8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d)

of the Securities and Exchange Act of 1934

Date of Report (Date of earliest event reported): January 23, 2014 (January 22, 2014)

TEXAS CAPITAL BANCSHARES, INC.

(Name of Registrant)

Delaware	001-34657	75-2679109
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

2000 McKinney Avenue, Suite 700, Dallas, Texas, U.S.A.

(Address of principal executive officers)

75201

(Zip Code)

214-932-6600

(Registrant’s telephone number, including area code)

N/A

(Former address of principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On January 22, 2014, Texas Capital Bancshares, Inc. (“TCBI”) issued a press release and made a concurrent public presentation regarding its operating and financial results for its year and fiscal quarter ended December 31, 2013 (the “Release”). A copy of the Release is attached hereto as Exhibit 99.1. A copy of the presentation is attached hereto as Exhibit 99.2

The information in Exhibit 99.1 shall be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), with the exception of the statements by Mr. Cargill contained in the second full paragraph of the Release, which shall be deemed “furnished” for purposes of Section 18 of the 1934 Act. This Item 2.02 and Exhibit 99.2 shall be deemed “furnished” for purposes of Section 18 of the 1934 Act.

Item 8.01. Other Events.

Mortgage finance loans. Our mortgage finance loans consist of ownership interests purchased in single-family residential mortgages funded through our warehouse lending group. These loans are typically on our balance sheet for 10 to 20 days or less. We have agreements with mortgage lenders and purchase legal ownership interests in individual loans they originate. All loans are underwritten consistent with established programs for permanent financing with financially sound investors. Substantially all loans are conforming loans or loans eligible for sale to federal agencies or government sponsored entities. However, for accounting purposes, these loans are deemed to be loans to the originator and are as such are classified as loans held for investment. At December 31, 2013, mortgage finance loans totaled approximately $2.8 billion, approximately 25% of our total funded loans. Mortgage finance loans as of December 31, 2013 are net of $33.1 million of participations sold.

Correction of an Error in the Financial Statements. We determined during the fourth quarter of 2013 that purchases and sales of mortgage finance loan interests that had been reported on our consolidated statements of cash flows as cash flows from operating activities in prior periods should have been reported as investing activities because the related asset balances should have been reported as held for investment rather than held for sale on our consolidated balance sheets. We have evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it did not materially misstate our previously issued financial statements. The errors will be corrected in our regularly filed financial reports commencing with our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 10-K”) for all periods presented. The financial data included in the Release for prior periods reflect correction of the errors.

We have corrected the classification of these assets on our consolidated balance sheets to reflect them as held for investment. We will correct the presentation in the consolidated statements of cash flows when presented in the 2013 10-K. The correction is presented in the unaudited consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011 and certain financial data tables included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”) is attached as Exhibit 99.3. Correction of the error in the statements of cash flows resulted in increased cash flows from operating activities for 2012 and 2011 of $1.1 billion and $885.9 million, respectively, with corresponding decreases in net cash flows from investing activities, as presented below. The changes do not impact our reported earnings, risk profile of the assets or the Company’s financial position. These reclassifications do not change total loans or total assets on our consolidated balance sheets and do not impact our reported changes in cash and cash equivalents in our consolidated statements of cash flows.

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To correct the error the “Originations of loans held for sale” and “Proceeds from sales of loans held for sale” lines from the 2012 Form 10-K have been removed from operating activities and the net of these amounts has been subtracted from net cash used in operating activities as indicated below (in thousands):

	Year ended December 31
	2012			2011			2010
Originations of loans held for sale (as reported)	$	(51,110,692	)	$	(27,234,509	)	$	(22,859,900	)
Proceeds from sales of loans held for sale (as reported)		50,015,503			26,348,634			22,359,195
Net cash used in operating activities (as reported)		(1,020,345	)		(810,022	)		(403,922	)
Net cash provided by operating activities (corrected)		74,844			75,853			96,783

The changes in loans held for sale data indicated above are presented within investing activities, with the net change flowing through to “net cash used in investing activities”:

	Year ended December 31
	2012			2011			2010
Net increase in loans held for investment (as reported)		(1,220,626	)		(890,753	)		(303,618	)
Originations of mortgage finance loans (corrected)		(51,110,692	)		(27,234,509	)		(22,859,900	)
Proceeds from payoffs of mortgage finance loans (corrected)		50,015,503			26,348,634			22,359,195
Net increase in loans held for investment, excluding mortgage finance loans		(1,220,626	)		(890,753	)		(303,618	)
Net cash used in investing activities (as reported)		(1,167,996	)		(841,531	)		(232,302	)
Net cash used in investing activities (corrected)		(2,263,185	)		(1,727,406	)		(733,007	)

Corresponding data for the year-to-date periods ended March 31, June 30, and September 30, 2013 appears below:

	March 31, 2013			June 30, 2013			September 30, 2013
Originations of loans held for sale (as reported)	$	(13,173,476	)	$	(27,736,248	)	$	(39,620,728	)
Proceeds from sales of loans held for sale (as reported)		13,770,918			28,073,286			40,533,915
Net cash provided by operating activities (as reported)		671,666			452,968			1,073,648
Net cash provided by operating activities (corrected)		74,224			115,930			160,461

	March 31, 2013			June 30, 2013			September 30, 2013
Net increase in loans held for investment (as reported)		(135,812	)		(729,034	)		(1,270,123	)
Originations of mortgage finance loans (corrected)		(13,173,476	)		(27,736,248	)		(39,620,728)
Proceeds from payoffs of mortgage finance loans (corrected)		13,770,918			28,073,286			40,533,915
Net increase in loans held for investment, excluding mortgage finance loans		(135,812	)		(729,034	)		(1,270,123	)
Net cash used in investing activities (as reported)		(123,500	)		(707,543	)		(1,242,292	)
Net cash provided by (used in) investing activities (corrected)		473,942			(370,505	)		(329,105	)

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We do not believe any reserve for loan losses relating to the mortgage finance portfolio is necessary based upon the risk profile of the assets and the less than one basis point loss experience of the program over the last ten years. The mortgage finance loan portfolio is graded as “pass,” with no past due balances, and with no activity within the allowance for loan losses for all periods presented.

We have included in our Selected Financial Ratios additional asset quality ratios 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. These ratios can be found in Exhibit 99.1 and Exhibit 99.3.

The classification of mortgage finance loans as held for investment is consistent with Federal Financial Institutions Examination Council (“FFIEC”) Financial Institution Letter FIL-44-2013 issued October 7, 2013, which included Supplemental Instructions for September 30, 2013 Call Reports requiring that reporting institutions present loans originated by third parties and acquired by the institution as a secured loan to the originator that is held for investment based upon factors identified in the Supplemental Instructions. The Bank reported mortgage finance loans as held for investment in the September 30, 2013 Call Report. They are reflected as held for sale in prior Call Reports.

Changes in Regulatory Capital Risk Weights. In response to supplemental FFIEC Call Report instructions issued in early April 2013, we began using a 100% risk weight for the mortgage finance loans with our March 31, 2013 Call Report and our Report on Form 10-Q for the period ended March 31, 2013. In filings for prior periods, we applied a 50% risk weight (or 20% risk weight for government-guaranteed loans) to these assets for purposes of calculating the Bank’s risk-based capital ratios. Having determined that the 100% risk weight must be applied under our current program we were required to amend our year-end Call Reports for 2012 and 2011. This change required application of the 100% risk weight to our mortgage finance loans in these earlier periods, which is consistent with all of our 2013 Call Reports. The amendment of these Call Reports had no impact on our consolidated balance sheets or statements of operations, stockholders’ equity and cash flows.

This retroactive change in risk weighting of our mortgage finance loans required that we amend the previously reported values for our risk-weighted capital ratios for December 31, 2012 and 2011. The amended December 31, 2011 and 2012 risk-weighted capital ratios, as well as the risk-weighted capital ratio as of December 31, 2013, are provided below. The amended ratios exceeded levels required to be “adequately capitalized” on a consolidated basis and at the Bank. As amended, the Bank was “well capitalized” in the Tier 1 measure of capital adequacy, but the total risk-based capital ratio was below that required to be considered “well capitalized”. The adjustment had no impact on the ratio of tangible common equity to total assets. We believe that we had the financial and operational capacity to maintain well-capitalized status had we determined that the higher risk weighting was required to be applied to our ownership interests in mortgage finance loans at year-end 2012 and 2011, and the Bank is considered “well capitalized” as of December 31, 2013. Incidental to the amended Call Reports described above, we were assessed an additional $3.0 million for deposit insurance by the FDIC that was paid during the third quarter of 2013, which is reflected in our consolidated financial statements for the quarter ended September 30, 2013.

Risk-based Capital Ratios	12/31/13			12/31/12 As Reported			12/31/12 Amended			12/31/11 As Reported			12/31/11 Amended			To Be Well- Capitalized			To Be Adequately Capitalized
Consolidated
Tier 1 capital		9.15	%		10.06	%		8.27	%		9.57	%		8.38	%		N/A			4.00	%
Total capital		10.73	%		12.12	%		9.97	%		10.56	%		9.25	%		N/A			8.00	%
Bank
Tier 1 capital		7.55	%		8.72	%		7.17	%		9.12	%		7.99	%		6.00	%		4.00	%
Total capital		10.27	%		10.34	%		8.50	%		10.12	%		8.86	%		10.00	%		8.00	%

Risk factors. An investment in our common stock, preferred stock or debt securities involves risks that should be carefully considered. The most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations are set forth in the Risk Factors set forth in Exhibit 99.4 attached hereto. The risk factors set forth in Exhibit 99.4 are intended to supersede in their entirety the risk factors set forth in Item 1A of TCBI’s Annual Report on Form 10-K for the year ended December 31, 2012.

This Item 8.01 and the information in Exhibits 99.3 and 99.4 shall be deemed “filed” for purposes of Section 18 of the 1934 Act.

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FORWARD-LOOKING STATEMENTS

The information in this report contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. Such statements are based upon current expectations that involve risks and uncertainties that may be outside of our control. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that could cause our results to differ materially from those described in the forward-looking statements can be found in the risk factors set forth in Exhibit 99.4 to this Current Report on Form 8-K and our other filings with the Securities and Exchange Commission. All forward-looking statements in this Current Report on Form 8-K and Exhibits 99.1 and 99.2 speak only as of January 22, 2014 and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after that date.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits. See “Exhibit Index” attached to this Current Report on Form 8-K, which is incorporated by reference herein.

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 22, 2014	TEXAS CAPITAL BANCSHARES, INC.
	By:	/s/ Peter B. Bartholow
		Peter B. Bartholow
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Document Description
99.1	Press Release, dated January 22, 2014, of Texas Capital Bancshares, Inc., announcing its operating and financial results for its fiscal year and quarter ended December 31, 2013
99.2	Presentation given January 22, 2014 discussing Texas Capital Bancshares, Inc.’s operating and financial results for its fiscal year and quarter ended December 31, 2013
99.3	Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2012 and 2013 (Corrected) and Supplemental Data (unaudited)
99.4	Risk Factors as of January 22, 2014

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EX-99.1

Exhibit 99.1

MEDIA CONTACT

Heather Worley, 214.932.6827

heather.worley@texascapitalbank.com

INVESTOR CONTACT

Myrna Vance, 214.932.6646

myrna.vance@texascapitalbank.com

TEXAS CAPITAL BANCSHARES ANNOUNCES OPERATING RESULTS FOR 2013

DALLAS – January 22, 2014 – 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 2013.

• Net income decreased 9% on a linked quarter basis and decreased 3% from the fourth quarter of 2012

• EPS decreased 9% on a linked quarter basis and decreased 12% from the fourth quarter of 2012

• Demand deposits increased 3% and total deposits increased 3% on a linked quarter basis, growing 32% and 24%, respectively, from the fourth quarter of 2012

• Loans held for investment, excluding mortgage finance, increased 5% and total loans increased 9% on a linked quarter basis, growing 25% and 13%, respectively, from the fourth quarter of 2012

“2013 has been an extraordinary year for Texas Capital as we continue to build our business consistent with our successful, long-standing model,” said Keith Cargill, CEO. “As we win top client-facing talent and the critically important people who deliver outstanding service, products and support, we build growing earnings power for the future. This is consistent with our upcoming capital raise to support our anticipated strong growth.”

FINANCIAL SUMMARY

(dollars and shares in thousands)

	2013			2012			% Change
ANNUAL OPERATING RESULTS(1)
Net Income	$	121,046		$	120,709			0	%
Net Income Available to Common Shareholders	$	113,652		$	120,709			(6	)%
Diluted EPS	$	2.72		$	3.01			(10	)%
ROA		1.17	%		1.35	%
ROE		12.82	%		16.93	%
Diluted Shares		41,780			40,166
QUARTERLY OPERATING RESULTS(1)
Net Income	$	30,356		$	31,435			(3	)%
Net Income Available to Common Shareholders	$	27,918		$	31,435			(11	)%
Diluted EPS	$	.67		$	.76			(12	)%
ROA		1.10	%		1.27	%
ROE		11.94	%		15.35	%
Diluted Shares		41,889			41,505
BALANCE SHEET(1)
Total Assets	$	11,714,397		$	10,540,542			11	%
Demand Deposits		3,347,567			2,535,375			32	%
Total Deposits		9,257,379			7,440,804			24	%
Loans Held for Investment		8,486,309			6,785,535			25	%
Loans Held for Investment, Mortgage Finance		2,784,265			3,175,272			(12	)%
Total Loans		11,270,574			9,960,807			13	%
Stockholders’ Equity		1,096,350			836,242			31	%

(1) Operating results, assets and loans are reporting from continuing operations

DETAILED FINANCIALS

Texas Capital Bancshares, Inc. reported net income from continuing operations of $121.0 million and net income available to common shareholders of $113.7 million for the year ended December 31, 2013 compared to $120.7 million for both net income from continuing operations and net income available to common shareholders for the year ended December 31, 2012. For the fourth quarter of 2013, net income from continuing operations was $30.4 million and net income available to common shareholders was $27.9 million, compared to $31.4 million for both net income from continuing operations and net income available to common shareholders for the same period in 2012. On a fully diluted basis, earnings per common share from continuing operations were $2.72 for the year ended December 31, 2013, compared to $3.01 for the same period in 2012. For the fourth quarter of 2013, diluted earnings per share was $.67 compared to $.76 for the same period in 2012. The discussion below relates only to continuing operations.

Return on average common equity was 12.82 percent and return on average assets was 1.17 percent for the year ended December 31, 2013, compared to 16.93 percent and 1.35 percent, respectively, for 2012. Return on average common equity was 11.94 percent and return on average assets was 1.10 percent for the fourth quarter of 2013, compared to 15.35 percent and 1.27 percent, respectively, for the fourth quarter of 2012.

Net interest income was $111.5 million for the fourth quarter of 2013, compared to $108.8 million in the third quarter of 2013 and $101.2 million for the fourth quarter of 2012. For 2013, net interest income reached $419.5 million compared to $376.9 million in 2012. The net interest margin in the fourth quarter of 2013 was 4.21 percent, a 6 basis point decrease from the fourth quarter of 2012 and consistent with the third quarter of 2013. The year-to-date decrease in net interest margin is due to the growth in loans with lower yields offset with a reduction in the total cost of deposits and borrowed funds.

Average loans, excluding mortgage finance, for the year ended December 31, 2013 were $7.5 billion, an increase of $1.4 billion, or 23 percent, from 2012. Average mortgage finance loans for the year ended December 31, 2013 were $2.3 billion, consistent with 2012. Average loans, excluding mortgage finance, for the fourth quarter of 2013 were $8.1 billion, an increase of $1.4 billion, or 21 percent, from the fourth quarter of 2012 and an increase of $410.7 million, or 5 percent, from the third quarter of 2013. Average mortgage finance loans for the fourth quarter of 2013 decreased $419.4 million to $2.2 billion compared to the fourth quarter of 2012 and decreased $123.4 million from the third quarter of 2013.

Average total deposits for the fourth quarter of 2013 increased $2.2 billion from the fourth quarter of 2012 and increased $439.1 million from the third quarter of 2013. For the same periods, the average balance of demand deposits increased $932.5 million, or 40 percent, to $3.3 billion from $2.4 billion during the fourth quarter of 2012 and increased $164.7 million, or 5 percent, from the third quarter of 2013.

In the fourth quarter of 2013, we experienced decreases in the levels of non-performing assets. Credit costs, including the provision for credit losses and valuation charges related to other real estate owned (“OREO”) totaled $5.5 million in the fourth quarter of 2013 compared to $5.5 million in the fourth quarter of 2012 and $5.0 million in the third quarter of 2013. We recorded a $5.0 million provision for credit losses in the fourth quarter of 2013 compared to $4.5 million in the fourth quarter of 2012 and $5.0 million in the third quarter of 2013. For 2013, the total provision for credit losses was $19.0 million, an increase of 65 percent from $11.5 million in 2012. The substantial majority of the provision for the year ended December 31, 2013 was directly related to the significant growth in loans excluding mortgage finance loans during the year. Due to growth and improving credit quality, at December 31, 2013, the combined reserve decreased to 1.09 percent of loans excluding mortgage finance loans as compared to 1.15 percent at December 31, 2012 and 1.10 percent at September 30, 2013. In management’s opinion, the reserve is appropriate and is derived from consistent application of the methodology for establishing the adequacy of reserves for Texas Capital Bank’s loan portfolio. In the fourth quarter of 2013, net charge-offs were $1.3 million compared to net charge-offs of $3.5 million in the fourth quarter of 2012 and net charge-offs of $46,000 in the third quarter of 2013. For 2013, net charge-offs were $4.9 million, .07 percent of average loans, excluding mortgage finance loans, compared to $6.1 million and a ratio of .10 percent in 2012. Non-accrual loans were $32.4 million, or .38 percent of loans excluding mortgage finance loans as of December 31, 2013, $55.8 million, or .82 percent, as of December 31, 2012 and $35.7 million, or .44 percent, as of September 30, 2013. At December 31, 2013, total

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OREO was $5.1 million compared to $16.0 million as of December 31, 2012, and $12.8 million as of September 30, 2013. The OREO balance of $5.1 million at December 31, 2013 does not have a valuation allowance. The valuation charge for OREO reflected in non-interest expense was $466,000 in the fourth quarter of 2013 compared to $955,000 in the fourth quarter of 2012 and none in the third quarter of 2013.

Non-interest income decreased $1.7 million during the fourth quarter of 2013, or 13 percent, compared to the same period of 2012 primarily related to a $1.6 million decrease in brokered loan fees as a result of declining mortgage finance volumes during the fourth quarter of 2013 as compared to the fourth of 2012.

Non-interest expense for the fourth quarter of 2013 increased $10.2 million, or 17 percent, to $70.3 million from $60.1 million in the fourth quarter of 2012. The increase is primarily related to an $11.8 million increase in salaries and employee benefits to $43.0 million for the fourth quarter of 2013 from $31.2 million for the same period in 2012, which was primarily due to general business growth and an increase in cost of incentives tied to stock price.

Stockholders’ equity increased by 31 percent from $836.2 million at December 31, 2012 to $1.1 billion at December 31, 2013, primarily due to the offering of 6.0 million preferred shares for net proceeds of $145.1 million in the first quarter of 2013 and retained income during 2013. The Bank is well capitalized under regulatory guidelines and at December 31, 2013, our ratio of tangible common equity to total tangible assets was 7.9 percent.

ABOUT TEXAS CAPITAL BANCSHARES, INC.

Texas Capital Bancshares, Inc. (NASDAQ^®: TCBI), a member of the Russell 2000^® Index and the S&P SmallCap 600^®, is the parent company of Texas Capital Bank, a commercial bank that delivers highly personalized financial services to businesses and individual clients. 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 Texas Capital’s current estimates or expectations of future events or future results. Texas Capital is under no obligation, and expressly disclaims such obligation, to update, alter or revise its forward-looking statements, whether as a result of new information, future events, or otherwise. 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 such forward-looking statements. These risks and uncertainties include, but are not limited to, 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 prospectus supplements, the Annual Report on Form 10-K and other filings made by Texas Capital with the Securities and Exchange Commission (SEC).

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TEXAS CAPITAL BANCSHARES, INC.

SELECTED FINANCIAL HIGHLIGHTS (UNAUDITED)

(Dollars in thousands except per share data)

	4th Quarter 2013			3rd Quarter 2013			2nd Quarter 2013			1st Quarter 2013			4th Quarter 2012
CONSOLIDATED STATEMENT OF INCOME
Interest income	$	117,965		$	115,217		$	107,264		$	104,179		$	107,769
Interest expense		6,490			6,441			6,044			6,137			6,614
Net interest income		111,475			108,776			101,220			98,042			101,155
Provision for credit losses		5,000			5,000			7,000			2,000			4,500
Net interest income after provision for credit losses		106,475			103,776			94,220			96,042			96,655
Non-interest income		11,184			10,431			11,128			11,281			12,836
Non-interest expense		70,291			62,009			68,734			55,700			60,074
Income from continuing operations before income taxes		47,368			52,198			36,614			51,623			49,417
Income tax expense		17,012			18,724			12,542			18,479			17,982
Income from continuing operations		30,356			33,474			24,072			33,144			31,435
Income (loss) from discontinued operations (after-tax)		3			2			1			(1	)		(6	)
Net income		30,359			33,476			24,073			33,143			31,429
Preferred stock dividends		2,438			2,437			2,438			81			–
Net income available to common shareholders	$	27,921		$	31,039		$	21,635		$	33,062		$	31,429
Diluted EPS from continuing operations	$	.67		$	.74		$	.52		$	.80		$	.76
Diluted EPS	$	.67		$	.74		$	.52		$	.80		$	.76
Diluted shares		41,888,768			41,791,674			41,723,525			41,429,244			41,505,026
CONSOLIDATED BALANCE SHEET DATA
Total assets	$	11,714,397		$	10,797,448		$	10,977,990		$	10,020,565		$	10,540,542
Loans held for investment		8,486,309			8,051,328			7,510,662			6,920,011			6,785,535
Loans held for investment, mortgage finance		2,784,265			2,262,085			2,838,234			2,577,830			3,175,272
Securities		63,214			67,815			75,861			87,527			100,195
Demand deposits		3,347,567			3,242,060			2,928,735			2,628,446			2,535,375
Total deposits		9,257,379			8,957,081			7,980,598			7,745,831			7,440,804
Other borrowings		1,025,630			449,724			1,634,630			938,134			1,947,161
Subordinated notes		111,000			111,000			111,000			111,000			111,000
Long-term debt		113,406			113,406			113,406			113,406			113,406
Stockholders’ equity		1,096,350			1,066,629			1,034,955			1,013,195			836,242
End of period shares outstanding		41,036,370			40,934,623			40,862,481			40,771,414			40,727,579
Book value (excluding securities gains/losses)	$	23.02		$	22.35		$	21.60		$	21.10		$	20.45
Tangible book value (excluding securities gains/losses)	$	22.50		$	21.82		$	21.08		$	20.62		$	19.96
SELECTED FINANCIAL RATIOS
Net interest margin		4.21	%		4.21	%		4.19	%		4.27	%		4.27	%
Return on average assets		1.10	%		1.25	%		0.95	%		1.38	%		1.27	%
Return on average common equity		11.94	%		13.74	%		9.94	%		15.82	%		15.35	%
Non-interest income to earning assets		.42	%		.40	%		.46	%		.49	%		.54	%
Efficiency ratio		57.3	%		52.0	%		61.2	%		50.9	%		52.7	%
Efficiency ratio (excluding OREO valuation/write-down)		56.9	%		52.0	%		60.8	%		50.9	%		51.9	%
Non-interest expense to earning assets		2.65	%		2.40	%		2.84	%		2.42	%		2.53	%
Non-interest expense to earning assets (excluding OREO valuation charge)		2.63	%		2.40	%		2.83	%		2.42	%		2.49	%
Tangible common equity to total tangible assets		7.9	%		8.3	%		7.9	%		8.4	%		7.7	%

4

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

	December 31, 2013			December 31, 2012			% Change
Assets
Cash and due from banks	$	92,484		$	111,938			(17	)%
Interest-bearing deposits		61,337			94,410			(35	)%
Federal funds sold		90			—			100	%
Securities, available-for-sale		63,214			100,195			(37	)%
Loans held for sale from discontinued operations		294			302			(3	)%
Loans held for investment, mortgage finance		2,784,265			3,175,272			(12	)%
Loans held for investment (net of unearned income)		8,486,309			6,785,535			25	%
Less: Allowance for loan losses		87,604			74,337			18	%
Loans held for investment, net		11,182,970			9,886,470			13	%
Premises and equipment, net		11,482			11,445			(0	)%
Accrued interest receivable and other assets		281,534			316,201			(11	)%
Goodwill and intangibles, net		21,286			19,883			7	%
Total assets	$	11,714,691		$	10,540,844			11	%
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	3,347,567		$	2,535,375			32	%
Interest bearing		5,579,505			4,576,120			22	%
Interest bearing in foreign branches		330,307			329,309			0	%
Total deposits		9,257,379			7,440,804			24	%
Accrued interest payable		749			650			15	%
Other liabilities		110,177			91,581			20	%
Federal funds purchased		148,650			273,179			(46	)%
Repurchase agreements		21,954			23,936			(8	)%
Other borrowings		855,026			1,650,046			(48	)%
Subordinated notes		111,000			111,000			—
Trust preferred subordinated debentures		113,406			113,406			—
Total liabilities		10,618,341			9,704,602			9	%
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares – 10,000,000
Issued shares		150,000			—			100	%
Common stock, $.01 par value:
Authorized shares – 100,000,000
Issued shares – 41,036,787 and 40,727,996 at December 31, 2013 and 2012, respectively		410			407			1	%
Additional paid-in capital		448,208			450,116			(0	)%
Retained earnings		496,112			382,455			30	%
Treasury stock (shares at cost: 417 at December 31, 2013 and 2012)		(8	)		(8	)		—
Accumulated other comprehensive income, net of taxes		1,628			3,272			(50	)%
Total stockholders’ equity		1,096,350			836,242			31	%
Total liabilities and stockholders’ equity	$	11,714,691		$	10,540,844			11	%

5

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
	2013		2012			2013		2012
Interest income
Interest and fees on loans	$	117,261	$	106,653		$	441,314	$	393,548
Securities		621		1,053			3,015		4,688
Federal funds sold		24		6			65		13
Deposits in other banks		59		57			231		208
Total interest income		117,965		107,769			444,625		398,457
Interest expense
Deposits		3,858		3,312			14,030		13,644
Federal funds purchased		116		190			686		979
Repurchase agreements		5		3			18		13
Other borrowings		40		615			515		2,149
Subordinated notes		1,840		1,829			7,327		2,037
Trust preferred subordinated debentures		631		665			2,536		2,756
Total interest expense		6,490		6,614			25,112		21,578
Net interest income		111,475		101,155			419,513		376,879
Provision for credit losses		5,000		4,500			19,000		11,500
Net interest income after provision for credit losses		106,475		96,655			400,513		365,379
Non-interest income
Service charges on deposit accounts		1,674		1,693			6,783		6,605
Trust fee income		1,250		1,260			5,023		4,822
Bank owned life insurance (BOLI) income		533		510			1,917		2,168
Brokered loan fees		3,380		4,978			16,980		17,596
Swap fees		1,904		2,093			5,520		4,909
Other		2,443		2,302			7,801		6,940
Total non-interest income		11,184		12,836			44,024		43,040
Non-interest expense
Salaries and employee benefits		43,008		31,198			157,752		121,456
Net occupancy expense		4,487		3,916			16,821		14,852
Marketing		4,183		3,980			16,203		13,449
Legal and professional		5,520		5,320			18,104		17,557
Communications and technology		3,597		3,070			13,762		11,158
FDIC insurance assessment		1,923		1,071			8,057		5,568
Allowance and other carrying costs for OREO		609		1,369			1,788		9,075
Litigation settlement expense		—		4,000			—		4,000
Other		6,964		6,150			24,247		22,729
Total non-interest expense		70,291		60,074			256,734		219,844
Income from continuing operations before income taxes		47,368		49,417			187,803		188,575
Income tax expense		17,012		17,982			66,757		67,866
Income from continuing operations		30,356		31,435			121,046		120,709
Loss from discontinued operations (after-tax)		3		(6	)		5		(37	)
Net income		30,359		31,429			121,051		120,672
Preferred stock dividends		2,438		—			7,394		—
Net income available to common shareholders	$	27,921	$	31,429		$	113,657	$	120,672
Basic earnings per common share:
Income from continuing operations	$	.68	$	.78		$	2.78	$	3.09
Net income	$	.68	$	.78		$	2.78	$	3.09
Diluted earnings per common share:
Income from continuing operations	$	.67	$	.76		$	2.72	$	3.01
Net income	$	.67	$	.76		$	2.72	$	3.00

6

TEXAS CAPITAL BANCSHARES, INC.

SUMMARY OF LOAN LOSS EXPERIENCE

(Dollars in thousands)

	4th Quarter 2013			3rd Quarter 2013			2nd Quarter 2013			1st Quarter 2013			4th Quarter 2012
Reserve for loan losses:
Beginning balance	$	84,006		$	79,428		$	75,000		$	74,337		$	73,722
Loans charged-off:
Commercial		1,605			496			2,826			1,648			4,044
Real estate – term		—			13			26			105			—
Consumer		—			—			26			19			—
Leases		—			2			—			—			34
Total loans charged-off		1,605			511			2,878			1,772			4,078
Recoveries:
Commercial		225			233			348			397			350
Real estate – term		60			195			7			8			226
Consumer		9			19			15			30			7
Leases		43			18			140			121			21
Total recoveries		337			465			510			556			604
Net charge-offs		1,268			46			2,368			1,216			3,474
Provision for loan losses		4,866			4,624			6,796			1,879			4,089
Ending balance	$	87,604		$	84,006		$	79,428		$	75,000		$	74,337
Reserve for off-balance sheet credit losses:
Beginning balance	$	4,556		$	4,180		$	3,976		$	3,855		$	3,444
Provision for off-balance sheet credit losses		134			376			204			121			411
Ending balance	$	4,690		$	4,556		$	4,180		$	3,976		$	3,855
Total reserves for credit losses	$	92,294		$	88,562		$	83,608		$	78,976		$	78,192
Total provision for credit losses	$	5,000		$	5,000		$	7,000		$	2,000		$	4,500
Reserve to loans		.78	%		.81	%		.77	%		.79	%		.75	%
Reserve to loans excluding mortgage finance loans(2)		1.03	%		1.04	%		1.06	%		1.08	%		1.10	%
Reserve to average loans		.84	%		.83	%		.83	%		.81	%		.88	%
Reserve to average loans excluding mortgage finance loans(2)		1.08	%		1.09	%		1.11	%		1.10	%		1.12	%
Net charge-offs to average loans(1)		.05	%		.00	%		.10	%		.05	%		.15	%
Net charge-offs to average loans excluding mortgage finance loans(1)(2)		.06	%		.00	%		.13	%		.07	%		.21	%
Net charge-offs to average loans for last twelve months(1)		.05	%		.07	%		.09	%		.07	%		.07	%
Net charge-offs to average loans, excluding mortgage finance loans, for last twelve months(1)(2)		.07	%		.10	%		.12	%		.10	%		.10	%
Total provision for credit losses to average loans(1)		.19	%		.20	%		.29	%		.09	%		.19	%
Total provision for credit losses to average loans excluding mortgage finance loans(1)(2)		.24	%		.26	%		.39	%		.12	%		.27	%
Combined reserves for credit losses to loans		.82	%		.86	%		.81	%		.83	%		.78	%
Combined reserves for credit losses to loans, excluding mortgage finance loans(2)		1.09	%		1.10	%		1.11	%		1.14	%		1.15	%
Non-performing assets (NPAs):
Non-accrual loans	$	32,375		$	35,737		$	38,450		$	43,424		$	55,833
Other real estate owned (OREO) (4)		5,110			12,805			13,053			14,426			15,991
Other repossessed assets		—			—			19			—			42
Total	$	37,485		$	48,542		$	51,522		$	57,850		$	71,866

7

Non-accrual loans to loans		.29	%		.35	%		.37	%		.46	%		.56	%
Non-accrual loans to loans excluding mortgage finance loans(2)		.38	%		.44	%		.51	%		.63	%		.82	%
Total NPAs to loans plus OREO		.33	%		.47	%		.50	%		.61	%		.72	%
Total NPAs to loans excluding mortgage finance loans plus OREO(2)		.44	%		.60	%		.68	%		.83	%		1.06	%
Total NPAs to earning assets		.33	%		.47	%		.49	%		.60	%		.71	%
Reserve for loan losses to non-accrual loans		2.7x			2.4x			2.1x			1.7x			1.3x
Restructured loans	$	1,935		$	4,691		$	4,765		$	11,755		$	10,407
Loans past due 90 days and still accruing(3)	$	9,325		$	7,510		$	7,633		$	12,614		$	3,674
Loans past due 90 days to loans		.08	%		.07	%		.07	%		.13	%		.04	%
Loans past due 90 days to loans excluding mortgage finance loans(2)		.11	%		.09	%		.10	%		.18	%		.05	%

(1) Interim period ratios are annualized.

(2) Mortgage finance loans were previously classified as loans held for sale but have been reclassified as loans held for investment. 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.

(3) At December 31, 2013, loans past due 90 days and still accruing includes premium finance loans of $3.8 million. These loans are primarily 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.

(4) At December 31, 2013, there is no valuation allowance recorded against the OREO balance.

8

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

(Dollars in thousands)

	4th Quarter 2013		3rd Quarter 2013			2nd Quarter 2013		1st Quarter 2013			4th Quarter 2012
Interest income
Interest and fees on loans	$	117,261	$	114,453		$	106,418	$	103,182		$	106,653
Securities		621		682			773		939			1,053
Federal funds sold		24		22			13		6			6
Deposits in other banks		59		60			60		52			57
Total interest income		117,965		115,217			107,264		104,179			107,769
Interest expense
Deposits		3,858		3,699			3,228		3,245			3,312
Federal funds purchased		116		152			206		212			190
Repurchase agreements		5		4			5		4			3
Other borrowings		40		119			143		213			615
Subordinated notes		1,840		1,829			1,829		1,829			1,829
Trust preferred subordinated debentures		631		638			633		634			665
Total interest expense		6,490		6,441			6,044		6,137			6,614
Net interest income		111,475		108,776			101,220		98,042			101,155
Provision for credit losses		5,000		5,000			7,000		2,000			4,500
Net interest income after provision for credit losses		106,475		103,776			94,220		96,042			96,655
Non-interest income
Service charges on deposit accounts		1,674		1,659			1,749		1,701			1,693
Trust fee income		1,250		1,263			1,269		1,241			1,260
Bank owned life insurance (BOLI) income		533		423			463		498			510
Brokered loan fees		3,380		4,078			4,778		4,744			4,978
Swap fees		1,904		983			981		1,652			2,093
Other		2,443		2,025			1,888		1,445			2,302
Total non-interest income		11,184		10,431			11,128		11,281			12,836
Non-interest expense
Salaries and employee benefits		43,008		36,012			45,191		33,541			31,198
Net occupancy expense		4,487		4,342			4,135		3,857			3,916
Marketing		4,183		3,974			4,074		3,972			3,980
Legal and professional		5,520		3,937			4,707		3,940			5,320
Communications and technology		3,597		3,696			3,347		3,122			3,070
FDIC insurance assessment		1,923		4,357			699		1,078			1,071
Allowance and other carrying costs for OREO		609		267			482		430			1,369
Litigation settlement expense		—		(908	)		—		—			4,000
Other		6,964		6,332			6,099		5,760			6,150
Total non-interest expense		70,291		62,009			68,734		55,700			60,074
Income from continuing operations before income taxes		47,368		52,198			36,614		51,623			49,417
Income tax expense		17,012		18,724			12,542		18,479			17,982
Income from continuing operations		30,356		33,474			24,072		33,144			31,435
Income (loss) from discontinued operations (after-tax)		3		2			1		(1	)		(6	)
Net income		30,359		33,476			24,073		33,143			31,429
Preferred stock dividends		2,438		2,437			2,438		81			—
Net income available to common shareholders	$	27,921	$	31,039		$	21,635	$	33,062		$	31,429

9

TEXAS CAPITAL BANCSHARES, INC.

QUARTERLY FINANCIAL SUMMARY – UNAUDITED

Consolidated Daily Average Balances, Average Yields and Rates

Continuing Operations

(Dollars in thousands)

	4th Quarter 2013							3rd Quarter 2013							2nd Quarter 2013							1st Quarter 2013							4th Quarter 2012
	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	$	50,281	$	480		3.79	%	$	54,838	$	522		3.78	%	$	60,063	$	594		3.97	%	$	71,220	$	729		4.15	%	$	78,182	$	811		4.13	%
Securities – Non-taxable(2)		14,786		217		5.82	%		16,879		246		5.78	%		18,843		275		5.85	%		22,174		323		5.91	%		25,301		372		5.85	%
Federal funds sold and securities purchased under resale agreements		59,409		24		0.16	%		78,896		22		0.11	%		54,448		13		0.10	%		24,785		6		0.10	%		21,617		6		0.11	%
Deposits in other banks		99,185		59		0.24	%		88,717		60		0.27	%		91,177		60		0.26	%		78,718		52		0.27	%		69,886		57		0.32	%
Loans held for investment, mortgage finance loans		2,238,730		20,236		3.59	%		2,362,118		22,547		3.79	%		2,406,246		22,440		3.74	%		2,362,646		22,641		3.89	%		2,658,092		26,440		3.96	%
Loans held for investment		8,142,569		97,025		4.73	%		7,731,901		91,906		4.72	%		7,152,323		83,978		4.71	%		6,842,766		80,541		4.77	%		6,662,817		80,213		4.79	%
Less reserve for loan losses		84,009		—		—			79,551		—		—			75,006		—		—			74,442		—		—			73,912		—		—
Loans, net of reserve		10,297,290		117,261		4.52	%		10,014,468		114,453		4.53	%		9,483,563		106,418		4.50	%		9,130,970		103,182		4.58	%		9,246,997		106,653		4.59	%
Total earning assets		10,520,951		118,041		4.45	%		10,253,798		115,303		4.46	%		9,708,094		107,360		4.44	%		9,327,867		104,292		4.53	%		9,441,983		107,899		4.55	%
Cash and other assets		378,315							383,968							402,898							401,692							427,299
Total assets	$	10,899,266						$	10,637,766						$	10,110,992						$	9,729,559						$	9,869,282
Liabilities and Stockholders’ Equity
Transaction deposits	$	787,720	$	76		0.04	%	$	794,630	$	102		0.05	%	$	1,051,199	$	233		0.09	%	$	1,003,735	$	253		0.10	%	$	941,947	$	244		0.10	%
Savings deposits		4,365,746		3,079		0.28	%		4,057,792		2,863		0.28	%		3,340,420		2,292		0.28	%		3,246,675		2,297		0.29	%		2,933,904		2,299		0.31	%
Time deposits		385,546		394		0.41	%		402,920		414		0.41	%		397,868		407		0.41	%		403,113		414		0.42	%		423,685		448		0.42	%
Deposits in foreign branches		348,240		309		0.35	%		357,532		320		0.36	%		340,713		296		0.35	%		335,265		281		0.34	%		362,580		321		0.35	%
Total interest bearing deposits		5,887,252		3,858		0.26	%		5,612,874		3,699		0.26	%		5,130,200		3,228		0.25	%		4,988,788		3,245		0.26	%		4,662,116		3,312		0.28	%
Other borrowings		314,018		161		0.20	%		539,767		275		0.20	%		727,158		354		0.20	%		1,041,573		429		0.17	%		1,725,129		808		0.19	%
Subordinated notes		111,000		1,840		6.58	%		111,000		1,829		6.54	%		111,000		1,829		6.61	%		111,000		1,829		6.68	%		111,000		1,829		6.56	%
Trust preferred subordinated debentures		113,406		631		2.21	%		113,406		638		2.23	%		113,406		633		2.24	%		113,406		634		2.27	%		113,406		665		2.33	%
Total interest bearing liabilities		6,425,676		6,490		0.40	%		6,377,047		6,441		0.40	%		6,081,764		6,044		0.40	%		6,254,767		6,137		0.40	%		6,611,651		6,614		0.40	%
Demand deposits		3,289,307							3,124,602							2,914,341							2,529,927							2,356,758
Other liabilities		106,461							89,640							91,608							90,538							86,308
Stockholders’ equity		1,077,822							1,046,477							1,023,279							854,327							814,565
Total liabilities and stockholders’ equity	$	10,899,266						$	10,637,766						$	10,110,992						$	9,729,559						$	9,869,282
Net interest income			$	111,551						$	108,862						$	101,316						$	98,155						$	101,285
Net interest margin						4.21	%						4.21	%						4.19	%						4.27	%						4.27	%

(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.

10

EX-99.2

January 22, 2014

TCBI Q4 2013

Earnings

Exhibit 99.2

Certain

matters

discussed

on

this

call

may

contain

forward-looking

statements,

which

are

subject

to

risks

and

uncertainties

and

are

based

on

Texas

Capital’s

current

estimates

or

expectations

of

future

events

or

future

results.

Texas

Capital

is

under

no

obligation,

and

expressly

disclaims

such

obligation,

to

update,

alter

or

revise

its

forward-looking

statements,

whether

as

a

result

of

new

information,

future

events

or

otherwise.

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

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

prospectus

supplements,

the

Annual

Report

on

Form

10-K

and

other

filings

made

by

Texas

Capital

with

the

Securities

and

Exchange

Commission

(SEC).

2

Opening Remarks

•

Exceptional growth in loans and deposits for 2013

•

Capital raising consistent with market opportunity for growth

•

Continued improvement in NPAs with low level of charge-offs for the year

•

2013 non-interest expense includes hiring foundation of market leading

talent supporting 2014 growth and beyond

•

Mortgage Finance levels up, with 2013 average slightly up as compared to

2012 average, and continued to outperform the industry

3

Financial Review

Net Income

–

Decrease in net income of 9% compared to Q3-2013; full year net income consistent with 2012

–

Profitability –

ROA and ROE remained strong, despite decrease in net income

–

Net Revenue

•

3% increase from Q3-2013

•

8% growth from Q4-2012

–

Exceptional growth in LHI average balances (excluding mortgage finance) and Total Loans

•

Growth of 5% from Q3-2013 and 22% from Q4-2012

•

Clear increase in market share for Mortgage Finance with growth of 2% from 2012 and modest

decrease from Q3-2013

–

Margin remained consistent with Q3-2013 at 4.21%

•

Strong LHI levels, improved composition with reduced proportion of MF Loan balances and yields

•

Improved funding profile from continued growth in DDA and total deposits

–

Correction of error

for

accounting

of

Mortgage

Finance

–

formerly

LHS

•

Previously classified as Held for Sale; will now be consistent with regulatory accounting and treated as

Held for Investment

•

No

change

in

business

direction

–

anticipate

continued

improvement

in

market

position

•

No

change

in

character

of

the

assets

–

quality,

liquidity

and

duration

unaffected

•

No

change

in

any

aspect

of

the

business

–

still

producing

excellent

returns

with

highly

liquid ownership

interests in individual mortgage loans of superior quality

4

Operating Leverage, Core Earnings Power & NIM

LHI/LHS Accounting

Financial Review

Loan Growth

–

Broad-based growth in traditional LHI (excluding Mortgage Finance)

•

Growth of $435.1 million from Q3-2013 and $1.7 billion from Q4-2012

•

Period end balance $343.7 million over average balance for the quarter

•

Averages increased 5% from Q3-2013 and 22% from Q4-2012

–

Average MF balances consistent with objectives

•

Results well above industry trends demonstrate increase in market position and management’s focus on

providing ongoing income

•

Growth of 2% from 2012 and only modest decrease from Q3-2013

–

Q4-2013 expenses were largest factor in linked quarter earnings change, including those associated with

exceptional performance and growth

•

Cost of long-term incentives increased $3.6 million ($0.06 per share) resulting from unprecedented

increase in stock price from Q3-2013

•

Incentive true-up of $1.6 million (almost $0.03 per share) for lines of business producing average of

20% increase in earnings contribution from 2012

•

Build-out

expense

of

$0.02

per

share

related

to

exceptional

recruiting

in

Q3,

expansion

of

business

lines

and impact of lag in growth of support and infrastructure costs associated with growth

•

For all of 2013, the “unusual”

items represented almost $20 million

5

Expense Management

Financial Review

Funding

–

Funding profile optimal with exceptional DDA and total deposit growth

•

Average  DDA increased 5% from Q3-2013 and 40% from Q4-2012

•

Total average deposits increased 5% from Q3-2013 and 31% from Q4-2012

–

Total deposit cost stable at 17 bps

Credit Costs

–

Total credit costs of $5.4 million for Q4-2013

•

Provision of $5.0 million consistent with Q3-2013

•

OREO valuation cost of $466,000 in Q4-2013 associated with 60% reduction in total ORE balances

•

NCOs of 6 bps in Q4-2013 and 7 bps for all of 2013

•

Favorable trend in NPA ratio with $11.1 million (23%) decrease from Q3-2013

6

Income Statement -

Quarterly

7

Q4-13

Q3-13

Q2-13

Q1-13

Q4-12

Net interest income

$  111,475

$  108,776

$  101,220

$   98,042

$ 101,155

Non-interest income

11,184

10,431

11,128

11,281

12,836

Net revenue

122,659

119,207

112,348

109,323

113,991

Provision for credit losses

5,000

5,000

7,000

2,000

4,500

OREO valuation and write-down expense

466

-

382

71

955

Total provision  and OREO valuation

5,466

5,000

7,382

2,071

5,455

Non-interest expense

69,825

62,009

68,352

55,629

59,119

Income before income taxes

47,368

52,198

36,614

51,623

49,417

Income tax expense

17,012

18,724

12,542

18,479

17,982

Net income

30,356

33,474

24,072

33,144

31,435

Preferred stock dividends

2,438

2,437

2,438

81

–

Net income available to common shareholders

$   27,918

$   31,037

$   21,634

$   33,063

$   31,435

Diluted EPS

$         .67

$         .74

$         .52

$         .80

$         .76

Net interest margin

4.21%

4.21%

4.19%

4.27%

4.27%

ROA

1.10%

1.25%

0.95%

1.38%

1.27%

ROE

11.94%

13.74%

9.94%

15.82%

15.35%

Efficiency

(1)

56.9%

52.0%

60.8%

50.9%

51.9%

(1)  Excludes OREO valuation charge

Income Statement -

Annual

8

2013

2012

2011

2010

2009

Net interest income

$  419,513

$  376,879

$  302,937

$  241,674

$  196,691

Non-interest income

44,024

43,040

32,232

32,263

29,260

Net revenue

463,537

419,919

335,169

273,937

225,951

Provision for credit losses

19,000

11,500

28,500

53,500

43,500

OREO valuation and write-down expense

920

6,883

6,798

8,504

7,809

Total provision  and OREO valuation

19,920

18,383

35,298

62,004

51,309

Non-interest expense

255,814

212,961

181,403

154,984

137,733

Income before income taxes

187,803

188,575

118,468

56,949

36,909

Income tax expense

66,757

67,866

42,366

19,626

12,522

Net income

121,046

120,709

76,102

37,323

24,387

Preferred stock dividends

7,394

–

–

–

–

Net income available to common shareholders

$ 113,652

$  120,709

$   76,102

$   37,323

$   24,387

Diluted EPS

$       2.72

$        3.01

$       1.99

$       1.00

$         .56

Net interest margin

4.22%

4.41%

4.68%

4.28%

3.89%

ROA

1.17%

1.35%

1.12%

.63%

.46%

ROE

12.82%

16.93%

13.39%

7.23%

5.15%

Efficiency

(1)

55.2%

49.8%

54.1%

56.6%

61.0%

(1)  Excludes OREO valuation charge

QTD Average Balances, Yields and Rates

9

(in thousands)

Q4 2013

Q3 2013

Q4 2012

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Assets

Securities

$      65,067

4.25%

$      71,717

4.25%

$103,483

4.55%

Fed funds sold & liquidity investments

158,594

.21%

167,613

.19%

91,503

.27%

Loans held for investment, mortgage finance

2,238,730

3.59%

2,362,118

3.79%

2,658,092

3.96%

Loans held for investment

8,142,569

4.73%

7,731,901

4.72%

6,662,817

4.79%

Total loans, net of reserve

10,297,290

4.52%

10,014,468

4.53%

9,246,997

4.59%

Total earning assets

10,520,951

4.45%

10,253,798

4.46%

9,441,983

4.55%

Total assets

$10,899,266

$10,637,766

$9,869,282

Liabilities and Stockholders’

Equity

Total interest bearing deposits

$  5,887,252

.26%

$  5,612,874

.26%

$4,662,116

.28%

Other borrowings

314,018

.20%

539,767

.20%

1,725,129

.19%

Subordinated notes

111,000

6.58%

111,000

6.54%

12,065

6.56%

Long-term debt

113,406

2.21%

113,406

2.23%

113,406

2.33%

Total interest bearing liabilities

6,425,676

.40%

6,377,047

.40%

6,611,651

.40%

Demand deposits

3,289,307

3,124,602

2,356,758

Stockholders’

equity

1,077,822

1,046,477

814,565

Total liabilities and stockholders’

equity

$10,899,266

.24%

$10,637,766

.24%

$9,869,282

.27%

Net interest margin

4.21%

4.21%

4.27%

10

YTD Average Balances, Yields and Rates

10

(in thousands)

2013

2012

Avg. Bal.

Yield Rate

Avg. Bal.

Yield Rate

Assets

Securities

$      77,178

4.39%

$117,375

4.46%

Fed funds sold & liquidity investments

144,050

.21%

72,689

.30%

Loans held for investment, mortgage finance

2,342,149

3.75%

2,298,651

4.06%

Loans held for investment

7,471,676

4.73%

6,148,860

4.88%

Total loans, net of reserve

9,735,543

4.53%

8,375,424

4.70%

Total earning assets

9,956,771

4.47%

8,565,488

4.66%

Total assets

$10,348,404

$8,965,960

Liabilities and Stockholders’

Equity

Total interest bearing deposits

$  5,407,810

.26%

$4,459,836

.31%

Other borrowings

653,318

.19%

1,585,723

.20%

Subordinated notes

111,000

6.60%

30,934

6.58%

Long-term debt

113,406

2.24%

113,406

2.43%

Total interest bearing liabilities

6,285,534

.40%

6,189,899

.35%

Demand deposits

2,967,063

1,984,171

Stockholders’

equity

1,001,215

713,190

Total liabilities and stockholders’

equity

$10,348,404

.24%

$8,965,960

.24%

Net interest margin

4.22%

4.41%

Financial Summary

11

(in thousands)

QTD Averages

Q4 2013

Q3 2013

Q4 2012

Q4/Q3 %

Change

YOY %

Change

Total assets

$10,899,266

$10,637,766

$9,869,282

2%

10%

Loans held for investment

8,142,569

7,731,901

6,662,817

5%

22%

Loans held for investment, mortgage finance

2,238,730

2,362,118

2,658,092

(5)%

(16)%

Total loans

10,381,299

10,094,019

9,320,909

3%

11%

Securities

65,067

71,717

103,483

(9)%

(37)%

Demand deposits

3,289,307

3,124,602

2,356,758

5%

40%

Total deposits

9,176,559

8,737,476

7,018,874

5%

31%

Stockholders’

equity

1,077,822

1,046,477

814,565

3%

32%

12

Financial Summary

12

(in thousands)

YTD Averages

2013

2012

YOY % Change

Total assets

$10,348,404

$8,965,961

15%

Loans held for investment

7,471,676

6,148,860

22%

Loans held for investment, mortgage finance

2,342,149

2,298,651

2%

Total loans

9,813,825

8,447,511

16%

Securities

77,178

117,375

(34)%

Demand deposits

2,967,063

1,984,171

50%

Total deposits

8,374,873

6,444,007

30%

Stockholders’

equity

1,001,215

713,190

40%

Financial Summary

13

(in thousands)

Period End

Q4 2013

Q3 2013

Q4 2012

Q4/Q3 %

Change

YOY %

Change

Total assets

$11,714,397

$10,797,448

$10,540,542

8%

11%

Loans held for investment

8,486,309

8,051,328

6,785,535

5%

25%

Loans held for investment, mortgage finance

2,784,265

2,262,085

3,175,272

23%

(12)%

Total loans

11,270,574

10,313,413

9,960,807

9%

13%

Securities

63,214

67,815

100,195

(7)%

(37)%

Demand deposits

3,347,567

3,242,060

2,535,375

3%

32%

Total deposits

9,257,379

8,957,081

7,440,804

3%

24%

Stockholders’

equity

1,096,350

1,066,629

836,242

3%

31%

14

Revenue and Income Growth

Operating Revenue CAGR: 22%

Net Interest

Income CAGR:

23%

Non-interest Income CAGR: 14%

Non-interest Expense CAGR: 18%

Net Income CAGR: 37%

($ in thousands)

Note:

Excludes OREO valuation charge for YTD 2013, 2012, 2011 and 2010.

15

EPS Growth

5 Year EPS CAGR: 27%

^Excludes $.15 effect of preferred TARP dividend during 2009. Reported EPS was $0.56.

16

Demand Deposit CAGR: 42%

Total Deposit CAGR: 23%

Loans Held for Investment* CAGR: 16%

Deposit and Loan Growth

($ in millions)

* Excludes MF loans.

Loan Portfolio Statistics

17

Non-accrual loans

Commercial

$         12,896

Construction

705

Real estate

18,670

Consumer

54

Equipment leases

50

Total non-accrual loans

32,375

Non-accrual loans as % of

loans excluding MF

.38%

Non-accrual loans as % of

total loans

.29%

OREO

5,110

Total Non-accruals +

OREO

37,485

Non-accrual loans + OREO

as % of loans excluding MF

+ OREO

.44%

Total Loans  $11,270,574

All numbers in thousands.

Loan Collateral by Type 12/31/13

Credit Quality

Improved Credit Trends

–

Total credit cost of $5.4 million for Q4-2013, compared to $ 5.0 million in Q3-2013 and $5.5

million in Q4-2012

•

Provision of $5.0 million for Q4-2013 compared to $5.0 million for Q3-2013 and $4.5

million in Q4-2012

•

NCOs $1.3 million (6 bps) in Q4-2013 compared to 0 bps in Q3-2013 and 21 bps in Q4-

2012; NCO ratio of 7 bps for YTD

•

OREO valuation charge of $466,000 in Q4-2013 compared to none in Q3-2013 and

$955,000 in Q4-2012

–

NPA ratio continues to decline

•

Reduction of $11.1 million (23%) from Q3-2013 and $34.4 million (48%) from Q4-2012

•

NPA ratio of .44% compared to .60% in Q3-2013 and 1.06% in Q4-2012

•

NPLs at $32.4 million, down $3.4 million from Q3-2013 and down $23.5 million from

Q4-2012

•

NPL ratio at .29% of total loans and .38% of LHI excluding MF loans

•

OREO reduction of $7.7 (60%) from Q3-2013 and $10.9 million (68%) from Q4-2012

18

19

Credit Quality

Net Charge-offs / Average Loans*

* Excludes MF loans.

Combined reserve /

Loans

*

1.09%

1.15%

1.31%

1.56%

1.59%

Non-accrual loans +

OREO to loans

*

+

OREO

.44%

1.06%

1.58%

3.25%

2.74%

Combined reserve to

non-accruals

2.7x

1.3x

1.3x

.6x

.7x

Closing Comments

•

Strong core

earnings

power,

profitability

and

growth

to

continue

in

2014

•

Credit continues positive trend

•

Strong LHI pipeline and new commitments present opportunity for growth

potential

•

Producers in place for 2014 growth

•

Building more liquidity in 2014 which will impact NIM

•

Mortgage finance average balances to be down in 2014 but outperform the

industry

•

Improving capital position with capital raise to support growth

20

Q&A

21

EX-99.3

Exhibit 99.3

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands) (2010, 2011, 2012 corrected)

	Year ended December 31
	2013			2012			2011			2010
Operating activities
Net income from continuing operations	$	121,046		$	120,709		$	76,102		$	37,323
Adjustments to reconcile net income from continuing operations to net cash used in operating activities:
Provision for credit losses		19,000			11,500			28,500			53,500
Deferred tax benefit/(expense)		(11,599	)		(3,131	)		(6,682	)		(5,613	)
Depreciation and amortization		5,382			4,782			5,364			6,821
Amortization and accretion on securities		22			38			78			139
Bank owned life insurance (BOLI) income		(1,917	)		(2,168	)		(2,095	)		(1,889	)
Stock-based compensation expense		20,953			12,018			7,340			6,770
Tax benefit from stock option exercises		1,200			7,769			3,139			621
Excess tax benefits from stock-based compensation arrangements		(3,427	)		(22,197	)		(8,970	)		(1,774	)
(Gain) loss on sale of assets		(931	)		(917	)		(80	)		93
Changes in operating assets and liabilities:
Accrued interest receivable and other assets		37,100			(56,679	)		(59,508	)		(24,287	)
Accrued interest payable and other liabilities		2,308			3,066			32,694			25,207
Net cash used in operating activities of continuing operations		189,137			74,790			75,882			96,911
Net cash provided by/(used in) operating activities of discontinued operations		13			54			(29	)		(128	)
Net cash used in operating activities		189,150			74,844			75,853			96,783
Investing activities
Purchases of available-for-sale securities		(2	)		(13	)		(10,000	)		—
Maturities and calls of available-for-sale securities		15,890			14,260			8,240			4,425
Principal payments received on available-for-sale securities		18,542			27,000			42,421			74,895
Originations of mortgage finance loans		(51,087,328	)		(51,110,692	)		(27,234,509	)		(22,859,900	)
Proceeds from pay-offs of mortgage finance loans		51,478,335			50,015,503			26,348,634			22,359,195
Net increase in loans held for investment, excluding mortgage finance loans		(1,706,505	)		(1,220,626	)		(890,753	)		(303,618	)
Purchase of premises and equipment, net		(4,029	)		(3,538	)		(3,286	)		(3,832	)
Proceeds from sale of foreclosed assets		11,667			14,921			23,329			5,980
Cash paid for acquisition		(2,445	)		—			(11,482	)		(10,152	)
Net cash used in investing activities of continuing operations		(1,275,875	)		(2,263,185	)		(1,727,406	)		(733,007	)
Financing activities
Net increase in deposits		1,816,575			1,884,547			100,856			1,334,676
Proceeds from issuance of stock related to stock-based awards and warrants		(2,210	)		355			2,190			866
Proceeds from issuance of common stock		—			86,987			—			12,477
Proceeds from issuance of preferred stock		144,987			—			—			—
Preferred dividends paid		(6,960	)		—			—			—
Net increase (decrease) in other borrowings		(797,002	)		318,115			1,341,761			(362,404	)
Excess tax benefits from stock-based compensation arrangements		3,427			22,197			8,970			1,774
Net increase (decrease) in federal funds purchased		(124,529	)		(139,070	)		128,468			(296,738	)
Issuance of subordinated notes		—			111,000			—			—
Net cash provided by financing activities of continuing operations		1,034,288			2,284,131			1,582,245			690,651
Net increase (decrease) in cash and cash equivalents		(52,437	)		95,790			(69,308	)		54,427
Cash and cash equivalents at beginning of period		206,348			110,558			179,866			125,439
Cash and cash equivalents at end of period	$	153,911		$	206,348		$	110,558		$	179,866
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	24,962		$	21,527		$	20,643		$	38,025
Cash paid during the period for income taxes		77,635			69,095			32,127			27,134
Transfers from loans/leases to OREO and other repossessed assets		1,331			3,489			24,327			29,559

See accompanying notes to consolidated financial statements.

EXHIBIT 99.3 – SUPPLEMENTAL DATA (unaudited)

SELECTED CONSOLIDATED FINANCIAL DATA (corrected)(unaudited)

	2012			2011			2010			2009			2008
	(In thousands, except per share, average share and percentage data)
Consolidated Balance Sheet Data (1)
Total assets (2)	$	10,540,542		$	8,137,225		$	6,445,679		$	5,698,318		$	5,141,034
Loans held for investment, mortgage finance loans		3,175,272			2,080,081			1,194,209			693,504			496,351
Loans held for investment		6,785,535			5,572,371			4,711,130			4,457,293			4,027,871
Loans held for sale from discontinued operations		302			393			490			586			648
Securities available-for-sale		100,195			143,710			185,424			266,128			378,752
Demand deposits		2,535,375			1,751,944			1,451,307			899,492			587,161
Total deposits		7,440,804			5,556,257			5,455,401			4,120,725			3,333,187
Federal funds purchased		273,179			412,249			283,781			580,519			350,155
Other borrowings		1,673,982			1,355,867			14,106			376,510			930,452
Subordinated notes		111,000			—			—			—			—
Trust preferred subordinated debentures		113,406			113,406			113,406			113,406			113,406
Stockholders’ equity		836,242			616,331			528,319			481,360			387,073
Selected Financial Ratios (3)
Asset Quality Ratios
Net charge-offs (recoveries) to average loans		0.07	%		0.47	%		0.95	%		0.41	%		0.35	%
Net charge-offs (recoveries) to average loans excluding mortgage finance loans		0.10	%		0.58	%		1.14	%		0.46	%		0.35	%
Reserve for loan losses to loans held for investment		0.75	%		0.92	%		1.21	%		1.32	%		1.00	%
Reserve for loan losses to loans held for investment excluding mortgage finance loans		1.10	%		1.26	%		1.52	%		1.52	%		1.13	%
Reserve for loan losses to non-accrual loans		1.3x			1.3x			.6x			.7x			1.0x
Non-accrual loans to loans		0.56	%		0.71	%		1.90	%		1.86	%		1.05	%
Non-accrual loans to loans excluding mortgage finance loans		0.82	%		0.98	%		2.38	%		2.15	%		1.18	%
Total NPAs to loans plus OREO		0.72	%		1.17	%		2.60	%		2.38	%		1.61	%
Total NPAs to loans excluding mortgage finance loans plus OREO		1.06	%		1.61	%		3.26	%		2.74	%		1.81	%

⁽¹⁾  The consolidated statement of operating data and consolidated balance sheet data presented above for the five most recent fiscal years ended December 31, have been derived from our audited consolidated financial statements. The historical results are not necessarily indicative of the results to be expected in any future period.

⁽²⁾  From continuing operations.

⁽³⁾  Mortgage finance loans were previously classified as loans held for sale but have been reclassified as loans held for investment. 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.

Consolidated Daily Average Balances, Average Yields and Rates (corrected)

	2012							2011							2010
	Average Balance		Revenue / Expense(1)		Yield / Rate			Average Balance		Revenue / Expense(1)		Yield / Rate			Average Balance		Revenue / Expense(1)		Yield / Rate
Assets
Securities—Taxable	$	90,796	$	3,681		4.05	%	$	123,124	$	5,186		4.21	%	$	183,363	$	8,023		4.38	%
Securities—Non-taxable(2)		26,579		1,550		5.83	%		33,996		1,957		5.76	%		39,360		2,243		5.70	%
Federal funds sold		11,497		13		0.11	%		21,897		37		0.17	%		112,716		210		0.19	%
Deposits in other banks		61,192		208		0.34	%		107,734		352		0.33	%		47,365		116		0.24	%
Loans held for investment, mortgage finance loans		2,298,651		93,275		4.06	%		1,210,954		53,940		4.45	%		883,033		41,808		4.73	%
Loans held for investment		6,148,860		300,273		4.88	%		5,059,134		260,813		5.16	%		4,475,668		228,195		5.10	%
Less reserve for loan losses		72,087		—		—			67,888		—		—			71,942		—		—
Loans, net		8,375,424		393,548		4.70	%		6,202,200		314,753		5.07	%		5,286,759		270,003		5.11	%
Total earning assets		8,565,488		399,000		4.66	%		6,488,951		322,285		4.97	%		5,669,563		280,595		4.95	%
Cash and other assets		400,472							330,137							281,448
Total assets	$	8,965,960						$	6,819,088						$	5,951,011
Liabilities and stockholders’ equity
Transaction deposits	$	752,040	$	829		0.11	%	$	391,100	$	195		0.05	%	$	437,674	$	974		0.22	%
Savings deposits		2,765,089		8,674		0.31	%		2,401,997		7,797		0.32	%		2,142,541		15,777		0.74	%
Time deposits		530,816		2,775		0.52	%		562,654		5,231		0.93	%		913,616		11,707		1.28	%
Deposits in foreign branches		411,891		1,366		0.33	%		490,703		1,727		0.35	%		401,155		4,851		1.21	%
Total interest bearing deposits		4,459,836		13,644		0.31	%		3,846,454		14,950		0.39	%		3,894,986		33,309		0.86	%
Other borrowings		1,585,723		3,141		0.20	%		723,172		1,140		0.16	%		280,899		1,155		0.41	%
Subordinated notes		30,934		2,037		6.58	%		—		—		—			—		—		—
Trust preferred subordinated debentures		113,406		2,756		2.43	%		113,406		2,573		2.27	%		113,406		3,672		3.24	%
Total interest bearing liabilities		6,189,899		21,578		0.35	%		4,683,032		18,663		0.40	%		4,289,291		38,136		0.89	%
Demand deposits		1,984,171							1,515,021							1,116,260
Other liabilities		78,700							52,888							29,492
Stockholders’ equity		713,190							568,147							515,968
Total liabilities and stockholders’ equity	$	8,965,960						$	6,819,088						$	5,951,011

EX-99.4

Exhibit 99.4

EXHIBIT 99.4         RISK FACTORS

An investment in our common stock, preferred stock or debt securities involves risks that you should carefully consider. The following discussion, along with management’s discussion and analysis and our financial statements and footnotes, sets forth the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also have a material adverse effect on our business, financial condition or results of operations. There is no assurance that this discussion covers all potential risks that we face. The occurrence of the described risks could cause our results to differ materially from those described in our forward-looking statements included elsewhere in this report, and could result in the loss of some or all of your investment.

Risk Factors Associated With Our Business

We must effectively manage our credit risk. The risk of non-payment of loans is inherent in commercial banking. Increased credit risk may result from several factors, including adverse changes in economic and industry conditions, declines in the value of collateral and risks related to individual borrowers. We rely heavily on information provided by third parties when originating and monitoring loans. If this information is intentionally or negligently misrepresented and we do not detect such misrepresentations, the credit risk associated with the transaction may be increased. Although we attempt to manage our credit risk by carefully monitoring the concentration of our loans within specific loan categories and industries and through prudent loan approval and monitoring practices in all categories of our lending, we cannot assure you that our approval and monitoring procedures will reduce these lending risks. If our credit administration personnel, policies and procedures are not able to adequately adapt to changes in economic or other conditions that affect customers and the quality of the loan portfolio, we may incur increased losses that could adversely affect our financial results.

A significant portion of our assets consists of commercial loans. We generally invest a greater proportion of our assets in commercial loans to business customers than other banking institutions of our size, and our business plan calls for continued efforts to increase our assets invested in these loans. At December 31, 2013, approximately 44% of our loan portfolio was comprised of commercial loans. Commercial loans may involve a higher degree of credit risk than other types of loans due, in part, to their larger average size, the effects of changing economic conditions on the businesses of our commercial loan customers, the dependence of borrowers on operating cash flow to service debt and our reliance upon collateral which may not be readily marketable. Due to the proportionate amount of these commercial loans in our portfolio, losses incurred on a relatively small number of commercial loans could have a materially adverse impact on our results of operations and financial condition.

A significant portion of our loans are secured by commercial and residential real estate. At December 31, 2013, approximately 30% of our loan portfolio was comprised of loans with real estate as the primary component of collateral. Our real estate lending activities, and our exposure to fluctuations in real estate collateral values, are significant and expected to increase as our assets increase. The market value of real estate can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of real estate serving as collateral for our loans declines materially, a significant part of our loan portfolio could become under-collateralized and losses incurred upon borrower defaults would increase. Conditions in certain segments of the real estate industry, including homebuilding, lot development and mortgage lending, may have an effect on values of real estate pledged as collateral for our loans. The inability of purchasers of real estate, including residential real estate, to obtain financing may weaken the financial condition of our borrowers who are dependent on the sale or refinancing of property to repay their loans.

We must maintain an adequate allowance for loan losses. Our experience in the banking industry indicates that some portion of our loans will become delinquent, and some may only be partially repaid or may never be repaid at all. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense each quarter, that is consistent with management’s assessment of the collectability of the loan portfolio in light of the amount of loans committed and outstanding and current economic conditions and market trends. When specific loan losses are identified, the amount of the expected loss is removed, or charged-off, from the allowance. Our methodology for establishing the adequacy of the allowance for loan losses depends on our subjective application of risk grades as indicators of each borrower’s ability to repay the loan.

If our assessment of future losses is inaccurate, or economic and market conditions or the borrower’s financial performance experience material unanticipated changes, the allowance may become inadequate, requiring larger provisions for loan losses that can materially decrease our earnings. Certain of our loans individually represent a significant percentage of our total allowance for loan losses. Adverse collection experience in a relatively small number of these loans could require an increase in the provision for loan losses. Federal regulators periodically review our allowance for loan losses and, based on their judgments, which may be different than ours, may require us to change classifications or grades of loans, increase the allowance for loan losses and recognize further loan charge-offs. Any increase in the allowance for loan losses or in the amount of loan charge-offs required by these regulatory agencies could have a negative effect on our results of operations and financial condition.

We must effectively manage our interest rate risk. Our profitability is dependent to a large extent on our net interest income, which is the difference between the interest income paid to us on our loans and investments and the interest we pay to third parties such as our depositors, lenders and debtholders. Changes in interest rates can impact our profits and the fair values of certain of our assets and liabilities. Prolonged periods of unusually low interest rates may have an adverse effect on our earnings by reducing yields on loans and other earning assets. Increases in market interest rates may reduce our customers’ desire to borrow money from us or adversely affect their ability to repay their outstanding loans by increasing their debt service obligations through the periodic reset of adjustable interest rate loans. If our borrowers’ ability to pay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results. Increases in interest rates can have a material impact on the volume of mortgage originations and refinancings, adversely affecting the profitability of our mortgage finance business. Interest rate risk can also result from mismatches between the dollar amounts of repricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities reprice. We actively monitor and manage the balances of our maturing and repricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions.

Federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed in 2011 by the Dodd-Frank Act. This change has had limited impact to date due to the excess of commercial liquidity and the very low rate environment in recent years. There can be no assurance that we will not be materially adversely affected in the future if economic activity increases and interest rates rise, which may result in our interest expense increasing, and our net interest margin decreasing, if we must offer interest on demand deposits to attract or retain customer deposits.

We must effectively execute our business strategy in order to continue our asset and earnings growth. Our core strategy is to develop our business principally through organic growth. Our prospects for continued growth must be considered in light of the risks, expenses and difficulties frequently encountered by companies seeking to realize significant growth. In order to execute our growth strategy successfully, we must, among other things:

• continue to identify and expand into suitable markets and lines of business, in Texas, regionally and nationally;

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• develop new products and services and execute our full range of products and services more efficiently and effectively;

• attract and retain qualified bankers in each of our targeted markets to build our customer base;

• expand our loan portfolio while maintaining credit quality;

• attract sufficient deposits and capital to fund our anticipated loan growth;

• control expenses; and

• maintain sufficient qualified staffing and infrastructure to support growth and compliance with increasing regulatory requirements.

Failure to effectively execute our business strategy could have a material adverse effect on our business, future prospects, financial condition or results of operations.

Our future profitability depends, to a significant extent, upon our middle market business customers. Our future profitability depends, to a significant extent, upon revenue we receive from middle market business customers, and their ability to continue to meet their loan obligations. Adverse economic conditions or other factors affecting this market segment may have a greater adverse effect on us than on other financial institutions that have a more diversified customer base.

Our business is concentrated in Texas. A substantial majority of our customers are located in Texas. As a result, our financial condition and results of operations may be strongly affected any prolonged period of economic recession or other adverse business, economic or regulatory conditions affecting Texas businesses and financial institutions.

Our growth plans are dependent on the availability of capital and funding. Our historical ability to raise capital through the sale of capital stock and debt securities may be affected by economic and market conditions or regulatory changes that are beyond our control. Adverse changes in our operating performance or financial condition could make raising additional capital difficult or more expensive or limit our access to customary sources of funding, including inter-bank borrowings, repurchase agreements and borrowings from the Federal Reserve Bank of Dallas or the Federal Home Loan Bank. We cannot offer assurance that capital will be available to us in the future, upon acceptable terms or at all. Our efforts to raise capital could require the issuance of securities at times and with maturities, conditions and rates that are disadvantageous, and which could have a dilutive impact on our current stockholders. Factors that could adversely affect our ability to raise additional capital include conditions in the capital markets, our financial performance, regulatory actions and general economic conditions. Increases in our cost of capital, including increased interest or dividend requirements, could have a direct adverse impact on our operating performance and our ability to achieve our growth objectives. Trust preferred securities are no longer a viable as a source of new long-term debt capital as a result of regulatory changes. The treatment of our existing trust preferred securities as capital may be subject to further regulatory change prior to their maturity, which could require the Company to seek additional capital.

We must effectively manage our liquidity risk. Our bank requires available funds (liquidity) to meet its deposit, debt and other obligations as they come due as well as unexpected demands for cash payments. Our bank’s principal source of funding consists of customer deposits. A substantial majority of our bank’s liabilities consist of demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice. By comparison, a substantial portion of our assets are loans, most of which, excluding our mortgage finance loans, cannot be collected or sold in so short a time frame, creating the potential for an imbalance in the availability of liquid assets to satisfy depositors and loan

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funding requirements. We hold smaller balances of marketable securities than many of our competitors, limiting our ability to increase our liquidity by completing market sales of these assets. An inability to raise funds through deposits, borrowings, the sale of securities and loans and other sources, including our access to capital market transactions, could have a substantial negative effect on our bank’s liquidity. We actively manage our available sources of funds to meet our expected needs under normal and financially stressed conditions, but there is no assurance that our bank will be able to meet funding commitments to borrowers and replace maturing deposits and advances as necessary under all possible circumstances. Our bank’s ability to obtain funding could be impaired by factors beyond its control, such as disruptions in financial markets, negative expectations regarding the financial services industry generally or in our markets or negative perceptions of our bank.

Our bank sources a significant volume of its demand deposits from financial services companies and other commercial sources, resulting in a smaller number of larger deposits than would be typical of other banks in our markets. In recent periods over half of our total deposits have been attributable to customers whose balances exceed the $250,000 FDIC insurance limit. Many of these customers actively monitor our financial condition and results of operations and could withdraw their deposits quickly upon the occurrence of a material adverse development affecting our bank. One potential source of liquidity for our bank consists of “brokered deposits” arranged by brokers acting as intermediaries, typically larger money-center financial institutions. We have significant balances of other deposits defined for regulatory purposes to be brokered deposits, including deposits provided by certain of our customers in connection with our delivery of other financial services to them or their customers. If we do not maintain our regulatory capital above the level required to be well capitalized FDIC consent would be required for us to continue to obtain deposits classified as brokered deposits. Our non-traditional deposits are subject to greater operational and reputational risk of unexpected withdrawal than traditional demand and time deposits, particularly those provided by consumers. See Management’s Discussion and Analysis of Financial Condition and Results of Operations below for further discussion of our liquidity.

We must be effective in developing and executing new lines of business and new products and services while managing associated risks. Our business strategy requires that we develop and grow new lines of business and offer new products and services within existing lines of business in order to compete successfully and realize our growth objections. Substantial costs, risks and uncertainties are associated with these efforts, particularly in instances where the markets are not fully developed. Developing and marketing new activities requires that we invest significant time and resources before revenues and profits can be realized. Timetables for the development and launch of new activities may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also adversely impact the successful execution of new activities. New activities necessarily entail additional risks and may present additional risks to the effectiveness of our system of internal controls. All service offerings, including current offerings and new activities, may become more risky due to changes in economic, competitive and market conditions beyond our control. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.

We must continue to attract and retain key personnel. Our success depends to a significant extent upon our ability to attract and retain experienced bankers in each of our markets. Competition for the best people in our industry can be intense, and there is no assurance that we will continue to have the same level of success in this effort that has supported our historical results. Factors that affect our ability to attract and retain key employees include our compensation and benefits programs, our profitability and our reputation for rewarding and promoting qualified employees. The cost of employee compensation is a significant portion of our operating expenses and can materially impact our results of operations. The unanticipated loss of the services of key personnel could have an adverse effect on our business. Although we have entered into employment agreements with certain key employees, we cannot assure you that we will be successful in retaining them.

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Our business faces unpredictable economic and business conditions. Our business is directly impacted by general economic and business conditions in the United States and abroad. The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we conduct our business. Our continued financial success can be affected by other factors that are beyond our control, including:

• national, regional and local economic conditions;

• general economic consequences of international conditions, such as weakness in European sovereign debt and the impact of that weakness on the US and global economies;

• legislative and regulatory changes impacting our industry;

• the financial health of our customers and economic conditions affecting them and the value of our collateral, including changes in the price of energy and other commodities;

• the incidence of fraud, illegal payments, security breaches and other illegal acts among or impacting our bank and our customers;

• structural changes in the markets for origination, sale and servicing of residential mortgages;

• changes in governmental economic and regulatory policies generally, including the extent and timing of intervention in credit markets by the Federal Reserve Board or withdrawal from that intervention;

• changes in the availability of liquidity at a systemic level; and

• material inflation or deflation.

Substantial deterioration in any of the foregoing conditions, including continuation of weak economic recovery and employment growth in recent years, can have a material adverse effect on our prospects and our results of operations and financial condition. There is no assurance that we will be able to sustain our historical rate of growth or our profitability. Our bank’s customer base is primarily commercial in nature, and our bank does not have a significant retail branch network or retail consumer deposit base. In periods of economic downturn, business and commercial deposits may be more volatile than traditional retail consumer deposits. As a result, our financial condition and results of operations could be adversely affected to a greater degree by these uncertainties than our competitors who have a larger retail customer base.

We compete with many larger banks and other financial service providers. Competition among providers of financial services in our markets, in Texas, regionally and nationally, is intense. We compete with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders, government sponsored or subsidized lenders and other financial services providers. Many of these competitors have substantially greater financial resources, lending limits and larger branch networks than we do, and are able to offer a broader range of products and services than we can, including systems and services that could protect customers from cyber threats. We are increasingly faced with competition in many of our products and services by non-bank providers who may have competitive advantages of size, access to potential customers and fewer regulatory requirements. Failure to compete effectively for deposit, loan and other banking customers in our markets could cause us to lose market share, slow our growth rate or suffer adverse effects on our financial condition and results of operations.

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Our accounting estimates and risk management processes rely on management judgment, which may be supported by analytical and forecasting models. The processes we use to estimate probable credit losses for purposes of establishing the allowance for loan losses and to measure the fair value of financial instruments, as well as the processes we use to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon management’s judgment. Management’s judgment and the data relied upon by management may be based on assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances. Even if the relevant factual assumptions are accurate, our decisions may prove to be inadequate or inaccurate because of other flaws in the design or use of analytical tools used by management. Any such failures in our processes for producing accounting estimates and managing risks could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on funds obtained from capital transactions or from our bank to fund our obligations. We are a financial holding company engaged in the business of managing, controlling and operating our bank. We conduct no material business or other activity at the parent company level other than activities incidental to holding equity and debt investments in our bank. As a result, we rely on the proceeds of capital transactions and payments of interest and principal on loans made to our bank to pay our operating expenses, to satisfy our obligations to debtholders and to pay dividends on our preferred stock. We may in the future rely on dividends from our bank to satisfy all or part of our parent company financial obligations. Our bank’s ability to pay dividends may be limited. The profitability of our bank is subject to fluctuation based upon, among other things, the cost and availability of funds, changes in interest rates and economic conditions in general. Our bank’s ability to pay dividends to us is subject to regulatory limitations that can, under certain adverse circumstances, prohibit the payment of dividends to us by our bank. Our right to participate in any distribution from the sale or liquidation of our bank is subject to the prior claims of our bank’s creditors. If we are unable to access funds from capital transactions or our bank we may be unable to satisfy our obligations to creditors or debtholders or pay dividends on our preferred stock.

We must effectively manage our counterparty risk. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. Our bank has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose our bank to credit risk in the event of a default by a counterparty or client. In addition, our bank’s credit risk may be increased when the collateral it is entitled to cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of its credit or derivative exposure. Any such losses could have a material adverse effect on our business, financial condition and results of operations.

We must effectively manage our information systems risk. We rely heavily on our communications and information systems to conduct our business. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. Our ability to compete successfully depends in part upon our ability to use technology to provide products and services that will satisfy customer demands. Many of the Company’s competitors invest substantially greater resources in technological improvements than we do. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, which may negatively affect our business, results of operations or financial condition.

Our communications and information systems remain vulnerable to unexpected disruptions and failures. Any failure or interruption of these systems could impair our ability to serve our customers and to operate our business and could damage our reputation, result in a loss of business, subject us to additional regulatory scrutiny or enforcement or expose us to civil litigation and possible financial liability. While we have developed extensive recovery plans, we cannot assure that those plans will be effective to prevent adverse effects upon us and our customers resulting from system failures.

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We collect and store sensitive data, including personally identifiable information of our customers and employees. Computer break-ins of our systems or our customers’ systems, thefts of data and other breaches and criminal activity may result in significant costs to respond, liability for customer losses if we are at fault, damage to our customer relationships, regulatory scrutiny and enforcement and loss of future business opportunities due to reputational damage. Although we, with the help of third-party service providers, will continue to implement security technology and establish operational procedures to protect sensitive data, there can be no assurance that these measures will be effective. We advise and provide training to our customers regarding protection of their systems, but there is no assurance that our advice and training will be appropriately acted upon by our customers or effective to prevent losses. In some cases we may elect to contribute to the cost of responding to cybercrime against our customers, even when we are not at fault, in order to maintain valuable customer relationships.

Our operations rely on external vendors. We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations, particularly in the areas of operations, treasury management systems, information technology and security, exposing us to the risk that these vendors will not perform as required by our agreements. An external vendor’s failure to perform in accordance with our agreement could be disruptive to our operations, which could have a material adverse impact on our business, financial condition and results of operations.

Our business is susceptible to fraud. Our business exposes us to fraud risk from our loan and deposit customers and the parties they do business with. We rely on financial and other data which could turn out to be fraudulent in accepting new customers, executing their financial transactions and making and purchasing loans and other financial assets. In times of increased economic stress we are at increased risk of fraud losses. We believe we have underwriting and operational controls in place to prevent or detect such fraud, but we cannot provide assurance that these controls will be effective in detecting fraud or that we will not suffer fraud costs or losses at levels that adversely affect our financial results or reputation. Our lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans.

We are subject to extensive government regulation and supervision. We, as a bank holding company and financial holding company, and our bank as a national bank, are subject to extensive federal and state regulation and supervision that impacts our business on a daily basis. See the discussion above at Business – Regulation and Supervision. These regulations affect our lending practices, permissible products and services and their terms and conditions, customer relationships, capital structure, investment practices, accounting, financial reporting, operations and our ability to grow, among other things. These regulations also impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identities of our customers.

Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Recent material changes in regulation and requirements imposed on financial institutions, such as the Dodd-Frank Act and the Basel III Accord, result in additional costs, impose more stringent capital, liquidity and leverage requirements, limit the types of financial services and products we may offer and increase the ability of non-bank financial services providers to offer competing financial services and products, among other things. The Dodd-Frank Act has not yet been fully implemented and there are many additional regulations that have not been proposed, or if proposed, have not been adopted. The full impact of the Dodd-Frank Act on our business strategies is unknown at this time and cannot be predicted.

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We receive inquiries from our regulators from time to time regarding, among other things, lending practices, reserve methodology, interest rate and operational risk management, regulatory and financial accounting practices and policies and related matters, which can divert management’s time and attention from focusing on our business. Because our assets now exceed $10 billion we are subject to additional regulatory requirements and have increased the amount of management time and expense devoted to developing the infrastructure to support our compliance. Commencing in 2014 we are required to conduct enhanced stress testing to evaluate the adequacy of our capital and liquidity planning. Uncertainties regarding the conditions and risk factors that will be required to be included in stress tests and how the financial models of our business will respond subject us to risk as this new activity is implemented. Any change to our practices or policies requested or required by our regulators, or any changes in interpretation of regulatory policy applicable to our businesses, may have a material adverse effect on our business, results of operations or financial condition.

We expend substantial effort and incur costs to continually improve our systems, controls, accounting, operations, information security, compliance, audit effectiveness, analytical capabilities, staffing and training in order to satisfy regulatory requirements. We cannot offer assurance that these efforts will satisfy applicable legal and regulatory requirements. Failure to comply with relevant laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

The FDIC has imposed higher general and special assessments on deposits or assets based on general industry conditions and as a result of changes in specific programs, and there is no restriction on the amount by which the FDIC may increase deposit and asset assessments in the future. Increases in FDIC assessments, fees or taxes could affect our earnings. Reports from the Public Company Accounting Oversight Board’s (“PCAOB”) inspections of public accounting firms continue to outline findings and recommendations which could require these firms to perform additional work as part of their financial statement audits, increasing our audit and internal audit costs to respond to these added requirements and exposure to adverse findings by the PCAOB of the work performed. As a result, we have experienced, and may continue to experience, greater internal and external compliance and audit costs to comply with these changes that could adversely affect our results of operations.

We must maintain adequate regulatory capital to support our business objectives. Under regulatory capital adequacy guidelines and other regulatory requirements, we must satisfy capital requirements based upon quantitative measures of assets, liabilities and certain off-balance sheet items. Our satisfaction of these requirements is subject to qualitative judgments by regulators that may differ materially from management’s and that are subject to being determined retroactively for prior periods. Our ability to maintain our status as a financial holding company to continue to operate our bank as we have in recent periods is dependent upon a number of factors, including our bank qualifying as “well capitalized” and “well managed” under applicable prompt corrective action regulations and upon our company qualifying on an ongoing basis as “well capitalized” and “well managed” under applicable Federal Reserve regulations.

Failure to meet regulatory capital standards could have a material adverse effect on our business, including damaging the confidence of customers in us, adversely impacting our competitive position, limiting our ability to use brokered deposits, limiting our access to capital markets transactions, limiting our ability to pursue new activities and resulting in higher FDIC assessments on deposits or assets. Were we to fall below guidelines for being deemed “adequately capitalized” the OCC or Federal Reserve could impose further restrictions and requirements in order to effect “prompt corrective action.” The capital requirements applicable to us are in a process of continuous evaluation and revision in connection with

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Basel III and the requirements of the Dodd-Frank Act. We cannot predict the final form, or the effects, of these regulations on our business, but among the possible effects are requirements that we slow our rate of growth or obtain additional capital which could reduce our earnings or dilute our existing stockholders.

We are subject to environmental liability risk associated with lending activities. A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on these properties, and that we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value by limiting our ability to use or sell it. Although we have policies and procedures requiring environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. Future laws or regulations or more stringent interpretations or enforcement policies with respect to existing laws and regulations may increase our exposure to environmental liability.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business. Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Hurricanes have caused extensive flooding and destruction along the coastal areas of Texas, including communities where we conduct business. Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

We are subject to claims and litigation in the ordinary course of our business, including claims that may not be covered by our insurers. Customers and other parties we engage with assert claims and take legal action against us on a regular basis and we regularly take legal action to collect unpaid borrower obligations, realize on collateral and assert our rights in commercial and other contexts. These actions frequently result in counter-claims against us. Litigation arises in a variety of contexts, including lending activities, employment practices, commercial agreements, fiduciary responsibility related to our wealth management services, intellectual property rights and other general business matters.

Claims and legal actions may result in significant legal costs to defend us or assert our rights and reputational damage that adversely affects existing and future customer relationships. If claims and legal actions are not resolved in a manner favorable to us we may suffer significant financial liability adverse effects upon our reputation, which could have a material adverse effect on our business, financial condition and results of operations. See Legal Proceedings below for additional disclosures regarding legal proceedings.

We purchase insurance coverage to mitigate a wide range of operating risks, including general liability, errors and omissions, professional liability, business interruption, cyber-crime and property loss, for events that may be materially detrimental to our bank or customers. There is no assurance that our insurance will be adequate to protect us against material losses in excess of our coverage limits or that insurers will perform their obligations under our policies without attempting to limit or exclude coverage. We could be required to pursue legal actions against insurers to obtain payment of amounts we are owed, and there is no assurance that such actions, if pursued, would be successful.

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Our controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

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