tax gain of $1.09 million from the sale are reflected as discontinued operations in the financial statements and schedules. Subsequent to the end of the quarter, Texas Capital Bank and the purchaser of its residential mortgage loan division (RML) agreed to terminate and settle the contractual arrangements related to the sale of the division, which had been completed as of the end of the third quarter of 2006. As a consequence, the Company will complete the winding up of RML’s activities. Results of discontinued operations include an after-tax charge of $1.06 million for the first quarter of 2007, representing estimated and actual costs associated with the exiting of RML’s remaining activities. ABOUT TEXAS CAPITAL BANCSHARES, INC. Texas Capital Bancshares, Inc. (Nasdaq:TCBI) is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and private clients. Headquartered in Dallas, the Bank has full-service locations in Austin, Dallas, Fort Worth, Houston and San Antonio. This release contains forward-looking statements, which are subject to risks and uncertainties. A number of factors, many of which are beyond Texas Capital Bancshares’ control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include the risk of adverse impacts from general economic conditions, competition, interest rate sensitivity 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 can be found in the Form 10-K and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission. TEXAS CAPITAL BANCSHARES, INC.   SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED) (Dollars in thousands except per share data) 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 2007  2006  2006  2006  2006  CONSOLIDATED STATEMENT OF OPERATIONS Interest income $ 67,163  $ 66,178  $ 62,848  $ 57,434  $ 50,666  Interest expense 35,496  34,346  32,747  28,421  23,799  Net interest income 31,667  31,832  30,101  29,013  26,867  Provision for loan losses 1,200  1,000  750  2,250  –  Net interest income after provision for loan losses 30,467  30,832  29,351  26,763  26,867  Non-interest income 5,136  4,833  4,478  3,989  3,742  Non-interest expense 24,095  23,993  21,635  21,156  20,129  Income from continuing operations before income taxes 11,508  11,672  12,194  9,596  10,480  Income tax expense 3,922  3,958  4,157  3,273  3,573  Net income from continuing operations 7,586  7,714  8,037  6,323  6,907  Income (loss) from discontinued operations (after-tax) 36  356  (167) 18  (264) Net income $ 7,622  $ 8,070  $ 7,870  $ 6,341  $ 6,643  Diluted EPS from continuing operations $ .29  $ .29  $ .30  $ .24  $ .26  Diluted EPS $ .29  $ .31  $ .30  $ .24  $ .25    Diluted shares 26,440,556  26,373,726  26,411,834  26,524,552  26,567,893    CONSOLIDATED BALANCE SHEET DATA(1) Total assets $3,807,232  $3,658,505  $3,463,009  $3,381,099  $3,158,044  Loans held for investment 2,885,963  2,722,097  2,543,059  2,417,814  2,263,007  Loans held for sale 208,074  199,014  151,255  133,112  95,397  Securities 508,296  532,053  554,732  573,053  604,987  Demand deposits 507,686  513,930  467,750  532,130  481,410  Total deposits 3,086,737  3,069,330  2,776,648  2,922,494  2,463,719  Other borrowings 331,118  211,559  338,801  173,730  441,991  Long-term debt 113,406  113,406  113,406  72,168  46,394  Stockholders’ equity 263,616  253,515  239,792  224,693  221,766    End of period shares 26,101,994  26,065,124  26,031,829  25,940,874  25,854,651  Book value (excluding securities gains/losses) $ 10.27  $ 9.82  $ 9.50  $ 9.20  $ 8.94    SELECTED FINANCIAL RATIOS From continuing operations Net interest margin 3.78% 3.86% 3.80% 3.87% 3.87% Return on average assets .84% .87% .94% .78% .92% Return on average equity 12.12% 12.53% 13.83% 11.36% 12.71% Non-interest income to earning assets .61% .58% .56% .53% .53% Efficiency ratio 65.5% 65.4% 62.6% 64.1% 65.8% Non-interest expense to earning assets 2.86% 2.89% 2.71% 2.80% 2.87% From consolidated Net interest margin 3.77% 3.84% 4.01% 4.10% 4.09% Return on average assets .84% .90% .91% .78% .88% Return on average equity 12.18% 13.11% 13.54% 11.39% 12.22%   Tier 1 capital ratio 9.8% 9.7% 11.1% 10.1% 9.6% Total capital ratio 11.1% 11.2% 11.8% 10.7% 10.3% Tier 1 leverage ratio 9.5% 9.2% 10.2% 9.1% 8.6% (1) From continuing operations TEXAS CAPITAL BANCSHARES, INC.   CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) March 31, 2007 March 31, 2006 % Change  Assets Cash and due from banks $ 106,653  $ 108,429  (2)% Federal funds sold 20  –  100% Securities, available-for-sale 508,296  604,987  (16)% Loans held for sale 208,074  95,398  N/M  Loans held for sale from discontinued operations 12,525  34,887  (64)% Loans held for investment (net of unearned income) 2,885,963  2,263,007  28% Less: Allowance for loan losses 22,589  18,909  19% Loans held for investment, net 2,863,374  2,244,098  28% Premises and equipment, net 34,350  21,155  62% Accrued interest receivable and other assets 78,492  71,573  10% Goodwill and intangibles, net 7,973  12,405  (36)% Total assets $ 3,819,757  $ 3,192,932  20%   Liabilities and Stockholders’ Equity Liabilities: Deposits: Non-interest bearing $ 507,686  $ 481,410  5% Interest bearing 1,621,299  1,478,730  10% Interest bearing in foreign branches 957,752  503,579  90% Total deposits 3,086,737  2,463,719  25%   Accrued interest payable 7,895  4,857  63% Other liabilities 16,985  14,205  20% Federal funds purchased 288,640  263,187  10% Repurchase agreements 42,478  103,642  (59)% Other borrowings –  75,162  (100)% Long-term debt 113,406  46,394  N/M  Total liabilities 3,556,141  2,971,166  20%   Stockholders’ equity: Common stock, $.01 par value: Authorized shares – 100,000,000 Issued shares – 26,101,994 and 25,854,651 at March 31, 2007 and 2006, respectively 261  259  Additional paid-in capital 184,038  177,014  Retained earnings 83,785  53,882  Treasury stock (shares at cost: 84,691 and 84,274 at March 31, 2007 and 2006, respectively) (581) (573) Deferred compensation 573  573  Accumulated other comprehensive loss (4,460) (9,389)   Total stockholders’ equity 263,616  221,766  19% Total liabilities and stockholders’ equity $ 3,819,757  $ 3,192,932  20% TEXAS CAPITAL BANCSHARES, INC.   CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands except per share data) Three Months Ended March 31 2007  2006  Interest income Interest and fees on loans $ 61,174  $ 43,800  Securities 5,969  6,831  Federal funds sold 5  24  Deposits in other banks 15  11  Total interest income 67,163  50,666  Interest expense Deposits 30,890  19,307  Federal funds purchased 2,153  1,908  Repurchase agreements 394  1,202  Other borrowings 12  554  Long-term debt 2,047  828  Total interest expense 35,496  23,799  Net interest income 31,667  26,867  Provision for loan losses 1,200  –  Net interest income after provision for loan losses 30,467  26,867  Non-interest income Service charges on deposit accounts 893  856  Trust fee income 1,077  843  Bank owned life insurance (BOLI) income 298  286  Brokered loan fees 479  369  Equipment rental income 1,459  513  Other 930  875  Total non-interest income 5,136  3,742  Non-interest expense Salaries and employee benefits 14,557  11,846  Net occupancy expense 2,020  2,011  Leased equipment depreciation 1,207  381  Marketing 757  702  Legal and professional 1,661  1,452  Communications and data processing 832  692  Franchise taxes 41  61  Other 3,020  2,984  Total non-interest expense 24,095  20,129  Income from continuing operations before income taxes 11,508  10,480  Income tax expense 3,922  3,573  Income from continuing operations 7,586  6,907  Income (loss) from discontinued operations (after-tax) 36  (264) Net income $ 7,622  $ 6,643    Basic earnings per share: Income from continuing operations $ .29  $ .27  Net income $ .29  $ .26    Diluted earnings per share: Income from continuing operations $ .29  $ .26  Net income $ .29  $ .25  TEXAS CAPITAL BANCSHARES, INC.   SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in thousands) 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 2007  2006  2006  2006  2006    Beginning balance $ 21,003  $ 20,841  $ 19,646  $ 18,909  $ 18,897  Loans charged-off: Commercial 146  837  70  1,618  –  Real estate –  –  –  –  –  Consumer –  –  –  –  3  Leases –  36  –  30  10  Total 146  873  70  1,648  13  Recoveries: Commercial 504  12  441  5  4  Consumer 13  –  –  –  1  Leases 15  23  74  130  20  Total recoveries 532  35  515  135  25  Net charge-offs (recoveries) (386) 838  (445) 1,513  (12) Provision for loan losses 1,200  1,000  750  2,250  –  Ending balance $ 22,589  $ 21,003  $ 20,841  $ 19,646  $ 18,909    Reserve to loans held for investment (2) .78% .77% .82% .81% .84% Reserve to average loans held for investment (2) .82% .80% .84% .83% .87% Net charge-offs (recoveries) to average loans (1) (2) (.06)% .13% (.07)% .26% (.00)% Net charge-offs (recoveries) to average loans for last twelve months(1) (2) .06% .08% .05% .07% (.01)% Provision for loan losses to average loans (1) (2) .18% .15% .12% .38% –  Reserve as a multiple of net charge-offs N/M  25.1x  N/M  13.0x  N/M    Non-performing loans: Loans past due (90 days) (3) $ 4,828  $ 2,192  $ 2,627  $ 2,746  $ 2,824  Non-accrual 8,843  9,088  6,432  5,063  6,032  Total $ 13,671  $ 11,280  $ 9,059  $ 7,809  $ 8,856    Other real estate owned $ 89  $ 882  $ 882  $ 89  $ 89    Reserve to non-performing loans 1.7x  1.9x  2.3x  2.5x  2.1x  Reserve to non-accrual loans 2.6x  2.3x  3.2x  3.9x  3.1x  Reserve to non-performing assets 1.6x  1.7x  2.1x  2.5x  2.1x  Non-accrual loans to loans(2) .31% .33% .25% .21% .27% Loans past due 90 days to loans(2) .17% .08% .10% .11% .12% Non-performing loans to loans(2) .47% .41% .36% .32% .39% (1) Interim period ratios are annualized. (2) Excludes loans held for sale. (3) At March 31, 2007, loans past due 90 days and still accruing includes premium finance loans of $928,000. These loans are generally secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take 180 days or longer from the cancellation date. The total also includes $3.4 million in loans that were paid off in early April 2007. After giving effect to these reductions, the ratio of non-performing loans to total loans was .36% and the ratio of the reserve to non-performing loans increased to 2.2. TEXAS CAPITAL BANCSHARES, INC.   CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (Dollars in thousands)   1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 2007  2006  2006  2006  2006  Interest income Interest and fees on loans $ 61,174  $ 59,882  $ 56,320  $ 50,692  $ 43,800  Securities 5,969  6,266  6,488  6,726  6,831  Federal funds sold 5  14  24  3  24  Deposits in other banks 15  16  16  13  11  Total interest income 67,163  66,178  62,848  57,434  50,666  Interest expense Deposits 30,890  29,487  28,337  22,369  19,307  Federal funds purchased 2,153  1,793  1,753  2,433  1,908  Repurchase agreements 394  587  665  1,562  1,202  Other borrowings 12  393  634  890  554  Long-term debt 2,047  2,086  1,358  1,167  828  Total interest expense 35,496  34,346  32,747  28,421  23,799  Net interest income 31,667  31,832  30,101  29,013  26,867  Provision for loan losses 1,200  1,000  750  2,250  –  Net interest income after provision for loan losses 30,467  30,832  29,351  26,763  26,867  Non-interest income Service charges on deposit accounts 893  865  780  805  856  Trust fee income 1,077  1,073  1,008  866  843  Bank owned life insurance (BOLI) income 298  301  255  292  286  Brokered loan fees 479  521  656  483  369  Equipment rental income 1,459  1,433  1,147  815  513  Other 930  640  632  728  875  Total non-interest income 5,136  4,833  4,478  3,989  3,742  Non-interest expense Salaries and employee benefits 14,557  13,711  12,542  12,484  11,846  Net occupancy expense 2,020  2,111  1,907  1,953  2,011  Leased equipment depreciation 1,207  1,002  928  786  381  Marketing 757  785  690  905  702  Legal and professional 1,661  2,084  1,590  1,360  1,452  Communications and data processing 832  862  843  733  692  Franchise taxes 41  58  58  104  61  Other 3,020  3,380  3,077  2,831  2,984  Total non-interest expense 24,095  23,993  21,635  21,156  20,129  Income from continuing operations before income taxes 11,508  11,672  12,194  9,596  10,480  Income tax expense 3,922  3,958  4,157  3,273  3,573  Income from continuing operations 7,586  7,714  8,037  6,323  6,907  Income (loss) from discontinued operations (after-tax) 36  356  (167) 18  (264) Net income $ 7,622  $ 8,070  $ 7,870  $ 6,341  $ 6,643  TEXAS CAPITAL BANCSHARES, INC.   QUARTERLY FINANCIAL SUMMARY – UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates Continuing Operations (Dollars in thousands)   1st Quarter 2007 4th Quarter 2006 3rd Quarter 2006 2nd Quarter 2006 1st Quarter 2006 Average Balance Revenue/ Expense (1) Yield/ Rate   Average Balance Revenue/ Expense (1) Yield/ Rate Average Balance Revenue/ Expense (1) Yield/ Rate Average Balance Revenue/ Expense (1) Yield/ Rate Average Balance Revenue/ Expense (1) Yield/ Rate Assets Securities – Taxable $ 467,219  $ 5,535  4.80% $ 490,001  $ 5,830  4.72% $ 507,156  $ 6,055  4.74% $ 537,934  $ 6,291  4.69% $ 567,653  $ 6,396  4.57% Securities – Non-taxable(2) 48,549  668  5.58% 48,573  669  5.46% 48,595  666  5.44% 48,614  669  5.52% 48,635  669  5.58% Federal funds sold 418  5  4.85% 1,004  14  5.53% 1,750  24  5.44% 200  3  6.02% 2,233  24  4.36% Deposits in other banks 1,097  15  5.55% 1,207  16  5.26% 1,498  16  4.24% 908  13  5.74% 1,079  11  4.13% Loans held for sale 156,400  2,791  7.24% 155,620  2,791  7.12% 150,225  2,747  7.25% 103,483  1,752  6.79% 71,282  1,154  6.57% Loans held for investment 2,767,834  58,383  8.55% 2,620,307  57,091  8.64% 2,479,057  53,573  8.57% 2,360,189  48,940  8.32% 2,168,410  42,646  7.98% Less reserve for loan losses 21,001  –  –  20,751  –  –  19,823  –  –  19,129  –  –  18,898  –  –  Loans, net of reserve 2,903,233  61,174  8.55% 2,755,176  59,882  8.62% 2,609,459  56,320  8.56% 2,444,543  50,692  8.32% 2,220,794  43,800  8.00% Total earning assets 3,420,516  67,397  7.99% 3,295,961  66,411  7.99% 3,168,458  63,081  7.90% 3,032,199  57,668  7.63% 2,840,394  50,900  7.27% Cash and other assets 231,412  225,092  217,663  208,502  205,999  Total assets $3,651,928  $3,521,053  $3,386,121  $3,240,701  $3,046,393    Liabilities and Stockholders’ Equity Transaction deposits $ 105,592  $ 282  1.08% $ 97,428  $ 276  1.12% $ 99,549  $ 284  1.13% $ 112,046  $ 310  1.11% $ 117,685  $ 312  1.08% Savings deposits 821,526  9,175  4.53% 879,452  10,063  4.54% 769,271  8,703  4.49% 701,007  7,257  4.15% 671,102  6,195  3.74% Time deposits 769,485  9,756  5.14% 598,258  7,658  5.08% 643,708  8,069  4.97% 684,630  7,784  4.56% 635,250  6,664  4.25% Deposits in foreign branches 915,229  11,677  5.17% 875,851  11,490  5.20% 845,338  11,281  5.29% 562,223  7,018  5.01% 541,084  6,136  4.60% Total interest bearing deposits 2,611,832  30,890  4.80% 2,450,989  29,487  4.77% 2,357,866  28,337  4.77% 2,059,906  22,369  4.36% 1,965,121  19,307  3.98% Other borrowings 207,303  2,559  5.01% 219,644  2,773  5.01% 238,350  3,052  5.08% 405,424  4,885  4.83% 350,084  3,664  4.24% Long-term debt 113,406  2,047  7.32% 113,406  2,086  7.30% 73,064  1,358  7.37% 64,521  1,167  7.25% 46,394  828  7.24% Total interest bearing liabilities 2,932,541  35,496  4.91% 2,784,039  34,346  4.89% 2,669,280  32,747  4.87% 2,529,851  28,421  4.51% 2,361,599  23,799  4.09% Demand deposits 439,071  470,701  464,645  468,449  445,012  Other liabilities 26,494  22,106  21,633  19,055  19,309  Stockholders’ equity 253,822  244,207  230,563  223,346  220,473  Total liabilities and stockholders’ equity $3,651,928  $3,521,053  $3,386,121  $3,240,701  $3,046,393    Net interest income $ 31,901  $ 32,065  $ 30,334  $ 29,247  $ 27,101  Net interest margin 3.78% 3.86% 3.80% 3.87% 3.87%   Additional information from discontinued operations: Loans held for sale $ 12,068  $ 22,763  $ 27,422  $ 33,806  $ 30,748  Borrowed funds 12,068  22,763  27,422  33,806  30,748  Net interest income $ 46  $ 87  $ 1,972  $ 2,113  $ 1,854  Net interest margin – consolidated 3.77% 3.84% 4.01% 4.10% 4.09% (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.