2
0
0
9
A
N
N
U
A
L
R
E
P
O
R
T
2 0 0 9 A N N U A L R E P O RT
TEXAS CAPITAL BANCSHARES, INC.
TEXAS CAPITAL BANK
www.texascapitalbank.com
NASDAQ ®: TCBI
Texas Capital Bancshares, Inc. is the parent company of Texas Capital
Bank, a commercial bank that caters to businesses and private clients
with offi ces in Austin, Dallas, Fort Worth, Houston and San Antonio.
IN VESTMEN T HI GH LIG HTS
•
Business model intact, producing strong core earnings in 2009
•
Improved earnings power driven by margin expansion throughout the year
•
Strong deposit growth, especially DDA, at signifi cantly reduced cost
•
Intense focus on credit quality continued in 2009 and into 2010
2009 FIN ANCIA L SUMMA RY
Dollars in the thousands
Dec 2009
Dec 2008
% Change
Total Assets
Total Deposits
Loans Held for Investment
Total Loans
Net Income
Diluted Earnings Per Share
Return on Assets
Return on Equity
$5,698,318
$4,120,725
$4,457,293
$5,150,797
$ 24,387
$
0.55
$5,141,034
$3,333,187
$4,027,871
$4,524,222
$ 24,882
$
0.89
11%
24%
11%
14%
(2)%
(38)%
0.46%
0.55%
—
5.15% 7.46% —
DEP OSIT AN D LOA N GROWTH
Loan Held for Investment CAGR:
Total Deposits CAGR:
Total Assets CAGR:
23%
18%
17%
3
0
0
,
3
9
5
6
3
,
9
6
0
3
,
2
2
7
,
2
7
8
2
4
,
2
6
4
3
,
6
6
0
3
,
3
8
5
2
,
0
9
7
,
1
5
6
5
,
1
,
5
9
4
6 2
7
0
2
,
–
1
4
1
,
5
8
2
0
4
,
3
3
3
,
3
8
9
6
,
5
7
5
4
,
4
1
2
1
,
4
($ in millions)
$6,000
$5,500
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2004
2005
2006
2007
2008
2009
Note: All balances above reflect continuing operations
* Excludes loans held for sale.
^From continuing operations.
Loans HFI* Deposits Total Assets^
CO R PO RAT E INFO R MATIO N
Stock Exchange
Texas Capital Bancshares, Inc is
traded under the symbol TCBI
on the Nasdaq Stock Market.®
Transfer Agent
Computershare Investor Services LLC
250 Royall Street, Mail Stop 1A
Canton, Massachusetts 02021
800.568.3476
Annual Meeting
The annual meeting of shareholders
will be held on May 18 at 10 a.m. at
2000 McKinney Avenue 7th fl oor
in Dallas.
Other Information
Corporate governance and other
investor information may be found at
www.texascapitalbank.com
LO CAT IO NS
Corporate Headquarters
Dallas/Premier Place
Plano
2000 McKinney Avenue
5910 North Central Expressway
5800 Granite Parkway
Dallas, Texas 75201
214.932.6600
Austin
114 West 7th Street
Austin, Texas 78701
512.236.6770
Midway/Spring Valley
14131 Midway Road
Addison, Texas 75001
972.450.5050
Dallas, Texas 75206
214.890.5800
Fort Worth
500 Throckmorton
Plano, Texas 75024
972.963.3000
San Antonio
745 East Mulberry
Fort Worth, Texas 76102
San Antonio, Texas 78212
817.212.8333
210.785.3600
Houston
One Riverway
San Antonio/Quarry Heights
7373 Broadway
Houston, Texas 77056
San Antonio, Texas 78209
713.439.5900
210.283.5220
BOAR D O F DIRE CT O RS
Peter B. Bartholow
James H. Browning
Joseph M. Grant
James R. Holland, Jr.
George F. Jones, Jr.
W.W. “Bo” McAllister III
Frederick B. Hegi, Jr.
Lee Roy Mitchell
Larry L. Helm
Elysia Holt Ragusa
Steven P. Rosenberg
Robert W. Stallings
Ian J. Turpin
Dear Shareholder:
Three simple words say so much about Texas Capital: Strength, Value and Quality.
In 2009, the strength of our core earnings power, capital and reputation resulted in industry-leading growth
during a period when economic conditions resulted in substantial contraction of the entire banking industry.
Our profitability and growth also enabled us to achieve significant success in capital transactions and put us in
a position to take advantage of opportunities in the nation’s best markets. The size and strength of the Texas
economy, particularly in the markets we serve, offer advantages not evident anywhere else in the country.
While conditions remained challenging for the industry and Texas Capital felt the stress, our emphasis on
credit quality has been a major factor in our success. Without question, this consistent emphasis on credit
quality in years past contributed to the profits and growth enjoyed during 2009. By every credit metric, Texas
Capital has maintained a position as a top performer among peers throughout the nation.
We continue to believe that the best way to build value is to follow the approach developed and consistently
followed since inception. Our business model is not dependent on acquisitions that may not produce lasting
shareholder value. Instead, we have had industry-leading growth in loans and deposits by attracting the best
talent who bring with them their best relationships. Texas Capital is where they want to be.
To our shareholders, customers and employees we want to express our deepest gratitude, because without the
support and efforts of all we could not have become “The Best Business Bank in Texas.”
Sincerely yours,
George Jones
President and Chief Executive Officer
On November 5, 2009, Dallas banking executive George F. Jones was elected to the Federal Reserve Bank
of Dallas board of directors by its member banks. The election recognizes Mr. Jones’ significant accom-
plishments in his 30 years of experience in banking and the importance of his role as CEO of Texas Capital
Bancshares. Mr. Jones will serve an unexpired portion of a three-year term ending December 31, 2011. For
more information on the Dallas Federal Reserve Bank and the election visit www.dallasfed.org
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
¥ Annual Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 2009
n Transition Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from
to
(No fee required)
TEXAS CAPITAL BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
000-30533
(Commission File Number)
75-2679109
(I.R.S. Employer Identification Number)
2000 McKinney Avenue, Suite 700,
Dallas, Texas, U.S.A.
(Address of principal executive offices)
75201
(Zip Code)
214-932-6600
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Common stock, par value $0.01 per share
(Title of class)
The Nasdaq Stock Market LLC
No ¥
No ¥
(Name of Exchange on Which Registered)
Securities registered under Section 12 (g) of the Exchange Act: NONE
Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes n
Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities
Act. Yes n
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer n
Smaller reporting company n
Non-accelerated filer n
Accelerated filer ¥
No n
No n
(Do not check if a smaller reporting company)
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Securities
Act). Yes n
No ¥
As of June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, the
aggregate market value of the shares of common stock held by non-affiliates, based upon the closing price per
share of the registrant’s common stock as reported on The Nasdaq Global Select Market, was approximately
$526,919,000. There were 36,156,062 shares of the registrant’s common stock outstanding on February 16,
2010.
Portions of the registrant’s Proxy Statement relating to the 2010 Annual Meeting of Stockholders, which will
be filed no later than April 8, 2010, are incorporated by reference into Part III of this Form 10-K.
Documents Incorporated by Reference
1
8
15
15
16
16
17
19
24
50
53
85
85
88
88
88
88
88
88
88
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Consolidated Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9.
Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
PART IV
i
ITEM 1. BUSINESS
Background
Texas Capital Bancshares, Inc., a financial holding company, is the parent of Texas Capital Bank, National
Association, a Texas-based bank headquartered in Dallas, with banking offices in Dallas, Houston, Fort Worth,
Austin and San Antonio, the state’s five largest metropolitan areas. All of our business activities are conducted
through our bank subsidiary. Our market focus is commercial businesses and high net worth individuals, and
we offer a variety of banking products and services to our customers. We have focused on organic growth,
maintenance of credit quality and bankers with strong personal and professional relationships in their
communities.
We focus on serving the needs of commercial and high net worth customers, the core of our model since our
organization in March 1998. We do not incur the costs of competing in an over-branched and over-crowded
consumer market. We are primarily a secured lender in Texas, and, as a result, we have experienced a low
percentage of charge-offs relative to both total loans and non-performing loans since inception. Our loan
portfolio is diversified by industry, collateral and geography in Texas.
Growth History
We have grown substantially in both size and profitability since our formation. The table below sets forth data
regarding the growth of key areas of our business from December 2005 through December 2009
(in thousands):
2009
2008
Loans held for investment
Total loans(1)
Assets(1)
Deposits
Stockholders’ equity
$4,457,293
5,150,797
5,698,318
4,120,725
481,360
$4,027,871
4,524,222
5,141,034
3,333,187
387,073
December 31
2007
$3,462,608
3,636,774
4,287,853
3,066,377
295,138
2006
2005
$2,722,097
2,921,111
3,659,445
3,069,330
253,515
$2,075,961
2,148,344
3,003,430
2,495,179
215,523
(1) From continuing operations.
The following table provides information about the growth of our loan portfolio by type of loan from
December 2005 to December 2009 (in thousands):
2009
2008
$2,457,533
1,903,127
669,426
1,233,701
693,504
$2,276,054
1,656,221
667,437
988,784
496,351
December 31
2007
$2,035,049
1,347,429
573,459
773,970
174,166
2006
2005
$1,602,577
1,068,963
538,586
530,377
199,014
$1,182,734
865,797
387,163
478,634
72,383
586
99,129
25,065
648
86,937
32,671
731
74,523
28,334
16,844
45,280
21,113
38,795
16,337
19,962
Commercial loans
Total real estate loans
Construction loans
Real estate term loans
Loans held for sale
Loans held for sale from
discontinued
operations
Equipment leases
Consumer loans
The Texas Market
The Texas market for banking services is highly competitive. Texas’ largest banking organizations are
headquartered outside of Texas and are controlled by out-of-state organizations. We also compete with other
providers of financial services, such as savings and loan associations, credit unions, consumer finance
companies, securities firms, insurance companies, insurance agencies, commercial finance and leasing
1
companies, full service brokerage firms and discount brokerage firms. We believe that many middle market
companies and high net worth individuals are interested in banking with a company headquartered in, and
with decision-making authority based in, Texas and with established Texas bankers who have the expertise to
act as trusted advisors to the customer with regard to its banking needs. Our banking centers in our target
markets are served by experienced bankers with lending expertise in the specific industries found in their
market areas and established community ties. We believe our bank can offer customers more responsive and
personalized service. We believe that, if we service these customers properly, we will be able to establish long-
term relationships and provide multiple products to our customers, thereby enhancing our profitability.
Business Strategy
Utilizing the business and community ties of our management and their banking experience, our strategy is
building an independent bank that focuses primarily on middle market business customers and high net worth
individuals in each of the five major metropolitan markets of Texas. To achieve this, we seek to implement the
following strategies:
• target middle market businesses and high net worth individuals;
• grow our loan and deposit base in our existing markets by hiring additional experienced Texas bankers;
• continue the emphasis on credit policy to provide for credit quality consistent with long-term
objectives;
• improve our financial performance through the efficient management of our infrastructure and capital
base, which includes:
• leveraging our existing infrastructure to support a larger volume of business;
• maintaining stringent internal approval processes for capital and operating expenses;
• extensive use of outsourcing to provide cost-effective operational support with service levels
consistent with large-bank operations; and
• extend our reach within our target markets of Austin, Dallas, Fort Worth, Houston and San Antonio
through service innovation and service excellence.
Products and Services
We offer a variety of loan, deposit account and other financial products and services to our customers.
Business Customers. We offer a full range of products and services oriented to the needs of our business
customers, including:
• commercial loans for general corporate purposes including financing for working capital, internal
growth, acquisitions and financing for business insurance premiums;
• real estate term and construction loans;
• equipment leasing;
• cash management services;
• trust and escrow services; and
• letters of credit.
Individual Customers. We also provide complete banking services for our individual customers, including:
• personal trust and wealth management services;
• certificates of deposit;
2
• interest bearing and non-interest bearing checking accounts with optional
features such as
Visa» debit/ATM cards and overdraft protection;
• traditional money market and savings accounts;
• consumer loans, both secured and unsecured;
• branded Visa» credit card accounts, including gold-status accounts; and
• internet banking.
Lending Activities
We target our lending to middle market businesses and high net worth individuals that meet our credit
standards. The credit standards are set by our standing Credit Policy Committee with the assistance of our
Bank’s Chief Credit Officer, who is charged with ensuring that credit standards are met by loans in our
portfolio. Our Credit Policy Committee is comprised of senior Bank officers including our Bank’s Chief
Executive Officer, our President/Chief Lending Officer and our Bank’s Chief Credit Officer. We believe we
have maintained a diversified loan portfolio. Credit policies and underwriting guidelines are tailored to
address the unique risks associated with each industry represented in the portfolio. Our credit standards for
commercial borrowers reference numerous criteria with respect to the borrower, including historical and
projected financial information, strength of management, acceptable collateral and associated advance rates,
and market conditions and trends in the borrower’s industry. In addition, prospective loans are also analyzed
based on current industry concentrations in our loan portfolio to prevent an unacceptable concentration of
loans in any particular industry. We believe our credit standards are consistent with achieving business
objectives in the markets we serve and will generally mitigate risks. We believe that we differentiate our bank
from its competitors by focusing on and aggressively marketing to our core customers and accommodating, to
the extent permitted by our credit standards, their individual needs.
We generally extend variable rate loans in which the interest rate fluctuates with a predetermined indicator
such as the United States prime rate or the London Interbank Offered Rate (LIBOR). Our use of variable rate
loans is designed to protect us from risks associated with interest rate fluctuations since the rates of interest
earned will automatically reflect such fluctuations.
Deposit Products
We offer a variety of deposit products to our core customers at interest rates that are competitive with other
banks. Our business deposit products include commercial checking accounts, lockbox accounts, cash con-
centration accounts, and other cash management products. Our consumer deposit products include checking
accounts, savings accounts, money market accounts and certificates of deposit. We also allow our consumer
deposit customers to access their accounts, transfer funds, pay bills and perform other account functions over
the Internet and through ATM machines.
Trust and Asset Management
Our trust services include investment management, personal trust and estate services, custodial services,
retirement accounts and related services. Our investment management professionals work with our clients to
define objectives, goals and strategies for their investment portfolios. We assist the customer with the
selection of an investment manager and work with the client to tailor the investment program accordingly. We
also offer retirement products such as individual retirement accounts and administrative services for retire-
ment vehicles such as pension and profit sharing plans.
Cayman Islands Branch
In June 2003, we received authorization from the Cayman Islands Monetary Authority to establish a branch of
our bank in the Cayman Islands. We believe that a Cayman Islands branch of our bank enables us to offer more
competitive cash management and deposit products to our core customers. Our Cayman Islands branch
3
consists of an agented office to facilitate our offering of these products. We opened our Cayman Islands branch
in September 2003. All deposits in the Cayman Branch come from U.S. based customers of our Bank. Deposits
do not originate from foreign sources, and funds transfers neither come from nor go to facilities outside of the
U.S. All deposits are in U.S. dollars. As of December 31, 2009, our Cayman Islands deposits totaled
$384.1 million.
Employees
As of December 31, 2009, we had 631 full-time employees relating to our continuing operations. None of our
employees is represented by a collective bargaining agreement and we consider our relations with our
employees to be good.
Regulation and Supervision
Current banking laws contain numerous provisions affecting various aspects of our business. Our bank is
subject to federal banking laws and regulations that impose specific requirements on and provide regulatory
oversight of virtually all aspects of our operations. These laws and regulations are generally intended for the
protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation, or the
FDIC, and the banking system as a whole, rather than for the protection of our stockholders. Banking
regulators have broad enforcement powers over financial holding companies and banks and their affiliates,
including the power to establish regulatory requirements, impose large fines and other penalties for violations
of laws and regulations. The following is a brief summary of laws and regulations to which we are subject.
National banks such as our bank are subject to examination by the Office of the Comptroller of the Currency,
or the OCC. The OCC and the FDIC regulate or monitor all areas of a national bank’s operations, including
security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings,
deposits, mergers, issuances of securities, payment of dividends, interest rate risk management, establishment
of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to
carry on safe lending and deposit gathering practices. The OCC requires national banks to maintain capital
ratios and imposes limitations on its aggregate investment in real estate, bank premises and furniture and
fixtures. National banks are currently required by the OCC to prepare quarterly reports on their financial
condition and to conduct an annual audit of their financial affairs in compliance with minimum standards and
procedures prescribed by the OCC.
Restrictions on Dividends and Repurchases. Our source of funding to pay dividends is our bank. Our bank is
subject to the dividend restrictions set forth by the OCC. Under such restrictions, national banks may not,
without the prior approval of the OCC, declare dividends in excess of the sum of the current year’s net profits
plus the retained net profits from the prior two years, less any required transfers to surplus. In addition, under
the Federal Deposit Insurance Corporation Improvement Act of 1991, our bank may not pay any dividend if
payment would cause it to become undercapitalized or in the event it is undercapitalized.
It is the policy of the Federal Reserve, which regulates financial holding companies such as ours, that financial
holding companies should pay cash dividends on common stock only out of income available over the past
year and only if prospective earnings retention is consistent with the organization’s expected future needs and
financial condition. The policy provides that financial holding companies should not maintain a level of cash
dividends that undermines the financial holding company’s ability to serve as a source of strength to its
banking subsidiaries.
If, in the opinion of the applicable federal bank regulatory authority, a depository institution or holding
company is engaged in or is about to engage in an unsound practice (which could include the payment of
dividends), such authority may require, generally after notice and hearing, that such institution or holding
company cease and desist such practice. The federal banking agencies have indicated that paying dividends
that deplete a depository institution’s or holding company’s capital base to an inadequate level would be such
an unsafe banking practice. Moreover, the Federal Reserve and the FDIC have issued policy statements
providing that financial holding companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
4
Supervision by the Federal Reserve. We operate as a financial holding company registered under the Bank
Holding Company Act, and, as such, we are subject to supervision, regulation and examination by the Federal
Reserve. The Bank Holding Company Act and other Federal laws subject financial holding companies to
particular restrictions on the types of activities in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Because we are a legal entity separate and distinct from our bank, our right to participate in the distribution of
assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of
the subsidiary’s creditors. In the event of a liquidation or other resolution of a subsidiary, the claims of
depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of
holders of any obligation of the institution to its stockholders, including any financial holding company (such
as ours) or any stockholder or creditor thereof.
Support of Subsidiary Banks. Under Federal Reserve policy, a financial holding company is expected to act as
a source of financial and managerial strength to each of its banking subsidiaries and commit resources to their
support. Such support may be required at times when, absent this Federal Reserve policy, a holding company
may not be inclined to provide it. As discussed below, a financial holding company in certain circumstances
could be required to guarantee the capital plan of an undercapitalized banking subsidiary in order for it to be
accepted by the regulators.
In the event of a financial holding company’s bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the
bankruptcy trustee will be deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of
an insured depository institution, and any claim for breach of such obligation will generally have priority over
most other unsecured claims.
Capital Adequacy Requirements. The bank regulators have adopted a system using risk-based capital guide-
lines to evaluate the capital adequacy of banking organizations. Under the guidelines, specific categories of
assets and off-balance sheet activities such as letters of credit are assigned different risk weights, based
generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset
balances to determine a “risk weighted” asset base. The guidelines require a minimum total risk-based capital
ratio of 8% (of which at least 4% is required to consist of Tier 1 capital elements).
In addition to the risk-based capital guidelines, the OCC and the Federal Reserve uses a leverage ratio as an
additional tool to evaluate the capital adequacy of banking organizations. The leverage ratio is a company’s
Tier 1 capital divided by its average total consolidated assets. Banking organizations must maintain a
minimum leverage ratio of at least 3%, although most organizations are expected to maintain leverage ratios
that are at least 100 to 200 basis points above this minimum ratio.
The federal banking agencies’ risk-based and leverage ratios are minimum supervisory ratios generally
applicable to banking organizations that meet specified criteria, assuming that they have the highest
regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital
positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements
for a particular banking organization that are higher than the minimum ratios when circumstances warrant.
Federal Reserve and OCC guidelines also provide that banking organizations experiencing significant
internal growth or making acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible assets. In addition, the
regulations of the bank regulators provide that concentration of credit risks arising from non-traditional
activities, as well as an institution’s ability to manage these risks, are important factors to be taken into account
by regulatory agencies in assessing an organization’s overall capital adequacy.
Transactions with Affiliates and Insiders. Our bank is subject to Section 23A of the Federal Reserve Act which
places limits on the amount of loans or extensions of credit to affiliates that it may make. In addition,
extensions of credit must be collateralized by Treasury securities or other collateral in prescribed amounts.
Most of these loans and other transactions must be secured in prescribed amounts. It also limits the amount of
5
advances to third parties which are collateralized by our securities or obligations or the securities or obligations
of any of our non-banking subsidiaries.
Our bank also is subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an
institution from engaging in transactions with affiliates unless the transactions are on terms substantially the
same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliates.
We are subject to restrictions on extensions of credit to executive officers, directors, principal stockholders and
their related interests. These restrictions contained in the Federal Reserve Act and Federal Reserve
Regulation O apply to all insured institutions and their subsidiaries and holding companies. These restrictions
include limits on loans to one borrower and conditions that must be met before such a loan can be made.
There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot
exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser
amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation
of applicable restrictions.
Corrective Measures for Capital Deficiencies. The Federal Deposit Insurance Corporation Improvement Act
imposes a regulatory matrix which requires the federal banking agencies, which include the FDIC, the OCC
and the Federal Reserve, to take “prompt corrective action” with respect to capital deficient institutions. The
prompt corrective action provisions subject undercapitalized institutions to an increasingly stringent array of
restrictions, requirements and prohibitions as their capital levels deteriorate and supervisory problems mount.
Should these corrective measures prove unsuccessful in recapitalizing the institution and correcting its
problems, the Federal Deposit Insurance Corporation Improvement Act mandates that the institution be
placed in receivership.
Pursuant to regulations promulgated under the Federal Deposit Insurance Corporation Improvement Act, the
corrective actions that the banking agencies either must or may take are tied primarily to an institution’s
capital levels. In accordance with the framework adopted by the Federal Deposit Insurance Corporation
Improvement Act, the banking agencies have developed a classification system, pursuant to which all banks
and thrifts are placed into one of five categories. Agency regulations define, for each capital category, the
levels at which institutions are “well capitalized”, “adequately capitalized”, “undercapitalized”, “signifi-
cantly undercapitalized” and “critically undercapitalized.” A well capitalized bank has a total risk-based
capital ratio (total capital to risk-weighted assets) of 10% or higher; a Tier 1 risk-based capital ratio (Tier 1
capital to risk-weighted assets) of 6% or higher; a leverage ratio (Tier 1 capital to total adjusted assets) of 5% or
higher; and is not subject to any written agreement, order or directive requiring it to maintain a specific capital
level for any capital measure. An institution is critically undercapitalized if it has a tangible equity to total
assets ratio that is equal to or less than 2%. Our bank’s total risk-based capital ratio was 10.36% at December 31,
2009 and, as a result, it is currently classified as “well capitalized” for purposes of the OCC’s prompt corrective
action regulations. The bank’s capital category of “well capitalized” is determined solely for the purposes of
applying prompt corrective action and that the capital category may not constitute an accurate representation
of the bank’s overall financial condition or prospects. The OCC, Federal Reserve and FDIC may, pursuant to
changes in their regulatory or statutory responsibilities, determine that additional capital may be required.
In addition to requiring undercapitalized institutions to submit a capital restoration plan which must be
guaranteed by its holding company (up to specified limits) in order to be accepted by the bank regulators,
agency regulations contain broad restrictions on activities of undercapitalized institutions including asset
growth, acquisitions, branch establishment and expansion into new lines of business. With some exceptions,
an insured depository institution is prohibited from making capital distributions, including dividends, and is
prohibited from paying management fees to control persons if the institution would be undercapitalized after
any such distribution or payment.
As an institution’s capital decreases, the OCC’s enforcement powers become more severe. A significantly
undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid
and transactions with affiliates, removal of management and other restrictions. The OCC has only very limited
6
discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver
or conservator (the FDIC) if the capital deficiency is not corrected promptly.
Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain
administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no tangible capital.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) contains important
requirements for public companies in the area of financial disclosure and corporate governance. In accordance
with Section 302(a) of Sarbanes-Oxley, written certifications by our chief executive officer and chief financial
officer are required. These certifications attest that our quarterly and annual reports do not contain any untrue
statement of a material fact.
Financial Modernization Act of 1999. The Gramm-Leach-Bliley Financial Modernization Act of 1999 (the
Modernization Act):
• allows bank holding companies meeting management, capital and Community Reinvestment Act
standards to engage in a substantially broader range of non-banking activities than was permissible
prior to enactment, including insurance underwriting and making merchant banking investments in
commercial and financial companies;
• allows insurers and other financial services companies to acquire banks; and
• removes various restrictions that applied to bank holding company ownership of securities firms and
mutual fund advisory companies; and establishes the overall regulatory structure applicable to bank
holding companies that also engage in insurance and securities operations.
The Modernization Act also modifies other current financial laws, including laws related to financial privacy.
The financial privacy provisions generally prohibit financial institutions, including us, from disclosing non-
public personal financial information to non-affiliated third parties unless customers have the opportunity to
“opt out” of the disclosure.
Community Reinvestment Act. The Community Reinvestment Act of 1977 (CRA) requires depository insti-
tutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking
practice. Under the CRA, each depository institution is required to help meet the credit needs of its market
areas by, among other things, providing credit to low- and moderate-income individuals and communities.
Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In
order for a financial holding company to commence new activity permitted by the Bank Holding Company
Act, each insured depository institution subsidiary of the financial holding company must have received a
rating of at least “satisfactory” in its most recent examination under the CRA.
The USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act and the Bank
Secrecy Act. A major focus of governmental policy on financial institutions in recent years has been aimed at
combating money laundering and terrorist financing. The USA Patriot Act of 2001 and the International
Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 substantially broadened the scope of
United States anti-money laundering laws and penalties, specifically related to the Bank Secrecy Act, and
expanded the extra-territorial jurisdiction of the United States. The United States Treasury Department has
issued a number of implementing regulations which apply various requirements of the USA Patriot Act to
financial institutions such as our bank. These regulations impose obligations on financial institutions to
maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and
terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain
and implement adequate programs to combat money laundering and terrorist financing, or to comply with
relevant laws or regulations, could have serious legal, reputational and financial consequences for the
institution. Because of the significance of regulatory emphasis on these requirements, we will continue to
expend significant staffing, technology and financial resources to maintain programs designed to ensure
compliance with applicable laws and regulations and an effective audit function for testing our compliance
with the Bank Secrecy Act on an ongoing basis.
7
Available Information
Under the Securities Exchange Act of 1934, we are required to file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission (“SEC”). You may read and
copy any document filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public
reference room. The SEC maintains a website at www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC. We file electronically
with the SEC.
We make available, free of charge through our website, our reports on Forms 10-K, 10-Q and 8-K, and
amendments to those reports, as soon as reasonably practicable after such reports are filed with or furnished to
the SEC. Additionally, we have adopted and posted on our website a code of ethics that applies to our principal
executive officer, principal financial officer and principal accounting officer. The address for our website is
www.texascapitalbank.com. We will provide a printed copy of any of the aforementioned documents to any
requesting shareholder.
ITEM 1A. RISK FACTORS
An investment in our common stock involves certain risks. You should consider carefully the following risks
and other information in this report, including our financial information and related notes, before investing in
our common stock. The risks and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties that management is not aware of or focused on or that management currently deems
immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
Risk Factors Associated With Our Business
We must effectively manage our credit risk. There are risks inherent in making any loan, including risks with
respect to the period of time over which the loan may be repaid, risks resulting from changes in economic and
industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties
as to the future value of collateral. The risk of non-payment of loans is inherent in commercial banking.
Although we attempt to minimize our credit risk by carefully monitoring the concentration of our loans within
specific industries and through prudent loan approval practices in all categories of our lending, we cannot
assure you that such monitoring and approval procedures will reduce these lending risks. We cannot assure
you that our credit administration personnel, policies and procedures will adequately adapt to changes in
economic or any other conditions affecting customers and the quality of the loan portfolio.
Our results of operation and financial condition would be adversely affected if our allowance for loan losses is not
sufficient to absorb actual losses. Experience in the banking industry indicates that a portion of our loans in all
categories of our lending business will become delinquent, and some may only be partially repaid or may
never be repaid at all. Our methodology for establishing the adequacy of the allowance for loan losses depends
on subjective application of risk grades as indicators of borrowers’ ability to repay. Deterioration in general
economic conditions and unforeseen risks affecting customers may have an adverse effect on borrowers’
capacity to repay timely their obligations before risk grades could reflect those changing conditions. In times
of improving credit quality, with growth in our loan portfolio, the allowance for loan losses may decrease as a
percent of total loans. Changes in economic and market conditions may increase the risk that the allowance
would become inadequate if borrowers experience economic and other conditions adverse to their businesses.
Maintaining the adequacy of our allowance for loan losses may require that we make significant and
unanticipated increases in our provisions for loan losses, which would materially affect our results of
operations and capital adequacy. Recognizing that many of our loans individually represent a significant
percentage of our total allowance for loan losses, adverse collection experience in a relatively small number of
loans could require an increase in our allowance. Federal regulators, as an integral part of their respective
supervisory functions, periodically review our allowance for loan losses. The regulatory agencies may require
us to change classifications or grades on loans, increase the allowance for loan losses with large provisions for
loan losses and to recognize further loan charge-offs based upon their judgments, which may be different from
8
ours. Any increase in the allowance for loan losses required by these regulatory agencies could have a negative
effect on our results of operations and financial condition.
Our growth plans are dependent on the availability of capital and funding. Our historical dependence on trust
preferred and other forms of debt capital, became limited by market conditions beyond our control, as has
been evidenced with the economic downturn and issues affecting the financial services industry. Pricing of
capital, in terms of interest or dividend requirements or dilutive impact on earnings available to shareholders
have increased dramatically, and an increase in costs of capital can have a direct impact on operating
performance and the ability to achieve growth objectives. Costs of funding could also increase dramatically
and affect our growth objectives, as well as our financial performance. Additionally, the FDIC’s unlimited
guarantee on non-interest bearing deposits ends June 30, 2010 and that could adversely affect our ability to
attract and maintain non-interest bearing deposits as a source of cost effective funding. Adverse changes in
operating performance or financial condition or changes in statutory or regulatory requirements could make
the capital necessary to support or maintain the bank’s “well capitalized” status either difficult to obtain or
extremely expensive.
Our operations are significantly affected by interest rate levels. Our profitability is dependent to a large extent on
our net interest income, which is the difference between interest income we earn as a result of interest paid to
us on loans and investments and interest we pay to third parties such as our depositors and those from whom
we borrow funds. Like most financial institutions, we are affected by changes in general interest rate levels,
which are currently at record low levels, and by other economic factors beyond our control. Prolonged periods
of unusually low interest rates may have an adverse effect on earnings by reducing the value of demand
deposits, stockholders’ equity and fixed rate liabilities with rates higher than available earning assets. Interest
rate risk can result from mismatches between the dollar amount of repricing or maturing assets and liabilities
and from mismatches in the timing and rate at which our assets and liabilities reprice. Although we have
implemented strategies which we believe reduce the potential effects of changes in interest rates on our
results of operations, these strategies will not always be successful. In addition, any substantial and prolonged
increase in market interest rates could reduce our customers’ desire to borrow money from us or adversely
affect their ability to repay their outstanding loans by increasing their costs since most of our loans have
adjustable interest rates that reset periodically. If our borrowers’ ability to repay is affected, our level of non-
performing assets would increase and the amount of interest earned on loans will decrease, thereby having an
adverse effect on operating results. Any of these events could adversely affect our results of operations or
financial condition.
Our business faces unpredictable economic and business conditions. General economic conditions and specific
business conditions impact the banking industry and our customers’ businesses. 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 depends somewhat on factors beyond our control,
including:
• national and local economic conditions;
• the supply and demand for investable funds;
• interest rates; and
• federal, state and local laws affecting these matters.
Substantial deterioration in any of the foregoing conditions, as we have experienced with the current
economic downturn, can have a material adverse effect on our results of operations and financial condition,
and we may not be able to sustain our historical rate of growth. Our bank’s customer base is primarily
commercial in nature, and our bank does not have a significant branch network or retail deposit base. In
periods of economic downturn, business and commercial deposits may tend to be more volatile than
traditional retail consumer deposits and, therefore, during these periods our financial condition and results
of operations could be adversely affected to a greater degree than our competitors that have a larger retail
customer base.
9
We are dependent upon key personnel. Our success depends to a significant extent upon the performance of
certain key employees, the loss of whom could have an adverse effect on our business. Although we have
entered into employment agreements with certain employees, we cannot assure you that we will be successful
in retaining key employees.
Our business is concentrated in Texas and a downturn in the economy of Texas may adversely affect our business. A
substantial majority of our business is located in Texas. As a result, our financial condition and results of
operations may be affected by changes in the Texas economy. A prolonged period of economic recession or
other adverse economic conditions in Texas may result in an increase in non-payment of loans and a decrease
in collateral value.
Our business strategy focuses on organic growth within our target markets and, if we fail to manage our growth effectively,
it could negatively affect our operations. We intend to develop our business principally through organic growth.
Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by
companies in significant growth stages of development. In order to execute our growth strategy successfully,
we must, among other things:
• identify and expand into suitable markets and lines of business;
• build our customer base;
• maintain credit quality;
• attract sufficient deposits to fund our anticipated loan growth;
• attract and retain qualified bank management in each of our targeted markets;
• identify and pursue suitable opportunities for opening new banking locations; and
• maintain adequate regulatory capital.
Failure to manage our growth effectively could have a material adverse effect on our business, future
prospects, financial condition or results of operations, and could adversely affect our ability to successfully
implement our business strategy.
We compete with many larger financial institutions which have substantially greater financial resources than we have.
Competition among financial institutions in Texas 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 and other financial institutions. Many of these com-
petitors 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. 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 and may have an adverse effect on our financial condition and results of operations.
The risks involved in commercial lending may be material. We generally invest a greater proportion of our assets in
commercial loans than other banking institutions of our size, and our business plan calls for continued efforts
to increase our assets invested in these loans. Commercial loans may involve a higher degree of credit risk than
some other types of loans due, in part, to their larger average size, the effects of changing economic conditions
on commercial loans, the dependency on the cash flow of the borrowers’ businesses to service debt, the sale of
assets securing the loans, and disposition of collateral which may not be readily marketable. Losses incurred
on a relatively small number of commercial loans could have a materially adverse impact on our results of
operations and financial condition.
Real estate lending in our core Texas markets involves risks related to a decline in value of commercial and residential real
estate. Our real estate lending activities, and the exposure to fluctuations in real estate values, are significant
and expected to 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
the real estate serving as collateral for our loan portfolio were to decline materially, a significant part of our loan
10
portfolio could become under-collateralized and we may not be able to realize the amount of security that we
anticipated at the time of originating the loan. 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 in our markets. The inability of purchasers of real estate, including residential real estate,
to obtain financing may weaken the financial condition of borrowers dependent on the sale or refinancing of
property. Failure to sell some loans held for sale in accordance with contracted terms may result in mark to
market charges to other operating income. In addition, after the mark to market, we may transfer the loans into
the loans held for investment portfolio where they will then be subject to changes in grade, classification,
accrual status, foreclosure, or loss which could have an effect on the adequacy of the allowance for loan losses.
When conditions warrant, we may find it beneficial to restructure loans to improve prospects of collectability,
and such actions may require loans to be treated as troubled debt restructurings, or non-performing loans.
Our future profitability depends, to a significant extent, upon revenue we receive from our middle market business
customers and their ability to meet their loan obligations. Our future profitability depends, to a significant extent,
upon revenue we receive from middle market business customers, and their ability to continue to meet
existing loan obligations. As a result, adverse economic conditions or other factors adversely affecting this
market segment may have a greater adverse effect on us than on other financial institutions that have a more
diversified customer base.
System failure or breaches of our network security could subject us to increased operating costs as well as litigation and
other liabilities. The computer systems and network infrastructure we use could be vulnerable to unforeseen
problems. Our operations are dependent upon our ability to protect our computer equipment against damage
from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that
causes an interruption in our operations could have an adverse effect on our customers. In addition, we must
be able to protect the computer systems and network infrastructure utilized by us against physical damage,
security breaches and service disruption caused by the Internet or other users. Such computer break-ins and
other disruptions would jeopardize the security of information stored in and transmitted through our computer
systems and network infrastructure, which may result in significant liability to us and deter potential
customers. Although we, with the help of third-party service providers, will continue to implement security
technology and establish operational procedures to prevent such damage, there can be no assurance that these
security measures will be successful. In addition, the failure of our customers to maintain appropriate security
for their systems may increase our risk of loss. We have and will continue to incur costs with the training of our
customers about protection of their systems. However, we cannot be assured that this training will be
adequate to avoid risk to our customers or, under unknown circumstances to us.
We are subject to extensive government regulation and supervision. We are subject to extensive federal and state
regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal
deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect our
lending practices, capital structure, investment practices, dividend policy, operations and growth, among
other things. These regulations also impose obligations to maintain appropriate policies, procedures and
controls, among other things, 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. Such changes could subject us to additional costs, impose requirements
for additional capital, limit the types of financial services and products we may offer and/or increase the ability
of non-banks to offer competing financial services and products, among other things. We expend substantial
effort and incur costs to improve our systems, audit capabilities, staffing and training in order to satisfy
regulatory requirements, but the regulatory authorities may determine that such efforts are insufficient.
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. In addition, the FDIC has
imposed higher general and special assessments on deposits based on general industry conditions and as a
11
result of changes in specific programs, and there is no restriction on the amount by which the FDIC may
increase deposit assessments in the future. These increased FDIC assessments have affected our earnings to a
significant degree, and the industry may be subject to additional assessments, fees, or taxes.
Furthermore, Sarbanes-Oxley, and the related rules and regulations promulgated by the SEC and Financial
Industry Regulatory Authority (FINRA) that are applicable to us, have increased the scope, complexity and
cost of corporate governance, reporting and disclosure practices. As a result, we have experienced, and may
continue to experience, greater compliance costs.
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.
Periodically, hurricanes have caused extensive flooding and destruction along the coastal areas of Texas,
including communities where we conduct business, and our operations in Houston have been disrupted to a
minor degree. While the impact of these hurricanes did not significantly affect us, other severe weather or
natural disasters, acts of war or terrorism or other adverse external events may occur in the future. Although
management has established disaster recovery policies and procedures, the occurrence of any such event
could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our
financial condition and results of operations.
Our management maintains significant control over us. Our current executive officers and directors beneficially
own approximately 5% of the outstanding shares of our common stock. Accordingly, our current executive
officers and directors are able to influence, to a significant extent, the outcome of all matters required to be
submitted to our stockholders for approval (including decisions relating to the election of directors), the
determination of day-to-day corporate and management policies and other significant corporate activities.
There are substantial regulatory limitations on changes of control. With certain limited exceptions, federal
regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from,
directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of
our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or
otherwise direct the management or policies of our company without prior notice or application to and the
approval of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with
these requirements, if applicable, in connection with any purchase of shares of our common stock.
Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may make it more difficult for you
to receive a change in control premium. Certain provisions of our certificate of incorporation and bylaws could
make a merger, tender offer or proxy contest more difficult, even if such events were perceived by many of our
stockholders as beneficial to their interests. These provisions include advance notice for nominations of
directors and stockholders’ proposals, and authority to issue the issuance of “blank check” preferred stock
with such designations, rights and preferences as may be determined from time to time by our board of
directors. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law which, in general, prevents an interested stockholder, defined generally as a person owning
15% or more of a corporation’s outstanding voting stock, from engaging in a business combination with our
company for three years following the date that person became an interested stockholder unless certain
specified conditions are satisfied.
We are subject to claims and litigation pertaining to fiduciary responsibility, employment practices and other general
business matters litigation. From time to time, customers make claims and take legal action pertaining to our
performance of our fiduciary responsibilities. Whether customer claims and legal action related to our
performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not
resolved in a manner favorable to us they may result in significant financial liability and/or adversely affect the
market perception of us and our products and services as well as impact customer demand for those products
and services. In addition, employees can make claims related to our employment practices. If such claims or
legal actions are not resolved in a manner favorable to us they may result in significant financial liability and/or
12
adversely affect the market perception of us. Any financial liability or reputation damage could have a material
adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition
and results of operations.
Our controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal
controls, 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.
New lines of business or new products and services may subject us to additional risks. From time to time, we may
develop and grow new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and/or new products and
services we may invest significant time and resources. Initial timetables for the introduction and development
of new lines of business and/or new products or services 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 impact the successful implementation of a new line of business or a new
product or service. Furthermore, any new line of business and/or new product or service could have a
significant impact on the effectiveness of our system of internal controls. 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. All service offerings,
including current offerings and those which may be provided in the future may become more risky due to
changes in economic, competitive and market conditions beyond our control.
Risks Associated With Our Common Stock
Our stock price can be volatile. Stock price volatility may make it more difficult for you to resell your common
stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to
a variety of factors including, among other things:
• actual or anticipated variations in quarterly results of operations;
• recommendations by securities analysts;
• operating and stock price performance of other companies that investors deem comparable to us;
• news reports relating to trends, concerns and other issues in the financial services industry, including
the failures of other financial institutions in the current economic downturn;
• perceptions in the marketplace regarding us and/or our competitors;
• new technology used, or services offered, by competitors;
• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving us or our competitors;
• failure to integrate acquisitions or realize anticipated benefits from acquisitions;
• changes in government regulations; and
• geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditions and events, such
as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock
price to decrease regardless of operating results as evidenced by the current volatility and disruption of capital
and credit markets.
13
The trading volume in our common stock is less than that of other larger financial services companies. Although our
common stock is traded on the Nasdaq Global Select Market, the trading volume in our common stock is less
than that of other larger financial services companies. A public trading market having the desired charac-
teristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and
sellers of our common stock at any given time. This presence depends on the individual decisions of investors
and general economic and market conditions over which we have no control. Given the lower trading volume
of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our
stock price to fall.
An investment in our common stock is not an insured deposit. Our common stock is not a bank deposit and,
therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or
private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk
Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of
common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your
investment.
The holders of our junior subordinated debentures have rights that are senior to those of our shareholders. As of
December 31, 2009, we had $113.4 million in junior subordinated debentures outstanding that were issued to
our statutory trusts. The trusts purchased the junior subordinated debentures from us using the proceeds from
the sale of trust preferred securities to third party investors. Payments of the principal and interest on the trust
preferred securities are conditionally guaranteed by us to the extent not paid or made by each trust, provided
the trust has funds available for such obligations.
The junior subordinated debentures are senior to our shares of common stock. As a result, we must make
payments on the junior subordinated debentures (and the related trust preferred securities) before any
dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the
holders of the debentures must be satisfied before any distributions can be made to our shareholders. If certain
conditions are met, we have the right to defer interest payments on the junior subordinated debentures (and
the related trust preferred securities) at any time or from time to time for a period not to exceed 20 consecutive
quarters in a deferral period, during which time no dividends may be paid to holders of our common stock.
We do not currently pay dividends. Our ability to pay dividends is limited and we may be unable to pay future dividends.
We do not currently pay dividends on our common stock. Our ability to pay dividends is limited by regulatory
restrictions and the need to maintain sufficient consolidated capital. The ability of our bank subsidiary, Texas
Capital Bank, to pay dividends to us is limited by its obligations to maintain sufficient capital and by other
general restrictions on its dividends that are applicable to our regulated bank subsidiary. If these regulatory
requirements are not met, our subsidiary bank will not be able to pay dividends to us, and we could be unable
to pay dividends on our common stock or meet debt or other contractual obligations of our parent company.
Risks Associated With Our Industry
The earnings of financial services companies are significantly affected by general business and economic conditions. As a
financial services company, our operations and profitability are impacted by general business and economic
conditions in the United States and abroad. These conditions include short-term and long-term interest rates,
inflation, money supply, political issues, legislative and regulatory changes, fluctuation in both debt and
equity capital markets, broad trends in industry and finance and the strength of the U.S. economy and the
local economies in which we operate, all of which are beyond our control. Continued weakness or further
deterioration in economic conditions could result in decreases in loan collateral values and increases in loan
delinquencies, non-performing assets and losses on loans and other real estate acquired through foreclosure of
loans. Industry conditions, competition and the performance of our bank could also result in a decrease in
demand for our products and services, among other things, any of which could have a material adverse impact
on our results of operation and financial condition.
There can be no assurance that recently proposed or future legislation will not subject us to heightened regulation, and the
impact of such legislation on us cannot be reliably determined at this time. We cannot predict what legislation may
be enacted affecting banks and bank holding companies and their operations, or what regulations might be
14
adopted by bank regulators or the effects thereof. In light of current economic conditions in the financial
markets and the United States economy, Congress and regulators have increased their focus on the regulation
of the banking industry. If enacted, any new legislative initiatives could affect us in substantial and
unpredictable ways, including increased compliance costs and additional operating restrictions on our
business, and could result in an adverse effect on our business, financial condition, and results of operations.
Financial services companies depend on the accuracy and completeness of information about customers and counter-
parties.
In deciding whether to extend credit or enter into other transactions, we may rely on information
furnished by or on behalf of customers and counterparties, including financial statements, credit reports and
other financial information. We may also rely on representations of those customers, counterparties or other
third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance
on inaccurate or misleading financial statements, credit reports or other financial information could have a
material adverse impact on our business and, in turn, our results of operations and financial condition.
We compete in an industry that continually experiences technological change, and we may have fewer resources than many
of our competitors to continue to invest in technological improvements. The financial services industry is under-
going rapid technological changes, with frequent introductions of new technology-driven products and
services which our customers may require. Many of our competitors have substantially greater resources to
invest in technological improvements. 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.
Consumers and businesses may decide not to use banks to complete their financial transactions. Technology and other
changes are allowing parties to complete financial transactions that historically have involved banks through
alternative methods. The possibility of eliminating banks as intermediaries could result in the loss of interest
and fee income, as well as the loss of customer deposits and the related income generated from those deposits.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material
adverse effect on our results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
As of December 31, 2009, we conducted business at nine full service banking locations and one operations
center. Our operations center houses our loan and deposit operations and the BankDirect call center. We lease
the space in which our banking centers and the operations call center are located. These leases expire
between March 2013 and July 2019, not including any renewal options that may be available.
15
The following table sets forth the location of our executive offices, operations center and each of our banking
centers.
Type of Location
Executive offices, banking location
Operations center
Banking location
Banking location
Banking location
Banking location
Banking location
Banking location
Banking location
Banking location
Address
2000 McKinney Avenue
Suite 700
Dallas, Texas 75201
2350 Lakeside Drive
Suite 800
Richardson, Texas 75083
14131 Midway Road
Suite 100
Addison, Texas 75001
5910 North Central Expressway
Suite 150
Dallas, Texas 75206
5800 Granite Parkway
Suite 150
Plano, Texas 75024
500 Throckmorton
Suite 300
Fort Worth, Texas 76102
114 W. 7th St.
Suite 100
Austin, Texas 78701
745 East Mulberry Street
Suite 350
San Antonio, Texas 78212
7373 Broadway
Suite 100
San Antonio, Texas 78209
One Riverway
Suite 150
Houston, Texas 77056
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings other than legal proceedings occurring in the
ordinary course of business. Management believes that none of these legal proceedings, individually or in the
aggregate, will have a material adverse impact on our results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2009.
16
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES
Our common stock began trading on The Nasdaq Global Select Market on August 13, 2003, and is traded
under the symbol “TCBI”. Our common stock was neither publicly traded, nor was there an established
market therefor, prior to August 13, 2003. On February 16, 2010 there were approximately 353 holders of
record of our common stock.
No cash dividends have ever been paid by us on our common stock, and we do not anticipate paying any cash
dividends in the foreseeable future. Our principal source of funds to pay cash dividends on our common stock
would be cash dividends from our bank. The payment of dividends by our bank is subject to certain
restrictions imposed by federal and state banking laws, regulations and authorities.
The following table presents the range of high and low bid prices reported on The Nasdaq Global Select
Market for each of the four quarters of 2008 and 2009.
Quarter Ended
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
March 31, 2009
June 30, 2009
September 30, 2009
December 31, 2009
Price Per Share
High
Low
$18.18
19.50
25.01
22.00
13.63
16.24
18.30
17.03
$14.40
15.33
13.51
12.56
6.55
9.87
14.25
12.98
Equity Compensation Plan Information
The following table presents certain information regarding our equity compensation plans as of December 31,
2009.
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
2,221,950
—
2,221,950
$14.22
—
$14.22
367,470
—
367,470
17
Stock Performance Graph
The following table and graph sets forth the cumulative total stockholder return for the Company’s common
stock beginning on August 12, 2003, the date of the Company’s initial public offering compared to an overall
stock market index (Russell 2000 Index) and the Company’s peer group index (Nasdaq Bank Index). The
Russell 2000 Index and Nasdaq Bank Index are based on total returns assuming reinvestment of dividends.
The graph assumes an investment of $100 on August 12, 2003. The performance graph represents past
performance and should not be considered to be an indication of future performance.
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
$
14.48 $
556.91
2,899.18
21.62 $
658.72
3,288.71
681.26
3,154.28
22.38 $
19.88 $
796.70
3,498.55
18.25 $
775.75
13.36 $
509.18
2,746.89 2,098.35
13.96
633.31
1,693.34
TCBI Stock Performance Graph
Texas Capital (TCBI)
Russell 2000 Index RTY
Nasdaq Bank Index CBNK
220
180
140
100
60
3
0
-
g
u
A
3
0
-
c
e
D
4
0
-
r
p
A
4
0
-
g
u
A
4
0
-
c
e
D
5
0
-
r
p
A
5
0
-
g
u
A
5
0
-
c
e
D
6
0
-
r
p
A
6
0
-
g
u
A
6
0
-
c
e
D
7
0
-
r
p
A
7
0
-
g
u
A
7
0
-
c
e
D
8
0
-
r
p
A
8
0
-
g
u
A
8
0
-
c
e
D
9
0
-
r
p
A
9
0
-
g
u
A
9
0
-
c
e
D
TCBI
Russell 2000 Index
NASDAQ Bank Index
Source: Bloomberg
18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected financial data presented below in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and
the related notes appearing elsewhere in this Form 10-K.
(in thousands, except per share,
average share and percentage data)
2009
Consolidated Operating Data (1)
At or For The Year Ended December 31
2007
2008
2006
2005
Interest income
Interest expense
$
243,153 $
46,462
248,930
97,193
$
289,292 $
149,540
236,482
119,312
$
158,953
65,329
Net interest income
Provision for credit losses
Net interest income after
provision for credit losses
Non-interest income
Non-interest expense
Income from continuing
operations before income taxes
Income tax expense
Income from continuing
operations
Income (loss) from discontinued
operations (after-tax)
196,691
43,500
151,737
26,750
139,752
14,000
117,170
4,000
153,191
29,260
145,542
124,987
22,470
109,651
125,752
20,627
98,606
113,170
17,684
86,912
36,909
12,522
37,806
12,924
47,773
16,420
43,942
14,961
93,624
—
93,624
12,507
65,344
40,787
13,860
24,387
24,882
31,353
28,981
26,927
(235)
(616)
(1,931)
(57)
Net income
Preferred stock dividends
24,152
5,383
24,266
—
29,422
—
28,924
—
265
27,192
—
Net income available to common
shareholders
$
18,769 $
24,266
$
29,422 $
28,924
$
27,192
Consolidated Balance Sheet
Data(1)
Total assets(3)
Loans held for investment
Loans held for sale
Loans held for sale from
discontinued operations
Securities available-for-sale
Deposits
Federal funds purchased
Other borrowings
Trust preferred subordinated
debentures
Stockholders’ equity
$ 5,698,318
4,457,293
693,504
$ 5,141,034
4,027,871
496,351
$ 4,287,853
3,462,608
174,166
$ 3,659,445
2,722,097
199,014
$ 3,003,430
2,075,961
72,383
586
266,128
4,120,725
580,519
376,510
648
378,752
3,333,187
350,155
930,452
731
440,119
3,066,377
344,813
439,038
16,844
520,091
3,069,330
165,955
45,604
38,795
620,539
2,495,179
103,497
162,224
113,406
481,360
113,406
387,073
113,406
295,138
113,406
253,515
46,394
215,523
19
(in thousands, except per share,
average share and percentage data)
2009
At or For The Year Ended December 31
2007
2008
2006
Other Financial Data
Income per share:
Basic
Income from continuing
operations
Net income
Diluted
Income from continuing
operations
Net income
Tangible book value per share(4)
Book value per share(4)
Weighted average shares:
$
.56 $
.55
$
.89
.87
1.20 $
1.12
1.12 $
1.11
.55
.55
12.96
13.23
.89
.87
12.19
12.44
1.18
1.10
10.92
11.22
1.10
1.09
9.32
9.82
2005
1.05
1.06
1.01
1.02
8.19
8.68
Basic
Diluted
34,113,285
34,410,454
27,952,973
28,048,463
26,187,084
26,678,571
25,945,065
26,468,811
25,619,594
26,645,198
Selected Financial Ratios:
Performance Ratios
From continuing operations:
Net interest margin
Return on average assets
Return on average equity
Efficiency ratio (excludes
securities gains)
Non-interest expense to average
earning assets
From consolidated:
Net interest margin
Return on average assets
Return on average equity
Asset Quality Ratios
Net charge-offs (recoveries) to
average loans(2)
Reserve for loan losses to loans
held for investment(2)
Reserve for loan losses to non-
accrual loans
Non-accrual loans to loans(2)
Total NPAs to loans plus
OREO(2)
3.89%
.46%
5.15%
3.54%
.55%
7.46%
3.82%
.80%
11.51%
3.84%
.88%
12.62%
3.66%
.97%
13.16%
64.41%
62.94%
61.48%
64.45%
61.57%
2.87%
2.54%
2.68%
2.83%
2.53%
3.89%
.45%
5.10%
3.54%
.54%
7.28%
3.82%
.75%
10.80%
4.00%
.87%
12.59%
3.90%
.97%
13.29%
.46%
.35%
1.52%
1.13%
.7x
2.15%
1.0x
1.18%
2.74%
1.81%
.07%
.92%
1.5x
.62%
.69%
.08%
.74%
2.2x
.33%
.37%
(.01)%
.91%
3.3x
.27%
.27%
20
(in thousands, except per share,
average share and percentage data)
Capital and Liquidity Ratios
At or For The Year Ended December 31
2009
2008
2007
2006
2005
Total capital ratio
Tier 1 capital ratio
Tier 1 leverage ratio
Average equity/average assets
Tangible common equity/ total tangible assets(4)
Average net loans/average deposits
11.98% 10.92% 10.56% 11.16% 10.83%
9.41% 9.68% 10.09%
10.73%
9.97%
9.38% 9.18% 8.68%
10.54% 10.21%
6.98% 6.96% 7.40%
8.91% 7.38%
6.73% 6.74% 6.96%
8.18% 7.36%
128.43% 120.03% 103.64% 93.89% 89.74%
(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) Excludes loans held for sale.
(3) From continuing operations.
(4) Excludes unrealized gains/losses on securities.
21
Consolidated Interim Financial Information (Unaudited)
(in thousands except per share data)
Fourth
2009 Selected Quarterly Financial Data
Third
Second
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit
losses
Non-interest income
Non-interest expense
Income from continuing operations before
income taxes
Income tax expense
Income from continuing operations
Loss from discontinued operations (after-tax)
Net income
Preferred stock dividends
Net income available to common shareholders
Basic earnings per share:
Income from continuing operations
Net income
Diluted earnings per share:
Income from continuing operations
Net income
Average shares:
Basic
Diluted
$
$
$
$
$
$
65,137
10,031
55,106
10,500
44,606
7,811
42,796
9,621
3,194
6,427
(55)
6,372
—
6,372
.18
.18
.18
.18
$
$
$
$
$
$
62,197
10,631
51,566
13,500
38,066
7,133
37,067
8,132
2,779
5,353
(41)
5,312
—
5,312
.15
.15
.15
.15
$
$
$
$
$
$
60,013
11,211
48,802
11,000
37,802
7,416
35,373
9,845
3,363
6,482
(44)
6,438
4,453
1,985
.06
.06
.06
.06
$
$
$
$
$
$
First
55,806
14,589
41,217
8,500
32,717
6,900
30,306
9,311
3,186
6,125
(95)
6,030
930
5,100
.17
.16
.17
.16
35,850,000
35,754,000
33,784,000
26,528,000
36,311,000
36,304,000
33,866,000
31,072,000
22
(In thousands except per share data)
Fourth
2008 Selected Quarterly Financial Data
Third
Second
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit
losses
Non-interest income
Non-interest expense
Income from continuing operations before
income taxes
Income tax expense
Income from continuing operations
Loss from discontinued operations (after-tax)
Net income
Basic earnings per share:
Income from continuing operations
Net income
Diluted earnings per share:
Income from continuing operations
Net income
Average shares:
Basic
Diluted
$
$
$
$
$
$
58,873
20,161
38,712
11,000
27,712
5,950
28,443
5,219
1,732
3,487
(100)
3,387
.11
.11
.11
.11
$
$
$
$
$
$
62,240
23,974
38,266
4,000
34,266
4,885
27,675
11,476
3,911
7,565
(252)
7,313
.27
.26
.27
.26
$
$
$
$
$
$
61,008
22,848
38,160
8,000
30,160
5,952
27,256
8,856
3,056
5,800
(116)
5,684
.22
.21
.22
.21
$
$
$
$
$
$
First
66,809
30,210
36,599
3,750
32,849
5,683
26,277
12,255
4,225
8,030
(148)
7,882
.30
.30
.30
.30
30,884,000
27,726,000
26,706,000
26,466,000
31,038,000
27,793,000
26,805,000
26,528,000
23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements and financial analysis contained in this document that are not historical facts are forward looking
statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995
(the “Act”). In addition, certain statements may be contained in our future filings with SEC, in press releases,
and in oral and written statements made by or with our approval that are not statements of historical fact and
constitute forward-looking statement within the meaning of the Act. Forward looking statements describe our
future plans, strategies and expectations and are based on certain assumptions. Words such as “believes”,
“anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other
similar expressions are intended to identify forward-looking statements but are not the exclusive means of
identifying such statements.
Forward-looking statements involve risks and uncertainties, many of which are beyond our control that may
cause actual results to differ materially from those in such statements. The important factors that could cause
actual results to differ materially from the forward looking statements include, but are not limited to, the
following:
(1) Changes in interest rates and the relationship between rate indices, including LIBOR and Fed
Funds
(2) Changes in the levels of loan prepayments, which could affect the value of our loans or
investment securities
(3) Changes in general economic and business conditions in areas or markets where we compete
(4) Competition from banks and other financial institutions for loans and customer deposits
(5) The failure of assumptions underlying the establishment of and provisions made to the
allowance for credit losses
(6) The loss of senior management or operating personnel and the potential inability to hire
qualified personnel at reasonable compensation levels
(7) Changes in government regulations including changes as a result of the current economic crisis
Forward-looking statements speak only as of the date on which such statements are made. We have no
obligation to update or revise any forward looking statements as a result of new information or future events.
In light of these assumptions, risks and uncertainties, the events discussed in any forward looking statements
in this annual report might not occur.
Overview of Our Business Operations
We commenced operations in December 1998. An important aspect of our growth strategy has been our ability
to service and effectively manage a large number of loans and deposit accounts in multiple markets in Texas.
Accordingly, we created an operations infrastructure sufficient to support state-wide lending and banking
operations.
The following discussions and analyses present the significant factors affecting our financial condition as of
December 31, 2009 and 2008 and results of operations for each of the three years in the period ended
December 31, 2009. This discussion should be read in conjunction with our consolidated financial statements
and notes to the financial statements appearing later in this report. Please also note the below description
about our discontinued operations and how it is reflected in the following discussions of our financial
condition and results of operations.
On October 16, 2006, we completed the sale of our residential mortgage lending division (RML). The sale was
effective as of September 30, 2006, and, accordingly, all operating results for this discontinued component of
our operations were reclassified to discontinued operations. All prior periods were restated to reflect the
24
change. Subsequent to the end of the first quarter of 2007, Texas Capital Bank and the purchaser of its
residential mortgage loan division (RML) agreed to terminate and settle the contractual arrangements related
to the sale of the division.
The loss from discontinued operations was $235,000 and $616,000, net of taxes, for the years 2009 and 2008,
respectively. The 2009 losses are primarily related to continuing legal and salary expenses incurred in dealing
with the remaining loans and requests from investors related to the repurchase of previously sold loans. We
still have approximately $586,000 in loans held for sale from discontinued operations that are carried at the
estimated market value at year-end, which is less than the original cost. We plan to sell these loans, but timing
and price to be realized cannot be determined at this time due to market conditions. In addition, we continue
to address requests from investors related to repurchasing loans previously sold. While the balances as of
December 31, 2009 include a liability for exposure to additional contingencies, including risk of having to
repurchase loans previously sold, we recognize that market conditions may result in additional exposure to loss
and the extension of time necessary to complete the discontinued mortgage operation. Our mortgage
warehouse operations were not part of the sale, and are included in the results from continuing operations.
Except as otherwise noted, all amounts and disclosures throughout this document reflect only the Company’s
continuing operations.
On March 30, 2007, Texas Capital Bank completed the sale of its TexCap Insurance Services subsidiary; the
sale was, accordingly, reported as a discontinued operation. Historical operating results of TexCap and the net
after-tax gain of $1.09 million from the sale are reflected as discontinued operations in the financial statements
and schedules. All prior periods have been restated to reflect the change. Except as otherwise noted, all
amounts and disclosures throughout this document reflect only the Company’s continuing operations.
Year ended December 31, 2009 compared to year ended December 31, 2008
We reported net income of $24.4 million for the year ended December 31, 2009, compared to $24.9 million for
the same period in 2008. We reported net income available to common shareholders of $19.0 million, or $.55
per diluted common share, for the year ended December 31, 2009, compared to $24.9 million, or $.89 per
diluted common share, for the same period in 2008 as a result of preferred dividends paid. Return on average
equity was 5.15% and return on average assets was .46% for the year ended December 31, 2009, compared to
7.46% and .55%, respectively, for the same period in 2008.
Net income decreased $495,000, or 2%, for the year ended December 31, 2009, and net income available to
common shareholders decreased $5.9 million, or 24%, compared to the same period in 2008. The $495,000
decrease was primarily the result of a $16.8 million increase in the provision for credit losses and a $35.9 million
increase in non-interest expense, offset by a $45.0 million increase in net interest income and a $6.8 million
increase in non-interest income and a $402,000 decrease in income tax expense.
Details of the changes in the various components of net income are further discussed below.
Year ended December 31, 2008 compared to year ended December 31, 2007
We reported net income of $24.9 million, or $.89 per diluted common share, for the year ended December 31,
2008, compared to $31.4 million, or $1.18 per diluted common share, for the same period in 2007. Return on
average equity was 7.46% and return on average assets was .55% for the year ended December 31, 2008,
compared to 11.51% and .80%, respectively, for the same period in 2007.
Net income decreased $6.5 million, or 20.7%, for the year ended December 31, 2008 compared to the same
period in 2007. The decrease was primarily the result of a $12.8 million increase in the provision for credit
losses and an $11.1 million increase in non-interest expense, offset by an $11.9 million increase in net interest
income and a $1.9 million increase in non-interest income and a $3.5 million decrease in income tax expense.
Details of the changes in the various components of net income are further discussed below.
25
Net Interest Income
Net interest income was $196.7 million for the year ended December 31, 2009 compared to $151.7 million for
the same period of 2008. The increase in net interest income was primarily due to an increase of $764.8 million
in average earning assets and the increase in our net interest margin. The increase in average earning assets
from 2008 included an $835.3 million increase in average net loans offset by a $76.6 million decrease in
average securities. For the year ended December 31, 2009, average net loans and securities represented 93%
and 6%, respectively, of average earning assets compared to 91% and 9%, respectively, in 2008.
Average interest bearing liabilities for the year ended December 31, 2009 increased $431.0 million from the
year ended December 31, 2008, which included a $206.4 million increase in interest bearing deposits and a
$224.6 million increase in other borrowings. For the same periods, the average balance of demand deposits
increased to $760.8 million from $529.5 million. The significant increase in average other borrowings is a
result of the combined effects of maturities of transaction-specific deposits and growth in loans during 2009.
The average cost of interest bearing liabilities decreased from 2.67% for the year ended December 31, 2008 to
1.14% in 2009, reflecting the significant decline in market interest rates.
Net interest income was $151.7 million for the year ended December 31, 2008 compared to $139.8 million for
the same period of 2007. The increase in net interest income was primarily due to an increase of $632.2 million
in average earning assets, offset by a 28 basis point decrease in the net interest margin, which resulted from
growth, asset sensitivity and the impact of the increase in non-accrual loans. The increase in average earning
assets from 2007 included a $705.3 million increase in average net loans offset by an $84.5 million decrease in
average securities. For the year ended December 31, 2008, average net loans and securities represented 91%
and 9%, respectively, of average earning assets compared to 87% and 13%, respectively, in 2007.
Average interest bearing liabilities for the year ended December 31, 2008 increased $495.5 million from the
year ended December 31, 2007, which included a $99.4 million increase in interest bearing deposits and a
$396.1 million increase in other borrowings. For the same periods, the average balance of demand deposits
increased slightly to $529.5 million from $463.1 million. The average cost of interest bearing liabilities
decreased from 4.76% for the year ended December 31, 2007 to 2.67% in 2008, reflecting the significant
decline in market interest rates during 2008. Of the increase in average interest bearing liabilities, total
borrowings grew due to combined effects of maturities of transaction-specific deposits and strong loan growth
during 2008.
26
Volume/Rate Analysis
(in thousands)
Change
Volume
Yield/Rate
Change
Volume
Yield/Rate
Years Ended December 31,
2009/2008
2008/2007
Change Due To(1)
Change Due To(1)
Interest income:
Securities(2)
Loans
Federal funds sold
Deposits in other banks
Interest expense :
Transaction deposits
Savings deposits
Time deposits
Deposits in foreign branches
Borrowed funds
$ (4,184)
(1,509)
(137)
13
$ (3,586)
49,955
(51)
111
$
(598)
(51,464)
(86)
(98)
$ (4,262)
(36,162)
76
(23)
$ (4,005)
58,521
476
69
$
(257)
(94,683)
(400)
(92)
(5,817)
46,429
(52,246)
(40,371)
55,061
(95,432)
(221)
(4,320)
(16,477)
(14,010)
(15,703)
178
7,299
3,532
(9,271)
5,032
(399)
(11,619)
(20,009)
(4,739)
(20,735)
(460)
(21,085)
1,564
(28,412)
(3,954)
81
(1,993)
19,567
(12,175)
19,718
(541)
(19,092)
(18,003)
(16,237)
(23,672)
(50,731)
6,770
(57,501)
(52,347)
25,198
(77,545)
Net interest income
$ 44,914
$39,659
$ 5,255
$ 11,976
$ 29,863
$(17,887)
(1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an
equal basis.
(2) Taxable equivalent rates used where applicable.
Net interest margin from continuing operations, the ratio of net interest income to average earning assets,
from continuing operations increased from 3.54% in 2008 to 3.89% in 2009. This 35 basis point increase was a
result of a steep decline in the costs of interest bearing liabilities and growth in non-interest bearing deposits
and stockholders’ equity. Total cost of funding decreased from 2.15% for 2008 to .87% for 2009. The benefit of
the reduction in funding costs was partially offset by a 99 basis point decline in yields on earning assets.
Net interest margin, the ratio of net interest income to average earning assets, decreased from 3.82% in 2007 to
3.54% in 2008. This decrease was due primarily to the decline in contribution of free funds, including demand
deposits and stockholders’ equity, to the margin. While the yield on earning assets and the cost of interest
bearing liabilities both decreased by 209 basis points, leaving the net interest spread unchanged, the
contribution of free funds declined 28 basis points in a declining rate environment.
27
Consolidated Daily Average Balances, Average Yields and Rates
(in thousands except percentage data)
Assets
Securities — Taxable
Securities — Non-taxable(2)
Federal funds sold
Deposits in other banks
Loans held for sale
Loans
Less reserve for loan losses
Loans, net
Total earning assets
Cash and other assets
Total assets
Liabilities and stockholders’ equity
Transaction deposits
Savings deposits
Time deposits
Deposits in foreign branches
Total interest bearing deposits
Other borrowings
Trust preferred subordinated
debentures
Total interest bearing liabilities
Demand deposits
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’
equity
Net interest income
Net interest margin
Net interest spread
Average
Balance
2009
Revenue/
Expense(1)
Yield/
Rate
Year Ended December 31
2008
Revenue/
Expense(1)
Average
Balance
Yield/
Rate
Average
Balance
2007
Revenue/
Expense(1)
Yield/
Rate
$ 269,888
44,873
8,196
12,266
596,271
4,200,174
55,784
$ 11,928
2,538
31
44
28,336
201,164
—
4.42% $ 343,870
47,450
5.66%
11,744
0.38%
2,675
0.36%
4.75%
255,808
4.79% 3,685,301
35,769
—
$ 16,000
2,650
168
31
14,842
216,167
—
4.65% $ 427,490
48,291
5.58%
1,903
1.43%
1,175
1.16%
5.80%
155,046
5.87% 3,068,452
23,430
—
$ 20,236
2,676
92
54
10,721
256,450
—
4.73%
5.54%
4.83%
4.60%
6.91%
8.36%
—
4,740,661
229,500
4.84% 3,905,340
231,009
5.92% 3,200,068
267,171
8.35%
5,075,884
245,034
$5,320,918
244,041
4.81% 4,311,079
206,634
249,858
5.80% 3,678,927
220,914
290,229
7.89%
$4,517,713
$3,899,841
$ 147,961
1,182,442
1,188,964
411,116
2,930,483
1,023,198
$
242
10,082
20,870
6,630
37,824
4,406
0.16% $ 106,720
0.85%
784,685
1.76% 1,086,252
746,399
1.61%
1.29% 2,724,056
798,647
0.43%
$
463
14,402
37,347
20,640
72,852
17,896
0.43% $
1.84%
3.44%
2.77%
98,159
831,370
702,248
992,837
$
923
35,487
35,783
49,052
2.67% 2,624,614
402,540
2.24%
121,245
20,038
0.94%
4.27%
5.10%
4.94%
4.62%
4.98%
113,406
4,232
3.73%
113,406
6,445
5.68%
113,406
8,257
7.28%
4,067,087
760,776
19,207
473,848
$5,320,918
46,462
1.14% 3,636,109
529,471
18,616
333,517
97,193
2.67% 3,140,560
463,142
23,817
272,322
149,540
4.76%
$4,517,713
$3,899,841
$197,579
$152,665
$140,689
3.89%
3.67%
3.54%
3.13%
3.82%
3.13%
(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.
Additional information from discontinued operations:
Loans held for sale from discontinued
operations
Borrowed funds
Net interest income
Net interest margin — consolidated
$
600
600
$
699
699
$
4,546
4,546
$
61
3.89%
$
54
3.54%
$
180
3.82%
28
Non-interest Income
(in thousands)
Service charges on deposit accounts
Trust fee income
Bank owned life insurance (BOLI) income
Brokered loan fees
Equipment rental income
Other(1)
Total non-interest income
Year Ended December 31
2008
2009
2007
$ 6,287
3,815
1,579
9,043
5,557
2,979
$ 4,699
4,692
1,240
3,242
5,995
2,602
$ 4,091
4,691
1,198
1,870
6,138
2,639
$29,260
$22,470
$20,627
(1) Other income includes such items as letter of credit fees, rental income, mark to market on mortgage
warehouse loans, and other general operating income, none of which account for 1% or more of total
interest income and non-interest income.
Non-interest income increased by $6.8 million, or 30%, during the year ended December 31, 2009 to
$29.3 million, compared to $22.5 million during the same period in 2008. The increase was primarily due to an
increase in brokered loan fees, which increased $5.8 million to $9.0 million for the year ended December 31,
2009, compared to $3.2 million for the same period in 2008 due to an increase in our mortgage warehouse
volume. Service charges increased $1.6 million to $6.3 million for the year ended December 31, 2009,
compared to $4.7 million for the same period in 2008 due to lower earnings credit rates and an increase in fees.
These increases were offset by an $877,000 decrease in trust fee income, which is due to the overall lower
market values of trust assets.
Non-interest income increased by $1.9 million, or 9.2%, during the year ended December 31, 2008 to
$22.5 million, compared to $20.6 million during the same period in 2007. The increase was primarily due to an
increase in brokered loan fees, which increased $1.3 million to $3.2 million for the year ended December 31,
2008, compared to $1.9 million for the same period in 2007 due to an increase in our mortgage warehouse
volume. Service charges increased $608,000 to $4.7 million for the year ended December 31, 2008, compared
to $4.1 million for the same period in 2007 due to lower earnings credit rates and an increase in fees.
While management expects continued growth in non-interest income, the future rate of growth could be
affected by increased competition from nationwide and regional financial institutions and by decreased
demand in mortgage warehouse volume. In order to achieve continued growth in non-interest income, we
may need to introduce new products or enter into new markets. Any new product introduction or new market
entry could place additional demands on capital and managerial resources.
Non-interest Expense
(in thousands)
Salaries and employee benefits
Net occupancy expense
Leased equipment depreciation
Marketing
Legal and professional
Communications and data processing
FDIC insurance assessment
Allowance and other carrying costs for OREO
Other(1)
Total non-interest expense
Year Ended December 31
2008
2009
2007
$ 73,419
12,291
4,319
3,034
11,846
3,743
8,464
10,345
18,081
$ 61,438
9,631
4,667
2,729
9,622
3,314
1,797
1,541
14,912
$56,608
8,430
4,958
3,004
7,245
3,357
1,424
133
13,447
$145,542
$109,651
$98,606
(1) Other expense includes such items as courier expenses, regulatory assessments other than FDIC
insurance, due from bank charges, software amortization and maintenance, and other general operating
expenses, none of which account for 1% or more of total interest income and non-interest income.
29
Non-interest expense for the year ended December 31, 2009 increased $35.9 million compared to the same
period of 2008 primarily related to increases in salaries and employee benefits, FDIC assessment expenses,
and expenses related to other real estate owned (“OREO”) included valuation allowances.
Salaries and employee benefits expense increased by $12.0 million to $73.4 million during the year ended
December 31, 2009. This increase resulted primarily from general business growth.
Occupancy expense increased by $2.7 million to $12.3 million during the year ended December 31, 2009
compared to the same period in 2008 and is related to expansion of leased facilities to support our general
business growth.
Legal and professional expenses increased $2.2 million, or 23%, during the year ended December 31, 2009
mainly related to general business growth, and continued regulatory and compliance costs. Regulatory and
compliance costs continue to be a factor in our expense growth and we anticipate that they will continue to
increase.
FDIC insurance assessment expense increased by $6.7 million from $1.8 million in 2008 to $8.5 million due to
the rate increase and special assessment. The FDIC assessment rates may continue to increase and will
continue to be a factor in our expense growth.
Allowance and other carrying costs for OREO increased $8.8 million during the year ended December 31,
2009 related to deteriorating values of assets held in OREO. Of the $10.3 million expense for 2009,
$6.6 million was related to establishing and increasing the valuation allowance during the year and $1.2 million
related to direct write-downs of the OREO balance.
Non-interest expense for the year ended December 31, 2008 increased $11.1 million compared to the same
period of 2007. This increase is due primarily to a $4.8 million increase in salaries and employee benefits
resulting primarily from growth.
Occupancy expense increased by $1.2 million to $9.6 million during the year ended December 31, 2008
compared to the same period in 2007 and is related to expansion of leased facilities to support our general
business growth.
Legal and professional expenses increased $2.4 million, or 33.3%, during the year ended December 31, 2008
mainly related to general business growth, and continued regulatory and compliance costs. Regulatory and
compliance costs continue to be a factor in our expense growth and we anticipate that they will continue to
increase.
Analysis of Financial Condition
Loan Portfolio
Our loan portfolio has grown at an annual rate of 25%, 24% and 14% in 2007, 2008 and 2009, respectively,
reflecting the build-up of our lending operations. Our business plan focuses primarily on lending to middle
market businesses and high net worth individuals, and as such, commercial and real estate loans have
comprised a majority of our loan portfolio since we commenced operations, comprising 71% of total loans at
December 31, 2009. Construction loans have decreased from 18% of the portfolio at December 31, 2005 to
13% of the portfolio at December 31, 2009. Consumer loans generally have represented 1% or less of the
portfolio from December 31, 2005 to December 31, 2009. Loans held for sale, which relates to our mortgage
warehouse operations and are principally mortgage loans being warehoused for sale (typically within 10 to
20 days), fluctuate based on the level of market demand in the product. Due to market conditions experienced
in the mortgage industry during 2007, loans not sold within the normal timeframe were transferred to the loans
held for investment portfolio. Loans were transferred at a lower of cost or market basis and are then subject to
normal loan review, grading and reserve allocation requirements. The remaining balance of loans transferred
was $6.8 million at December 31, 2009, and $2.5 million of such loans were NPAs with allocated reserves of
approximately $618,000.
30
We originate substantially all of the loans held in our portfolio, except participations in residential mortgage
loans held for sale, select loan participations and syndications, which are underwritten independently by us
prior to purchase, and certain USDA and SBA government guaranteed loans that we purchase in the secondary
market. We also participate in syndicated loan relationships, both as a participant and as an agent. As of
December 31, 2009, we have $447.9 million in syndicated loans, $145.1 million of which we acted as agent. All
syndicated loans, whether we act as agent or participant, are underwritten to the same standards as all other
loans originated by us. In addition, as of 12/31/09, $21.9 million of our syndicated loans were nonperforming,
and none are considered potential problem loans.
The following summarizes our loan portfolio on a gross basis by major category as of the dates indicated (in
thousands):
Commercial
Construction
Real estate
Consumer
Equipment leases
Loans held for sale
2009
2008
$2,457,533
669,426
1,233,701
25,065
99,129
693,504
$2,276,054
667,437
988,784
32,671
86,937
496,351
December 31
2007
$2,035,049
573,459
773,970
28,334
74,523
174,166
2006
2005
$1,602,577
538,586
530,377
21,113
45,280
199,014
$1,182,734
387,163
478,634
19,962
16,337
72,383
Total
$5,178,358
$4,548,234
$3,659,501
$2,936,947
$2,157,213
Commercial Loans and Leases. Our commercial loan portfolio is comprised of lines of credit for working capital
and term loans and leases to finance equipment and other business assets. Our energy production loans are
generally collateralized with proven reserves based on appropriate valuation standards. Our commercial loans
and leases are underwritten after carefully evaluating and understanding the borrower’s ability to operate
profitably. Our underwriting standards are designed to promote relationship banking rather than making loans
on a transaction basis. Our lines of credit typically are limited to a percentage of the value of the assets securing
the line. Lines of credit and term loans typically are reviewed annually and are supported by accounts
receivable, inventory, equipment and other assets of our clients’ businesses. At December 31, 2009, funded
commercial loans and leases totaled approximately $2.6 billion, approximately 49% of our total funded loans.
Real Estate Loans. Approximately 23% of our real estate loan portfolio (excluding construction loans) and 6%
of the total portfolio is comprised of loans secured by properties other than market risk or investment-type real
estate. Market risk loans are real estate loans where the primary source of repayment is expected to come from
the sale or lease of the real property collateral. We generally provide temporary financing for commercial and
residential property. These loans are viewed primarily as cash flow loans and secondarily as loans secured by
real estate. Our real estate loans generally have maximum terms of five to seven years, and we provide loans
with both floating and fixed rates. We generally avoid long-term loans for commercial real estate held for
investment. Real estate loans may be more adversely affected by conditions in the real estate markets or in the
general economy. Appraised values may be highly variable due to market conditions and impact of the
inability of potential purchasers and lessees to obtain financing and lack of transactions at comparable values.
At December 31, 2009, real estate term loans totaled approximately $1.2 billion, or 24% of our total funded
loans; of this total, $1,019.3 million were loans with floating rates and $214.4 million were loans with fixed
rates.
Construction Loans. Our construction loan portfolio consists primarily of single-family residential properties
and commercial projects used in manufacturing, warehousing, service or retail businesses. Our construction
loans generally have terms of one to three years. We typically make construction loans to developers, builders
and contractors that have an established record of successful project completion and loan repayment and have
a substantial investment of the borrowers’ equity. However, construction loans are generally based upon
estimates of costs and value associated with the completed project. Sources of repayment for these types of
loans may be pre-committed permanent loans from other lenders, sales of developed property, or an interim
31
loan commitment from us until permanent financing is obtained. The nature of these loans makes ultimate
repayment extremely sensitive to overall economic conditions. Borrowers may not be able to correct
conditions of default in loans, increasing risk of exposure to classification, NPA status, reserve allocation
and actual credit loss and foreclosure. These loans typically have floating rates and commitment fees. At
December 31, 2009, funded construction real estate loans totaled approximately $669.4 million, approxi-
mately 13% of our total funded loans.
Loans Held for Sale. Our loans held for sale portfolio consists of participations purchased in single-family
residential mortgages funded through our mortgage warehouse group. These loans are typically on our
balance sheet for 10 to 20 days or less. We have agreements with brokers and participate in individual loans
they originate. All loans are subject to pre-committed programs for permanent financing with financially
sound investors. Substantially all loans are conforming loans. At December 31, 2009, loans held for sale totaled
approximately $693.5 million, approximately 13% of our total funded loans.
Letters of Credit. We issue standby and commercial letters of credit, and can service the international needs of
our clients through correspondent banks. At December 31, 2009, our commitments under letters of credit
totaled approximately $66.4 million.
Portfolio Geographic and Industry Concentrations
We continue to lend primarily in Texas. As of December 31, 2009, a substantial majority of the principal
amount of the loans held for investment in our portfolio was to businesses and individuals in Texas. This
geographic concentration subjects the loan portfolio to the general economic conditions in Texas. The table
below summarizes the industry concentrations of our funded loans at December 31, 2009. The risks created
by these concentrations have been considered by management in the determination of the adequacy of the
allowance for loan losses. Management believes the allowance for loan losses is adequate to cover estimated
losses on loans at each balance sheet date.
(in thousands)
Services
Loans held for sale
Contracting — construction and real estate development
Investors and investment management companies
Petrochemical and mining
Personal/household
Manufacturing
Retail
Wholesale
Contracting — trades
Government
Agriculture
Amount
$2,126,513
693,504
592,750
576,827
474,495
199,564
186,637
140,638
114,370
59,219
12,670
1,171
Percent of Total
Loans
41.1%
13.4%
11.5%
11.1%
9.2%
3.9%
3.6%
2.7%
2.2%
1.1%
0.2%
0.0%
Total
$5,178,358
100.0%
Our largest concentration in any single industry is in services. Loans extended to borrowers within the services
industries include loans to finance working capital and equipment, as well as loans to finance investment and
owner-occupied real estate. Significant trade categories represented within the services industries include,
but are not limited to, real estate services, financial services, leasing companies, transportation and com-
munication, and hospitality services. Borrowers represented within the real estate services category are largely
owners and managers of both residential and non-residential commercial real estate properties. Personal/
household loans include loans to certain high net worth individuals for commercial purposes, in addition to
32
consumer loans. Loans held for sale are those loans originated by our mortgage warehouse group. Loans
extended to borrowers within the contracting industry are comprised largely of loans to land developers and to
both heavy construction and general commercial contractors. Many of these loans are secured by real estate
properties, the development of which is or may be financed by our bank. Loans extended to borrowers within
the petrochemical and mining industries are predominantly loans to finance the exploration and production of
petroleum and natural gas. These loans are generally secured by proven petroleum and natural gas reserves.
We make loans that are appropriately collateralized under our credit standards. Approximately 96% of our
funded loans are secured by collateral. Over 90% of the real estate collateral is located in Texas. The table
below sets forth information regarding the distribution of our funded loans among various types of collateral at
December 31, 2009 (in thousands except percentage data):
Collateral type:
Real property
Business assets
Loans held for sale
Energy
Unsecured
Other assets
Highly liquid assets
Rolling stock
U. S. Government guaranty
Total
Amount
Percent of
Total Loans
$1,903,127
1,591,980
693,504
373,705
221,284
175,025
166,413
34,314
19,006
36.7%
30.7%
13.4%
7.2%
4.3%
3.4%
3.2%
0.7%
0.4%
$5,178,358
100.0%
As noted in the table above, 36.7% of our loans are secured by real estate. The table below summarizes our real
estate loan portfolio as segregated by the type of property securing the credit. Property type concentrations are
stated as a percentage of year-end total real estate loans as of December 31, 2009 (in thousands except
percentage data):
Property type:
Market Risk
Commercial buildings
Real estate-permanent
Apartment buildings
Shopping center/mall buildings
1-4 Family dwellings (other than condominium)
Residential lots
Hotel/motel buildings
Other
Other Than Market Risk
Commercial buildings
1-4 Family dwellings (other than condominium)
Other
Percent of
Total
Real Estate
Loans
30.6%
9.7%
8.7%
7.6%
6.1%
6.1%
4.6%
9.6%
9.1%
4.4%
3.5%
Amount
$ 581,990
185,097
166,082
144,253
116,899
115,439
87,901
183,298
172,798
83,416
65,954
Total real estate loans
$1,903,127
100.0%
33
The table below summarizes our market risk real estate portfolio as segregated by the geographic region in
which the property is located (in thousands except percentage data):
Geographic region:
Dallas/Fort Worth
Houston
Austin
San Antonio
Other Texas cities
Other states
Amount
Percent of
Total
$ 583,226
267,422
213,704
259,162
106,926
150,519
36.9%
16.9%
13.5%
16.4%
6.8%
9.5%
Total market risk real estate loans
$1,580,959
100.0%
The determination of collateral value is critically important when financing real estate. As a result, obtaining
current and objectively prepared appraisals is a major part of our underwriting and monitoring processes.
Generally, our policy requires a new appraisal every three years. However, in the current economic downturn
where real estate values have been fluctuating rapidly, more current appraisals are obtained when warranted
by conditions such as a borrower’s deteriorating financial condition, their possible inability to perform on the
loan, and the increased risks involved with reliance on the collateral value as sole repayment of the loan.
Generally, loans graded substandard or worse where real estate is a material portion of the collateral value
and/or the income from the real estate or sale of the real estate is the primary source of debt service, annual
appraisals are obtained. In all cases, appraisals are reviewed to determine reasonableness of the appraised
value. The reviewer will challenge whether or not the data used is adequate and relevant, form an opinion as
to the appropriateness of the appraisal methods and techniques used, and determine if overall the analysis and
conclusions of the appraiser can be relied upon. Both the appraisal process and the appraisal review process
have become increasingly difficult in the current economic environment with the lack of comparable sales
which is partially as a result of the lack of available financing which has ultimately led to overall depressed real
estate values.
Large Credit Relationships
The market areas we serve include the five major metropolitan markets of Texas, including Austin, Dallas,
Fort Worth, Houston and San Antonio. As a result, we originate and maintain large credit relationships with
numerous customers in the ordinary course of business. The legal limit of our bank is approximately
$75 million and our house limit is generally $15 to $20 million. We consider large credit relationships to
be those with commitments equal to or in excess of $10.0 million. The following table provides additional
information on our large credit relationships outstanding at year-end (in thousands):
Number of
2009
Period-End Balances
Number of
2008
Period-End Balances
Relationships Committed Outstanding
Relationships Committed Outstanding
Large credit relationships:
$20.0 million and greater
$10.0 million to
$19.9 million
15
128
$ 353,585
$ 297,189
1,733,593
1,272,870
18
119
$ 411,023
$ 304,460
1,633,960
1,077,168
Growth in outstanding balances related to large credit relationships primarily resulted from an increase in
commitments. The average commitment per large credit relationship in excess of $20.0 million totaled
$23.6 million at December 31, 2009 and $22.8 million at December 31, 2008. The average outstanding balance
per large credit relationship with a commitment greater than $20.0 million totaled $19.8 at December 31, 2009
and $16.9 million at December 31, 2008. The average commitment per large credit relationship between
$10.0 million and $19.9 million totaled $13.5 million at December 31, 2009 and $13.7 million at December 31,
34
2008. The average outstanding balance per large credit relationship with a commitment between $10.0 million
and $19.9 million totaled $9.9 million at December 31, 2009 and $9.1 million at December 31, 2008.
Loan Maturity and Interest Rate Sensitivity on December 31, 2009
(in thousands)
Total
Within 1 Year
1-5 Years
After 5 Years
Remaining Maturities of Selected Loans
Loan maturity:
Commercial
Construction
Real estate
Consumer
Equipment leases
$2,457,533
669,426
1,233,701
25,065
99,129
$1,360,378
244,069
313,406
20,417
7,753
$1,062,639
403,141
740,307
4,648
84,145
$ 34,516
22,216
179,989
—
7,230
Total loans held for investment
$4,484,854
$1,946,023
$2,294,880
$243,951
Interest rate sensitivity for selected
loans with:
Predetermined interest rates
Floating or adjustable interest rates
$ 795,839
3,689,015
$ 408,706
1,537,317
$ 307,085
1,987,795
$ 80,048
163,903
Total loans held for investment
$4,484,854
$1,946,023
$2,294,880
$243,951
Interest Reserve Loans
As of December 31, 2009, we had $347.5 million in loans with interest reserves, which represents approx-
imately 78% of our construction loans. Loans with interest reserves are common when originating construction
loans, but the use of interest reserves is carefully controlled by our underwriting standards. The use of interest
reserves is based on the feasibility of the project, the creditworthiness of the borrower and guarantors, and the
loan to value coverage of the collateral. The interest reserve account allows the borrower, when financial
conditions precedents are met to draw loan funds to pay interest charges on the outstanding balance of the
loan. When drawn, the interest is capitalized and added to the loan balance, subject to conditions specified at
the time the credit is approved and during the initial underwriting. We have effective and ongoing controls for
monitoring compliance with loan covenants for advancing funds and determination of default conditions.
When lending relationships involve financing of land on which improvements will be constructed, construc-
tion funds are not advanced until borrower has received lease or purchase commitments which will meet cash
flow coverage requirements. We maintain current financial statements on the borrowing entity and guarantors,
as well as periodical inspections of the project and analysis of whether the project is on schedule or delayed.
Updated appraisals are ordered when necessary to validate the collateral values to support all advances,
including reserve interest. Advances of interest reserves are discontinued if collateral values do not support
the advances or if the borrower does not comply with other terms and conditions in the loan agreements. In
addition, most of our construction lending is performed in Texas and our lenders are very familiar with trends
in local real estate. At a point where we believe that our collateral position is jeopardized, we retain the right to
stop the use of the interest reserves. As of December 31, 2009 $16.3 million of our loans with interest reserves
were on nonaccrual, and in all cases, the use of the reserves has been suspended.
35
Non-performing Assets
Non-performing assets include non-accrual loans and equipment leases, accruing loans 90 or more days past
due, restructured loans, and other repossessed assets. The table below summarizes our non-accrual loans by
type (in thousands):
Year Ended December 31
2008
2009
2007
Non-accrual loans:(1)(3)
Commercial
Construction
Real estate
Consumer
Equipment leases
Total non-accrual loans
Other repossessed assets:
OREO(3)(4)
Other repossessed assets
$ 34,021
44,598
10,189
273
6,544
$15,676
22,362
6,239
296
2,926
$14,693
4,147
2,453
90
2
95,625
47,499
21,385
27,264
162
25,904
25
2,671
45
Total other repossessed assets
27,426
25,929
2,716
Total non-performing assets
$123,051
$73,428
$24,101
Loans past due 90 days and accruing(2)
6,081
4,115
4,147
(1) The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash
flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days
past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is
reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid
principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash
payments are applied to principal. If these loans had been current throughout their terms, interest and
fees on loans would have increased by approximately $3.6 million, $2.9 million and $1.1 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
(2) At December 31, 2009, 2008 and 2007, loans past due 90 days and still accruing includes premium finance
loans of $2.4 million, $2.1 million and $1.8 million, respectively. These loans are generally secured by
obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of
premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(3) At December 31, 2009, 2008 and 2007, non-performing assets include $2.6 million, $4.4 million,
$4.1 million, respectively, of mortgage warehouse loans which were transferred to our loans held for
investment portfolio at lower of cost or market during the past eighteen months, and some were
subsequently moved to OREO.
(4) At December 31, 2009, OREO balance is net of $6.6 million valuation allowance.
Nonperforming assets include non-accrual loans, restructured loans and repossessed assets. Total non-
performing assets at December 31, 2009 increased $45.5 million from December 31, 2008, compared to
$49.3 million at December 31, 2007. The increases in the past two years are reflective of the overall economic
deterioration during 2008 and 2009. As a result our allowance for loans losses as a percentage of loans, as well as
our provision for credit losses recorded in 2008 and 2009 have increased.
At December 31, 2009, our total non-accrual loans were $95.6 million. Of these, $34.0 million were
characterized as commercial loans. This included a $7.6 million line of credit secured by single family
residences and the borrower’s notes receivable, a $6.0 million line of credit secured by various single family
properties, a $5.5 million residence rehabilitation loan secured by single family residences, a $4.3 million
manufacturing loan secured by the assets of the borrower, a $2.5 million loan secured by a first lien security
36
interest in the borrower’s accounts receivable and assets, a $2.4 million loan secured by the borrower’s assets, a
$2.0 million lender finance loan secured by the borrower’s material assets and $1.2 million in auto dealer loans
secured by the borrower’s accounts receivable and inventory. Non-accrual loans also included $44.6 million
characterized as construction loans. This included a $16.3 million commercial real estate lot development loan
secured by residential lots, a $16.2 million commercial real estate loan secured by condominiums, a
$5.0 million commercial real estate loan secured by unimproved land, a $2.1 million commercial real estate
loan secured by retail property, $1.6 million in commercial real estate loans secured by single family
residences, $1.5 million in residential real estate loans secured by single family residences and a $1.0 million
real estate investment loan secured by unimproved lots. Non-accrual loans also included $10.2 million
characterized as real estate loans, $6.9 of which relates to a real estate loan secured by an apartment building.
Also included in this category are $2.5 million in single family mortgages that were originated in our mortgage
warehouse operation. Each of these loans were reviewed for impairment and specific reserves were allocated
as necessary and included in the allowance for loan losses as of December 31, 2009 to cover any probable loss.
Reserves on impaired loans were $18.4 million at December 31, 2009, compared to $13.1 million at
December 31, 2008 and $5.9 million at December 31, 2007. We recognized $25,000 in interest income on
non-accrual loans during 2009 compared to $33,000 in 2008 and $44,000 in 2007. Additional interest income
that would have been recorded if the loans had been current during the years ended December 31, 2009, 2008
and 2007 totaled $3.6 million, $2.9 million and $1.1 million, respectively.
Generally, we place loans on non-accrual when there is a clear indication that the borrower’s cash flow may not
be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When
a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is
subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is
deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. As
of December 31, 2009, none of our non-accrual loans were earning on a cash basis.
A loan is considered impaired when, based on current information and events, it is probable that we will be
unable to collect all amounts due (both principal and interest) according to the terms of the original loan
agreement. Reserves on impaired loans are measured based on the present value of the expected future cash
flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral.
Restructured loans are loans on which, due to the borrower’s financial difficulties, we have granted a
concession that we would not otherwise consider. This may include a transfer of real estate or other assets
from the borrower, a modification of loan terms, or a combination of the two. Modifications of terms that could
potentially qualify as a restructuring include reduction of contractual interest rate, extension of the maturity
date at a contractual interest rate lower than the current rate for new debt with similar risk, or a reduction of the
face amount of debt, either forgiveness of principal or accrued interest. As of December 31, 2009 we have no
loans considered restructured that are not already on nonaccrual. Of the nonaccrual loans at December 31,
2009, $30.3 million met the criteria for restructured. A loan continues to qualify as restructured until a
consistent payment history has been evidenced, generally no less than twelve months. A loan is placed back
on accrual status when both principal and interest are current and it is probable that we will be able to collect
all amounts due (both principal and interest) according to the terms of the loan agreement.
Potential problem loans consist of loans that are performing in accordance with contractual terms, but for
which we have concerns about the borrower’s ability to comply with repayment terms because of the
borrower’s potential financial difficulties. We monitor these loans closely and review their performance on a
regular basis. At December 31, 2009 and 2008, we had $53.1 million and $22.5 million in loans of this type,
which were not included in either the non-accrual or 90 days past due categories. The increase in the amount
of potential problem loans from December 2008 to December 2009 is consistent with the overall economic
deterioration and the increase in nonperforming loans that we have experienced this year.
37
The table below presents a summary of the activity related to OREO (in thousands):
Beginning balance
Additions
Sales
Valuation allowance
Direct write-downs
Ending balance
Year Ended December 31
2009
2008
2007
$ 25,904
23,466
(14,265)
(6,619)
(1,222)
$ 2,671
28,835
(5,602)
—
—
$ 882
2,582
(793)
—
—
$ 27,264
$25,904
$2,671
The $27.3 million balance in OREO at December 31, 2009 included unimproved commercial real estate
values at $7.5 million and residential real estate lots and undeveloped land valued at $7.1 million and
$3.4 million, respectively. Also included is a commercial real estate property consisting of single family
residences and developed lots valued at $3.4 million, unimproved commercial real estate lots valued at
$2.9 million and $1.6 million, an office building valued at $2.6 million, and commercial real estate property
consisting of single family residences and a mix of lots at various levels of completion valued at $1.1 million.
When foreclosure occurs, fair value, which is generally based on appraised values, may result in partial charge-
off of loan upon taking property, and so long as property is retained, reductions in appraised values will result
in valuation adjustment taken as non-interest expense. In addition, if the decline in value is believed to be
permanent and not just driven by market conditions, a direct write-down to the OREO balance may be taken.
We generally pursue sales of OREO when conditions warrant, but we may choose to hold certain properties for
a longer term, which can result in additional exposure related to the appraised values during that holding
period. During the year ended December 31, 2009, we recorded $7.8 million in valuation expense. Of the
$7.8 million, $6.6 million related to increases to the valuation allowance, and $1.2 million related to direct
write-downs.
Summary of Loan Loss Experience
The provision for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent
with management’s assessment of the collectability of the loan portfolio in light of current economic
conditions and market trends. We recorded a provision of $43.5 million for the year ended December 31,
2009, $26.8 million for the year ended December 31, 2008, and $14.0 million for the year ended December 31,
2007. The amount of reserves and provision required to support the reserve have increased over the last two
years as a result of credit deterioration in our loan portfolio driven by negative changes in national and regional
economic conditions and the impact on those conditions on the financial condition of borrowers and the values
of assets, including real estate assets, pledged as collateral.
The reserve for loan losses is comprised of specific reserves for impaired loans and an estimate of losses
inherent in the portfolio at the balance sheet date, but not yet identified with specified loans. We regularly
evaluate our reserve for loan losses to maintain an adequate level to absorb estimated loan losses inherent in
the loan portfolio. Factors contributing to the determination of reserves include the credit worthiness of the
borrower, changes in the value of pledged collateral, and general economic conditions. All loan commitments
rated substandard or worse and greater than $500,000 are specifically reviewed for impairment. For loans
deemed to be impaired, a specific allocation is assigned based on the losses expected to be realized from those
loans. For purposes of determining the general reserve, the portfolio is segregated by product types to
recognize differing risk profiles among categories, and then further segregated by credit grades. Credit grades
are assigned to all loans. Each credit grade is assigned a risk factor, or reserve allocation percentage. These risk
factors are multiplied by the outstanding principal balance and risk-weighted by product type to calculate the
required reserve. A similar process is employed to calculate a reserve assigned to off-balance sheet com-
mitments, specifically unfunded loan commitments and letters of credit. Even though portions of the
allowance may be allocated to specific loans, the entire allowance is available for any credit that, in
management’s judgment, should be charged off.
38
The reserve allocation percentages assigned to each credit grade have been developed based primarily on an
analysis of our historical loss rates. The allocations are adjusted for certain qualitative factors for such things as
general economic conditions, changes in credit policies and lending standards. Changes in the trend and
severity of problem loans can cause the estimation of losses to differ from past experience. In addition, the
reserve considers the results of reviews performed by independent third party reviewers as reflected in their
confirmations of assigned credit grades within the portfolio. The portion of the allowance that is not derived
by the allowance allocation percentages compensates for the uncertainty and complexity in estimating loan
and lease losses including factors and conditions that may not be fully reflected in the determination and
application of the allowance allocation percentages. We evaluate many factors and conditions in determining
the unallocated portion of the allowance, including the economic and business conditions affecting key
lending areas, credit quality trends and general growth in the portfolio. The allowance is considered adequate
and appropriate, given management’s assessment of potential losses within the portfolio as of the evaluation
date, the significant growth in the loan and lease portfolio, current economic conditions in the Company’s
market areas and other factors.
The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is
designed to be dynamic and responsive to changes in portfolio credit quality and anticipated future credit
losses. The changes are reflected in the general reserve and in specific reserves as the collectability of larger
classified loans is evaluated with new information. As our portfolio has matured, historical loss ratios have
been closely monitored, and our reserve adequacy relies primarily on our loss history. Currently, the review of
reserve adequacy is performed by executive management and presented to our board of directors for their
review, consideration and ratification on a quarterly basis.
The reserve for credit losses, which includes a liability for losses on unfunded commitments, totaled
$70.9 million at December 31, 2009, $46.8 million at December 31, 2008 and $32.8 million at December 31,
2007. The total reserve percentage increased to 1.59% at year-end 2009 from 1.16% and 0.95% of loans held for
investment at December 31, 2008 and 2007, respectively. The total reserve percentage has increased over the
past two years as a result of the effects of national and regional economic conditions on borrowers and values of
assets pledged as collateral. These changes in economic conditions have resulted in increases in loans with
weakened credit quality and nonperforming loans. The overall reserve for loan losses continues to be driven
by the loan loss reserve methodology as described above. At December 31, 2009, we believe the reserve is
sufficient to cover all expected losses in the portfolio and has been derived from consistent application of the
methodology described above. Should any of the factors considered by management in evaluating the
adequacy of the allowance for loan losses change, our estimate of expected losses in the portfolio could also
change, which would affect the level of future provisions for loan losses.
39
The table below presents a summary of our loan loss experience for the past five years (in thousands except
percentage and multiple data):
Reserve for loan losses:
Beginning balance
Loans charged-off:
Commercial
Real estate — Construction
Real estate — Term
Consumer
Equipment leases
Total
Recoveries:
Commercial
Real estate — Construction
Real estate — Term
Consumer
Equipment leases
Total
Net charge-offs (recoveries)
Provision for loan losses
2009
Year Ended December 31
2008
2006
2007
2005
$ 45,365 $31,686 $20,063 $18,897 $18,698
4,000
6,508
4,696
502
4,022
7,395
1,866
4,168
193
12
2,528
313
—
48
81
2,525
—
—
3
76
19,728
13,634
2,970
2,604
124
13
53
28
54
272
759
—
47
13
79
898
642
—
—
15
131
788
462
—
—
1
247
710
410
—
28
93
66
597
569
—
—
2
225
796
19,456
42,022
12,736
26,415
2,182
13,805
1,894
3,060
(199)
—
Ending balance
$ 67,931 $45,365 $31,686 $20,063 $18,897
Reserve for off-balance sheet credit losses:
Beginning balance
Provision for off-balance sheet credit losses
$
1,470 $ 1,135 $
1,478
335
940 $ — $ —
—
940
195
Ending balance
$
2,948 $ 1,470 $ 1,135 $
940 $ —
Total provision for credit losses
$ 43,500 $26,750 $14,000 $ 4,000 $ —
Reserve for loan losses to loans held for
investment(2)
Net charge-offs (recoveries) to average loans(2)
Total provision for credit losses to average
loans(2)
Recoveries to gross charge-offs
Reserve for loan losses as a multiple of net
charge-offs
Reserve for off-balance sheet credit losses to
off-balance sheet credit commitments
Combined reserves for credit losses to loans
held for investment(2)
Non-performing assets:(4)
Non-accrual(1)
OREO(5)
Total
1.52% 1.16%
.35%
.46%
.95%
.07%
.77%
.91%
.08% (.01)%
.00%
.46%
1.04%
1.38% 6.59% 26.53% 27.27% 133.33%
.17%
.73%
3.5x
3.6x
14.5x
10.6x N/M
.24%
.10%
.09%
.08%
—
1.59% 1.16%
.95%
.77%
.91%
$ 95,625 $47,499 $21,385 $ 9,088 $ 5,657
158
27,264
25,904
2,671
882
$122,889 $73,403 $24,056 $ 9,970 $ 5,815
Loans past due (90 days) and still accruing(3)
Reserve for loan losses to non-performing loans
$
40
6,081 $ 4,115 $ 4,147 $ 2,142 $ 2,795
3.3x
1.0x
2.2x
1.5x
.7x
(1) The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash
flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days
past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is
reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid
principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash
payments are applied to principal. If these loans had been current throughout their terms, interest and
fees on loans would have increased by approximately $3.6 million, $2.9 million and $1.1 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
(2) Excludes loans held for sale.
(3) At December 31, 2009, 2008 and 2007, loans past due 90 days and still accruing includes premium finance
loans of $2.4 million, $2.1 million and $1.8 million, respectively. These loans are generally secured by
obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of
premiums from the insurance carriers can take 180 days or longer from the cancellation date.
(4) At December 31, 2009, 2008 and 2007, non-performing assets include $2.6 million, $4.4 million and
$4.1 million, respectively, of mortgage warehouse loans which were transferred to the loans held for
investment portfolio at lower of cost or market during the past eighteen months, and some were
subsequently moved to OREO.
(5) At December 31, 2009, OREO balance is net of $6.6 million valuation allowance.
Loan Loss Reserve Allocation
(in thousands, except
percentage data)
Loan category:
Commercial
Construction
Real estate(1)
Consumer
Equipment leases
Unallocated
2009
2008
December 31
2007
2006
2005
Reserve % of Loans Reserve % of Loans Reserve % of Loans Reserve % of Loans Reserve % of Loans
$33,269
10,974
14,874
1,258
2,960
4,596
47% $23,348
7,563
13
10,518
37
1,095
1
1,790
2
1,051
—
50% $16,466
5,032
15
4,736
32
1,989
1
723
2
2,740
—
55% $ 8,992
4,081
16
2,910
26
589
1
482
2
3,009
—
54% $ 9,996
2,346
18
3,095
25
115
1
395
2
2,950
—
53%
18
27
1
1
—
Total
$67,931
100% $45,365
100% $31,686
100% $20,063
100% $18,897
100%
(1) Includes loans held for sale.
During 2009, the reserve allocated to all categories of loans increased compared to 2008 primarily due to
increases in the level of allocations required by our loan loss reserve methodology. Generally, loan loss reserve
allocations between categories are consistent with prior year. The percentage of the reserve allocated to
construction is a slightly higher percentage in the current year even though the percentage of our loans in that
category has decreased from prior year. This increase in construction reserve allocation is related to the overall
economic downturn and decreased values that have been experienced with construction projects, most
especially lot development projects. This is also consistent with the increase in nonperforming loans in this
category we’ve experienced in 2009.
Securities Portfolio
Securities are identified as either held-to-maturity or available-for-sale based upon various factors, including
asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements.
Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts.
Available-for-sale securities are securities that may be sold prior to maturity based upon asset/liability
management decisions. Securities identified as available-for-sale are carried at fair value. Unrealized gains
or losses on available-for-sale securities are recorded as accumulated other comprehensive income (loss) in
stockholders’ equity, net of taxes. Amortization of premiums or accretion of discounts on mortgage-backed
securities is periodically adjusted for estimated prepayments.
41
During the year ended December 31, 2009, we maintained an average securities portfolio of $314.8 million
compared to an average portfolio of $391.3 million for the same period in 2008. The December 31, 2009
portfolio is primarily comprised of mortgage-backed securities. Of the mortgage-backed securities in our
portfolio at December 31, 2009 substantially all are guaranteed by U.S. government agencies. Our portfolio
included no impaired securities.
Our net unrealized gain on the securities portfolio value increased from a net gain of $2.9 million, which
represented 0.77% of the amortized cost, at December 31, 2008, to a net gain of $9.5 million, which
represented 3.70% of the amortized cost, at December 31, 2009. Changes in value reflect changes in market
interest rates and the total balance of securities.
During the year ended December 31, 2008, we maintained an average securities portfolio of $391.3 million
compared to an average portfolio of $475.8 million for the same period in 2007. The December 31, 2008
portfolio is primarily comprised of mortgage-backed securities. The mortgage-backed securities in our
portfolio at December 31, 2008 primarily consisted almost entirely of government agency mortgage-backed
securities.
Our net unrealized loss on the securities portfolio value decreased from a net loss of $1.4 million, which
represented 0.29% of the amortized cost, at December 31, 2007, to a net gain of $2.9 million, which
represented 0.77% of the amortized cost, at December 31, 2008. Changes in value reflect changes in market
interest rates and the total balance of securities.
The average expected life of the mortgage-backed securities was 2.1 years at December 31, 2009 and 2.7 years
at December 31, 2008. The effect of possible changes in interest rates on our earnings and equity is discussed
under “Interest Rate Risk Management.”
The following presents the amortized cost and fair values of the securities portfolio at December 31, 2009,
2008 and 2007:
(in thousands)
Available-for-sale:
U.S. Treasuries
Mortgage-backed
securities
Corporate securities
Municipals
Equity securities(1)
Total available-for-sale
securities
2009
At December 31
2008
2007
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair
Value
$
— $
— $ 28,299
$ 28,296
$
2,595
$
2,595
201,824
5,000
42,314
7,506
209,987
4,683
43,826
7,632
288,701
5,000
46,370
7,506
291,716
4,810
46,531
7,399
358,164
25,055
48,149
7,507
356,412
25,077
48,498
7,537
$256,644
$266,128
$375,876
$378,752
$441,470
$440,119
(1) Equity securities consist of Community Reinvestment Act funds.
42
The amortized cost and estimated fair value of securities are presented below by contractual maturity:
(in thousands except percentage data)
Available-for-sale:
Mortgage-backed securities (1):
Less Than
One Year
At December 31, 2009
After Five
Through
Ten Years
After One
Through
Five Years
After Ten
Years
Total
Amortized cost
Estimated fair value
Weighted average yield(3)
Corporate securities :
Amortized cost
Estimated fair value
Weighted average yield(3)
Municipals :(2)
Amortized cost
Estimated fair value
Weighted average yield(3)
Equity securities :
Amortized cost
Estimated fair value
Total available-for-sale securities :
Amortized cost
Estimated fair value
$23,359
23,719
4.242%
$34,200
35,143
4.386%
$68,930
72,477
4.815%
$75,335
78,648
4.414%
$201,824
209,987
4.527%
—
—
—
5,000
4,683
7.375%
—
—
—
1,985
2,000
7.391%
19,571
20,317
8.166%
20,758
21,509
8.723%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,000
4,683
7.375%
42,314
43,826
8.403%
7,506
7,632
$256,644
$266,128
(1) Actual maturities may differ significantly from contractual maturities because borrowers may have the
right to call or prepay obligations with or without prepayment penalties. The average expected life of the
mortgage-backed securities was 2.1 years at December 31, 2009.
(2) Yields have been adjusted to a tax equivalent basis assuming a 35% federal tax rate.
(3) Yields are calculated based on amortized cost.
43
The following table discloses, as of December 31, 2009 and 2008, our investment securities that have been in a
continuous unrealized loss position for less than 12 months and those that have been in a continuous
unrealized loss position for 12 or more months (in thousands):
December 31, 2009
Mortgage-backed securities
Corporate securities
Municipals
December 31, 2008
U.S. Treasuries
Mortgage-backed securities
Corporate securities
Municipals
Equity securities
Less Than 12 Months
12 Months or Longer
Total
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
$
452
—
1,018
$
1,470
$ 24,996
106,167
4,810
10,817
7,399
$
$
$
(1)
—
(2)
(3)
(4)
(1,121)
(190)
(209)
(107)
$2,553
4,683
—
$7,236
$ —
2,977
—
—
—
$ (28)
(317)
—
$
3,005
4,683
1,018
$
(29)
(317)
(2)
$(345)
$
8,706
$ (348)
$ —
(9)
—
—
—
$ 24,996
109,144
4,810
10,817
7,399
$
(4)
(1,130)
(190)
(209)
(107)
$154,189
$(1,631)
$2,977
$ (9)
$157,166
$(1,640)
We believe the investment securities in the table above are within ranges customary for the banking industry.
At December 31, 2009, the number of investment positions in this unrealized loss position totals 5. We do not
believe these unrealized losses are “other than temporary” as (1) we do not have the intent to sell any of the
securities in the table above; and (2) it is not probable that we will be unable to collect the amounts
contractually due. The unrealized losses noted are interest rate related, and losses have decreased as rates
have decreased in 2008 and 2009. We have not identified any issues related to the ultimate repayment of
principal as a result of credit concerns on these securities.
Deposits
We compete for deposits by offering a broad range of products and services to our customers. While this
includes offering competitive interest rates and fees, the primary means of competing for deposits is
convenience and service to our customers. However, our strategy to provide service and convenience to
customers does not include a large branch network. Our bank offers nine banking centers, courier services and
online banking. BankDirect, the Internet division of our bank, serves its customers on a 24 hours-a-day/
7 days-a-week basis solely through Internet banking.
Average deposits for the year ended December 31, 2009 increased $437.7 million compared to the same period
of 2008. Average demand deposits, interest bearing transaction and savings increased by $231.3 million,
$41.2 million and $397.8 million, respectively, while time deposits (including deposits in foreign branches)
decreased $232.6 million during the year ended December 31, 2009 as compared to the same period of 2008.
The average cost of deposits decreased in 2009 mainly due to decreasing market interest rates during 2009.
Average deposits for the year ended December 31, 2008 increased $165.8 million compared to the same period
of 2007. Average demand deposits, interest bearing transaction and time deposits (including deposits in
foreign branches) increased by $66.3 million, $8.6 million and $137.6 million, respectively, while savings
deposits decreased $46.7 million during the year ended December 31, 2008 as compared to the same period of
2007. The average cost of deposits decreased in 2008 mainly due to decreasing market interest rates during
2008.
44
Deposit Analysis
(in thousands)
Non-interest bearing
Interest bearing transaction
Savings
Time deposits
Deposits in foreign branches
2009
Average Balances
2008
2007
$ 760,776
147,961
1,182,441
1,188,964
411,116
$ 529,471
106,720
784,685
1,086,252
746,399
$ 463,142
98,159
831,370
702,248
992,837
Total average deposits
$3,691,258
$3,253,527
$3,087,756
As with our loan portfolio, most of our deposits are from businesses and individuals in Texas, particularly the
Dallas metropolitan area. As of December 31, 2009, approximately 75% of our deposits originated out of our
Dallas metropolitan banking centers. Uninsured deposits at December 31, 2009 were 55% of total deposits,
compared to 40% of total deposits at December 31, 2008 and 50% of total deposits at December 31, 2007. The
presentation for 2009, 2008 and 2007 does reflect combined ownership, but does not reflect all of the account
styling that would determine insurance based on FDIC regulations.
At December 31, 2009, we had $381.1 million in interest bearing time deposits of $100,000 or more in foreign
branches related to our Cayman Islands branch.
Maturity of Domestic CDs and Other Time Deposits in Amounts of $100,000 or More
(in thousands)
Months to maturity:
3 or less
Over 3 through 6
Over 6 through 12
Over 12
Total
2009
December 31
2008
2007
$632,796
132,865
120,561
26,541
$1,000,893
204,982
80,161
32,066
$223,386
70,111
159,139
72,138
$912,763
$1,318,102
$524,774
Liquidity and Capital Resources
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing
our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and
other liabilities in accordance with their terms, without an adverse impact on our current or future earnings.
Our liquidity strategy is guided by policies, which are formulated and monitored by our senior management
and our Balance Sheet Management Committee (“BSMC”), and which take into account the marketability of
assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all
of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness.
For the years ended December 31, 2009 and 2008, our principal source of funding has been our customer
deposits, supplemented by short-term borrowings primarily from federal funds purchased and Federal Home
Loan Bank (“FHLB”) borrowings.
Since early 2001, our liquidity needs have primarily been fulfilled through growth in our core customer
deposits and supplemented with brokered deposits and borrowings as needed. Our goal is to obtain as much of
our funding as possible from deposits of these core customers, which as of December 31, 2009, comprised
$3,902.4 million, or 94.7%, of total deposits, compared to $2,507.0 million, or 75.2%, of total deposits, at
December 31, 2008. On an average basis, for the year ended December 31, 2009, deposits from core customers
comprised $3,163.8 million, or 85.7%, of total annual average deposits. These deposits are generated
45
principally through development of long-term relationships with customers and stockholders and our retail
network which is mainly through BankDirect.
In addition to deposits from our core customers, we also have access to incremental deposits through brokered
retail certificates of deposit, or CDs. These CDs are generally of short maturities, 30 to 90 days, and are used to
supplement temporary differences in the growth in loans, including growth in specific categories of loans,
compared to customer deposits. As of December 31, 2009, brokered retail CDs comprised $218.3 million, or
5.3%, of total deposits. On an average basis, for the year ended December 31, 2009, brokered retail CDs
comprised $527.5 million, or 14.3%, of total annual deposits. We believe the Company has access to sources of
brokered deposits of not less than $3.0 billion.
Additionally, we have borrowing sources available to supplement deposits and meet our funding needs. Such
borrowings are generally used to fund our loans held for sale, due to their liquidity, short duration and interest
spreads available. These borrowing sources include federal funds purchased from our downstream corre-
spondent bank relationships (which consist of banks that are smaller than our bank) and from our upstream
correspondent bank relationships (which consist of banks that are larger than our bank), customer repurchase
agreements, treasury, tax and loan notes, and advances from the FHLB and the Federal Reserve. The
following table summarizes our borrowings:
2009
2008
2007
Maximum
Outstanding
at any
Maximum
Outstanding
at any
(in thousands)
Balance Rate(1)
Month End Balance Rate(1)
Month End Balance Rate(1)
Federal funds purchased
Customer repurchase agreements
Treasury, tax and loan notes
FHLB borrowings
Other short-term borrowings
Long-term borrowings
TLGP borrowings
$ 580,519
25,070
5,940
325,000
.33%
.10%
.00%
.11%
— —
— —
20,500
.84%
Trust preferred subordinated debentures
113,406 3.19%
$ 350,155
77,732
2,720
800,000
.47%
.05%
.00%
.71%
10,000 1.19%
40,000 1.19%
— —
113,406 4.40%
$344,813 4.29%
7,148 3.30%
6,890 4.00%
400,000 4.18%
25,000 5.82%
— —
— —
113,406 6.77%
Maximum
Outstanding
at any
Month End
Total borrowings
$1,070,435
$1,753,181 $1,394,013
$1,280,606 $897,257
$783,851
(1) Interest rate as of period end.
The following table summarizes our other borrowing capacities in excess of balances outstanding at
December 31, 2009, 2008 and 2007:
(in thousands)
FHLB borrowing capacity relating to loans
FHLB borrowing capacity relating to securities
2009
2008
2007
$738,682
57,101
$139,000
62,420
$205,900
231,000
Total FHLB borrowing capacity
$795,783
$201,420
$436,900
Unused federal funds lines available from commercial banks
$736,560
$573,500
$458,000
In connection with the FDIC’s Temporary Liability Guarantee Program (“TLGP”), we had the capacity to
issue up to $1.1 billion in indebtedness which will be guaranteed by the FDIC for a limited period of time to
newly issued senior unsecured debt and non-interest bearing deposits. The notes were issued prior to
October 31, 2009 and have maturities no later than December 31, 2012. As of December 31, 2009, $20.5 million
of these notes were outstanding.
On September 27, 2007, we entered into a Credit Agreement with KeyBank National Association. This Credit
Agreement permitted borrowings of up to $50 million until September 24, 2008. At our option, the $50 million
balance was converted into a two-year term loan, which accrued interest at a rate(s) of LIBOR plus 1%. The
46
Credit Agreement was unsecured and proceeds were used for general corporate purposes. At December 31,
2008, we had drawn $50.0 million, $10.0 million of which was scheduled to mature in 2009 and was included in
other short-term borrowings at December 31, 2008. The remaining $40.0 million was scheduled to mature in
September of 2010 and was, therefore, included in long-term borrowings. The entire balance of the note was
paid in full in March of 2009.
From November 2002 to September 2006 various Texas Capital Statutory Trusts were created and subse-
quently issued fixed and/or floating rate Capital Securities in various private offerings totaling $113.4 million.
As of December 31, 2009, the details of the trust preferred subordinated debentures are summarized below:
(in thousands)
Date issued
Texas Capital
Bancshares
Statutory Trust I
Texas Capital
Bancshares
Statutory Trust II
Texas Capital
Bancshares
Statutory Trust III
Texas Capital
Bancshares
Statutory Trust IV
Texas Capital
Bancshares
Statutory Trust V
November 19, 2002
April 10, 2003
October 6, 2005
April 28, 2006
September 29, 2006
Capital securities issued
Floating or fixed rate securities
$10,310
Floating
$10,310
Floating
$25,774
Fixed/Floating(1)
$25,774
Floating
$41,238
Floating
Interest rate on subordinated
3 month LIBOR + 3.35% 3 month LIBOR + 3.25% 3 month LIBOR + 1.51% 3 month LIBOR + 1.60% 3 month LIBOR + 1.71%
debentures
Maturity date
November 2032
April 2033
December 2035
June 2036
September 2036
(1) Interest rate is a fixed rate of 6.19% for five years through December 15, 2010, and a floating rate of
interest for the remaining 25 years that resets quarterly to 1.51% above the three-month LIBOR.
After deducting underwriter’s compensation and other expenses of each offering, the net proceeds were
available to the Company to increase capital and for general corporate purposes, including use in investment
and lending activities. Interest payments on all subordinated debentures are deductible for federal income tax
purposes. As of December 31, 2009, the weighted average quarterly rate on the subordinated debentures was
3.23%, compared to 3.73% average for all of 2009, and 5.68% for all of 2008.
Our equity capital averaged $473.8 million for the year ended December 31, 2009 as compared to $333.5 mil-
lion in 2008 and $272.3 million in 2007. We have not paid any cash dividends on our common stock since we
commenced operations and have no plans to do so in the foreseeable future.
On September 10, 2008, we completed a sale of 4 million shares of our common stock in a private placement to
a number of institutional investors. The purchase price was $14.50 per share, and net proceeds from the sale
totaled $55 million. The new capital is being used for general corporate purposes, including capital for support
of anticipated growth of our bank.
On January 16, 2009, we completed the issuance of $75 million of perpetual preferred stock and related
warrants under the U.S. Department of Treasury’s voluntary Capital Purchase Program (“CPP” or “the
Program”). The preferred stock was repurchased in May 2009. In connection with the repurchase, we
recorded a $3.9 million accelerated deemed dividend in the second quarter of 2009 representing the
unamortized difference between the book value and the carrying value of the preferred stock repurchased
from the Treasury. The $3.9 million accelerated deemed dividend, combined with the previously scheduled
preferred dividend of $523,000 for the second quarter of 2009 and the preferred dividend of $930,000 paid in
the first quarter of 2009, resulted in a total dividend and reduction of earnings available to common
stockholders of $5.4 million for the year ended December 31, 2009. As of December 31, 2009, the Treasury
still has warrants to purchase 758,086 shares at $14.84 per share. We have been notified by the Treasury that
they plan to sell our warrants at auction sometime in March 2010.
On May 8, 2009, we completed a sale of 4.6 million shares of our common stock in a public offering. The
purchase price was $13.75 per share, and net proceeds from the sale totaled $59.4 million. The new capital is
being used for general corporate purposes, including capital for support of anticipated growth of our bank.
On January 27, 2010, we announced that we have entered into an Equity Distribution Agreement with
Morgan Stanley & Co. Incorporated, pursuant to which we may, from time to time, offer and sell shares of our
common stock, having aggregate gross sales proceeds of up to $40,000,000. Sales of the shares are being made
by means of brokers’ transactions on or through the NASDAQ Global Select Market at market prices
prevailing at the time of the sale or as otherwise agreed to by the Company and Morgan Stanley. As of
47
February 17, 2010 we have sold 271,973 shares at an average price of $16.88. Net proceeds on the sales are
approximately $4.5 million, after payment of a 1% sales commission paid to Morgan Stanley, and are being
used for general corporate purposes. In addition to the 1% sales commission, we paid Morgan Stanley a
$400,000 program fee.
Our actual and minimum required capital amounts and actual ratios are as follows:
(in thousands, except percentage data)
Regulatory Capital Adequacy
December 31, 2009
Amount
Ratio
December 31, 2008
Amount
Ratio
Total capital (to risk-weighted assets):
Company
Actual
Minimum required
Excess above minimum
Bank
Actual
To be well-capitalized
Minimum required
Excess above well-capitalized
Excess above minimum
Tier 1 capital (to risk-weighted assets):
Company
Actual
Minimum required
Excess above minimum
Bank
Actual
To be well-capitalized
Minimum required
Excess above well-capitalized
Excess above minimum
Tier 1 capital (to average assets):
Company
Actual
Minimum required
Excess above minimum
Bank
Actual
To be well-capitalized
Minimum required
Excess above well-capitalized
Excess above minimum
$642,371
429,102
213,269
11.98% $533,781
8.00% 390,891
3.98% 142,890
$555,635
536,265
429,012
19,370
126,623
10.36% $502,693
10.00% 488,498
8.00% 390,799
.36% 14,195
2.36% 111,894
$575,338
214,551
360,787
10.73% $486,946
4.00% 195,445
6.73% 291,502
$488,602
321,759
214,506
166,843
274,096
9.11% $455,858
6.00% 293,099
4.00% 195,399
3.11% 162,759
5.11% 260,459
10.92%
8.00%
2.92%
10.29%
10.00%
8.00%
0.29%
2.29%
9.97%
4.00%
5.97%
9.33%
6.00%
4.00%
3.33%
5.33%
$575,338
218,381
356,957
10.54% $486,946
4.00% 190,782
6.54% 296,164
10.21%
4.00%
6.21%
$488,602
272,920
218,336
215,682
270,266
8.95% $455,858
5.00% 238,420
4.00% 190,736
3.95% 217,438
4.95% 265,122
9.56%
5.00%
4.00%
4.56%
5.56%
48
Commitments and Contractual Obligations
The following table presents, as of December 31, 2009, significant fixed and determinable contractual
obligations to third parties by payment date. Payments for borrowings do not include interest. Payments
related to leases are based on actual payments specified in the underlying contracts. Further discussion of the
nature of each obligation is included in the referenced note to the consolidated financial statements.
(in thousands)
Note
Reference
Within One
Year
After One But
Within Three Years
After Three But
Within Five Years
After
Five Years
Total
Deposits without a stated
maturity(1)
Time deposits(1)
Federal funds purchased(1)
Customer repurchase
agreements(1)
Treasury, tax and loan
notes(1)
FHLB borrowings(1)
TLGP borrowings(1)
Operating lease
obligations(1)
Trust preferred
subordinated
debentures(1)
Total contractual
obligations(1)
6
6
7
7
7
7
7
$2,764,422
1,321,739
580,519
$ —
24,615
—
$ — $
9,850
—
— $2,764,422
100
1,356,304
— 580,519
25,070
5,940
325,000
20,500
—
—
—
—
—
—
—
—
—
25,070
—
5,940
— 325,000
20,500
—
15
7,605
15,123
20,933
39,330
82,991
7, 8
—
—
—
113,406
113,406
$5,050,795
$39,738
$30,783
$152,836 $5,274,152
(1) Excludes interest.
Off-Balance Sheet Arrangements
The contractual amount of our financial instruments with off-balance sheet risk expiring by period at
December 31, 2009 is presented below:
(in thousands)
Commitments to extend credit
Standby and commercial letters
of credit
Total financial instruments with
off-balance sheet risk
Within One
Year
After One
But Within
Three Years
After Three
But Within
Five Years
After
Five Years
Total
$632,341
$471,393
$36,442
$3,251
$1,143,427
56,702
9,615
68
—
66,385
$689,043
$481,008
$36,510
$3,251
$1,209,812
Due to the nature of our unfunded loan commitments, including unfunded lines of credit, the amounts
presented in the table above do not necessarily represent amounts that we anticipate funding in the periods
presented above.
Critical Accounting Policies
SEC guidance requires disclosure of “critical accounting policies.” The SEC defines “critical accounting
policies” as those that are most important to the presentation of a company’s financial condition and results,
and require management’s most difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
49
We follow financial accounting and reporting policies that are in accordance with accounting principles
generally accepted in the United States. The more significant of these policies are summarized in Note 1 to
the consolidated financial statements. Not all these significant accounting policies require management to
make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet
the SEC’s definition of critical accounting policies.
Management considers the policies related to the allowance for loan losses as the most critical to the financial
statement presentation. The total allowance for loan losses includes activity related to allowances calculated
in accordance with Accounting Standards Codification (“ASC”) 310, Receivables, and ASC 450, Contingencies.
The allowance for loan losses is established through a provision for loan losses charged to current earnings.
The amount maintained in the allowance reflects management’s continuing evaluation of the loan losses
inherent in the loan portfolio. The allowance for loan losses is comprised of specific reserves assigned to
certain classified loans and general reserves. Factors contributing to the determination of specific reserves
include the credit-worthiness of the borrower, and more specifically, changes in the expected future receipt of
principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the
carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective
interest rate or the fair value of the collateral for certain collateral dependent loans. For purposes of
determining the general reserve, the portfolio is segregated by product types in order to recognize differing
risk profiles among categories, and then further segregated by credit grades. See “Summary of Loan Loss
Experience” for further discussion of the risk factors considered by management in establishing the allowance
for loan losses.
New Accounting Standards
See Note 22 — New Accounting Standards in the accompanying notes to consolidated financial statements
included elsewhere in this report for details of recently issued accounting pronouncements and their expected
impact on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial
instrument. These changes may be the result of various factors, including interest rates, foreign exchange
rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be
classified either as held for trading purposes or held for other than trading.
We are subject to market risk primarily through the effect of changes in interest rates on our portfolio of assets
held for purposes other than trading. The effect of other changes, such as foreign exchange rates, commodity
prices, and/or equity prices do not pose significant market risk to us.
The responsibility for managing market risk rests with the BSMC, which operates under policy guidelines
established by our board of directors. The negative acceptable variation in net interest revenue due to a
200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 5%. These
guidelines also establish maximum levels for short-term borrowings, short-term assets and public and
brokered deposits. They also establish minimum levels for unpledged assets, among other things. Compli-
ance with these guidelines is the ongoing responsibility of the BSMC, with exceptions reported to our board of
directors on a quarterly basis.
Interest Rate Risk Management
Our interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of
December 31, 2009, and is not necessarily indicative of positions on other dates. The balances of interest rate
sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature
and are aggregated to show the interest rate sensitivity gap. The mismatch between repricings or maturities
within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive),
where interest rate sensitive assets exceed interest rate sensitive liabilities, generally will result in the net
interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative
50
gap (liability sensitive) will generally have the opposite results on the net interest margin. To reflect
anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash
flows rather than contractual cash flows.
Interest Rate Sensitivity Gap Analysis
December 31, 2009
(in thousands)
Securities(1)
Total variable loans
Total fixed loans
0-3 mo
Balance
4-12 mo
Balance
1-3 yr
Balance
3+ yr
Balance
Total
Balance
$
41,587
4,338,381
286,754
$ 71,268
38,195
214,440
$
61,537
14,258
194,466
$
91,736
2,087
90,363
$ 266,128
4,392,921
786,023
Total loans(2)
4,625,135
252,635
208,724
92,450
5,178,944
Total interest sensitive assets
$4,666,722
$323,903
$ 270,261
$ 184,186
$5,445,072
Liabilities:
Interest bearing customer
deposits
CDs & IRAs
Wholesale deposits
$2,249,000
438,925
217,640
— $
$
280,459
644
Total interest-bearing deposits
Repo, FF, FHLB borrowings
Trust preferred subordinated
debentures
2,905,565
936,529
281,103
20,500
—
—
Total borrowing
936,529
20,500
— $
24,965
—
24,965
—
—
—
— $2,249,000
753,949
218,284
9,600
—
9,600
—
3,221,233
957,029
113,406
113,406
113,406
1,070,435
Total interest sensitive liabilities
$3,842,094
$301,603
$
24,965
$ 123,006
$4,291,668
GAP
Cumulative GAP
Demand deposits
Stockholders’ equity
Total
$ 824,629
824,628
$ 22,300
846,928
$ 245,296
1,092,224
$
61,180
1,153,404
$
—
1,153,404
$ 899,492
481,360
$1,380,852
(1) Securities based on fair market value.
(2) Loans include loans held for sale and are stated at gross.
The table above sets forth the balances as of December 31, 2009 for interest bearing assets, interest bearing
liabilities, and the total of non-interest bearing deposits and stockholders’ equity. While a gap interest table is
useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration
of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing
interest rates on the value of funding derived from demand deposits and stockholders’ equity. We perform a
sensitivity analysis to identify interest rate risk exposure on net interest income. We quantify and measure
interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income
relative to changes in interest rates and account balances over the next twelve months based on three interest
rate scenarios. These are a “most likely” rate scenario and two “shock test” scenarios.
The “most likely” rate scenario is based on the consensus forecast of future interest rates published by
independent sources. These forecasts incorporate future spot rates and relevant spreads of instruments that
51
are actively traded in the open market. The Federal Reserve’s Federal Funds target affects short-term
borrowing; the prime lending rate and the LIBOR are the basis for most of our variable-rate loan pricing. The
10-year mortgage rate is also monitored because of its effect on prepayment speeds for mortgage-backed
securities. These are our primary interest rate exposures. We are currently not using derivatives to manage our
interest rate exposure.
The two “shock test” scenarios assume a sustained parallel 200 basis point increase or decrease, respectively,
in interest rates. As short-term rates continued to fall during 2008 and 2009, we could not assume interest rate
changes of any amount as the results of the decreasing rates scenario would not be meaningful. We will
continue to evaluate these scenarios as interest rates change, until short-term rates rise above 3.0%.
Our interest rate risk exposure model incorporates assumptions regarding the level of interest rate or balance
changes on indeterminable maturity deposits (demand deposits, interest bearing transaction accounts and
savings accounts) for a given level of market rate changes. These assumptions have been developed through a
combination of historical analysis and future expected pricing behavior. Changes in prepayment behavior of
mortgage-backed securities, residential and commercial mortgage loans in each rate environment are cap-
tured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The
impact of planned growth and new business activities is factored into the simulation model. This modeling
indicated interest rate sensitivity as follows (in thousands):
Anticipated Impact Over the Next Twelve
Months as Compared to Most Likely Scenario
200 bp Increase
December 31, 2009
200 bp Increase
December 31, 2008
Change in net interest income
$17,731
$17,255
The simulations used to manage market risk are based on numerous assumptions regarding the effect of
changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer
behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net
interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual
results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as
well as changes in market conditions and management strategies, among other factors.
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets — December 31, 2009 and December 31, 2008
Consolidated Statements of Operations — Years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders’ Equity — Years ended December 31, 2009, 2008
and 2007
Consolidated Statements of Cash Flows — Years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
Page
Reference
54
55
56
57
58
59
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Texas Capital Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Texas Capital Bancshares, Inc. as of
December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Texas Capital Bancshares, Inc. at December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Texas Capital Bancshares, Inc.’s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organization of the Treadway Commission and our report dated February 18, 2010, expressed an
unqualified opinion thereon.
Dallas, Texas
February 18, 2010
54
(in thousands except share data)
Texas Capital Bancshares, Inc.
Consolidated Balance Sheets
ASSETS
Cash and due from banks
Federal funds sold
Securities, available-for-sale
Loans held for sale
Loans held for sale from discontinued operations
Loans held for investment (net of unearned income)
Less: Allowance for loan losses
Loans held for investment, net
Premises and equipment, net
Accrued interest receivable and other assets
Goodwill and other intangible assets, net
Total assets
December 31
2009
2008
$
80,459
44,980
266,128
693,504
586
4,457,293
67,931
4,389,362
11,189
202,890
9,806
$5,698,904
$
77,887
4,140
378,752
496,351
648
4,027,871
45,365
3,982,506
9,467
184,242
7,689
$5,141,682
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
Interest bearing
Interest bearing in foreign branches
Accrued interest payable
Other liabilities
Federal funds purchased
Repurchase agreements
Other short-term borrowings
Long-term borrowings
Trust preferred subordinated debentures
Total liabilities
Stockholders’ equity:
Preferred stock, $.01 par value, $1,000 liquidation value:
Authorized shares — 10,000,000
Issued shares — no shares issued at December 31, 2009 and 2008,
respectively
Common stock, $.01 par value:
Authorized shares — 100,000,000
Issued shares — 35,919,941 and 30,971,189 at December 31, 2009 and 2008,
respectively
Additional paid-in capital
Retained earnings
Treasury stock (shares at cost: 417 at December 31, 2009 and 84,691 at
December 31, 2008
Deferred compensation
Accumulated other comprehensive income, net of taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
$ 899,492
2,837,163
384,070
$ 587,161
2,245,991
500,035
4,120,725
2,468
23,916
580,519
25,070
351,440
—
113,406
3,333,187
6,421
20,988
350,155
77,732
812,720
40,000
113,406
5,217,544
4,754,609
—
—
359
326,224
148,620
(8)
—
6,165
310
255,051
129,851
(581)
573
1,869
481,360
$5,698,904
387,073
$5,141,682
See accompanying notes to consolidated financial statements
55
Texas Capital Bancshares, Inc.
Consolidated Statements of Operations
Year Ended December 31
2009
2007
2008
(in thousands except per share data)
Interest income:
Interest and fees on loans
Securities
Federal funds sold
Deposits in other banks
Total interest income
Interest expense:
Deposits
Federal funds purchased
Repurchase agreements
Other borrowings
Trust preferred subordinated debentures
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income:
Service charges on deposit accounts
Trust fee income
Bank owned life insurance (BOLI) income
Brokered loan fees
Equipment rental income
Other
Total non-interest income
Non-interest expense :
Salaries and employee benefits
Net occupancy expense
Leased equipment depreciation
Marketing
Legal and professional
Communications and data processing
FDIC insurance assessment
Allowance and other carrying costs for OREO
Other
Total non-interest expense
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Loss from discontinued operations (after-tax)
Net income
Preferred stock dividends
$229,500 $231,009 $267,171
21,975
92
54
13,578
31
44
17,722
168
31
243,153
248,930
289,292
37,824
2,404
53
1,949
4,232
46,462
72,852
8,232
541
9,123
6,445
121,245
13,054
915
6,069
8,257
97,193
149,540
196,691
43,500
151,737
26,750
139,752
14,000
153,191
124,987
125,752
6,287
3,815
1,579
9,043
5,557
2,979
4,699
4,692
1,240
3,242
5,995
2,602
4,091
4,691
1,198
1,870
6,138
2,639
29,260
22,470
20,627
73,419
12,291
4,319
3,034
11,846
3,743
8,464
10,345
18,081
61,438
9,631
4,667
2,729
9,622
3,314
1,797
1,541
14,912
145,542
109,651
36,909
12,522
24,387
(235)
24,152
5,383
37,806
12,924
24,882
(616)
24,266
—
56,608
8,430
4,958
3,004
7,245
3,357
1,424
133
13,447
98,606
47,773
16,420
31,353
(1,931)
29,422
—
Net income available to common shareholders
$ 18,769 $ 24,266 $ 29,422
Basic earnings per share:
Income from continuing operations
Net income
Diluted earnings per share:
Income from continuing operations
Net income
$
$
$
$
.56 $
.89 $
.55 $
.87 $
.55 $
.89 $
.55 $
.87 $
1.20
1.12
1.18
1.10
See accompanying notes to consolidated financial statements
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Texas Capital Bancshares, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net income from continuing operations
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses
Deferred tax benefit
Depreciation and amortization
Amortization and accretion on securities
Bank owned life insurance (BOLI) income
Stock-based compensation expense
Tax benefit from stock option exercises
Excess tax benefits from stock-based compensation arrangements
Originations of loans held for sale
Proceeds from sales of loans held for sale
Loss on sale of assets
Changes in operating assets and liabilities:
Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Net cash provided by (used in) operating activities of continuing operations
Net cash provided by (used in) operating activities of discontinued operations
Net cash provided by (used in) operating activities
Investing activities
Purchases of available-for-sale securities
Maturities and calls of available-for-sale securities
Principal payments received on available-for-sale securities
Net increase in loans held for investment
Purchase of premises and equipment, net
Sale of foreclosed assets
Net cash used in investing activities of continuing operations
Net cash used in investing activities of discontinued operations
Net cash used in investing activities
Financing activities
Net increase (decrease) in deposits
Proceeds from issuance of stock related to stock-based awards
Proceeds from issuance of common stock
Proceeds from issuance of preferred stock and related warrants
Repurchase of preferred stock
Dividends paid
Net increase (decrease) in other borrowings
Excess tax benefits from stock-based compensation arrangements
Net federal funds purchased
Purchase of treasury stock
Net cash provided by financing activities of continuing operations
Net cash provided by financing activities of discontinued operations
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for interest
Cash paid during the year for income taxes
Non-cash transactions:
Transfers from loans/leases to OREO and other repossessed assets
Transfers from loans/leases to other assets
Year Ended December 31
2008
2009
2007
$
24,387
$
24,882
$
31,353
43,500
(8,775)
7,819
228
(1,579)
5,959
75
(213)
(16,582,314)
16,399,677
1,273
26,750
(4,104)
7,666
280
(1,240)
4,676
1,584
(4,527)
(7,552,614)
7,230,429
—
14,000
(3,508)
7,271
320
(1,198)
4,761
1,164
(3,325)
(3,966,644)
3,991,492
—
(28,894)
(1,867)
(140,724)
(186)
(140,910)
—
32,300
86,704
(466,304)
(4,550)
12,194
(339,656)
—
(339,656)
787,538
1,578
59,446
75,000
(75,000)
(1,219)
(553,942)
213
230,364
—
523,978
—
523,978
43,412
82,027
125,439
50,415
14,892
23,466
—
(44,724)
(4,218)
(315,160)
(529)
(315,689)
(40,219)
36,270
69,263
(577,999)
(5,817)
—
(518,502)
—
(518,502)
266,810
3,669
54,993
—
—
—
491,414
4,527
5,342
—
826,755
—
826,755
(7,436)
89,463
82,027
96,402
22,475
23,232
—
(24,898)
(1,205)
49,583
20,778
70,361
(14,281)
23,153
77,475
(733,751)
(1,798)
—
(649,202)
—
(649,202)
(2,953)
1,932
—
—
—
—
393,434
3,325
178,858
(8)
574,588
—
574,588
(4,253)
93,716
89,463
149,691
13,414
983
10,549
$
$
$
$
$
$
See accompanying notes to consolidated financial statements
58
1. Operations and Summary of Significant Accounting Policies
Organization and Nature of Business
Texas Capital Bancshares, Inc. (“Texas Capital Bancshares” or “the Company”), a Delaware financial holding
company, was incorporated in November 1996 and commenced operations in March 1998. The consolidated
financial statements of the Company include the accounts of Texas Capital Bancshares, Inc. and its wholly
owned subsidiary, Texas Capital Bank, National Association (“the Bank”). The Bank currently provides
commercial banking services to its customers in Texas and concentrates on middle market commercial and
high net worth customers.
Basis of Presentation
The accounting and reporting policies of Texas Capital Bancshares, Inc. conform to accounting principles
generally accepted in the United States and to generally accepted practices within the banking industry. Our
consolidated financial statements include the accounts of Texas Capital Bancshares, Inc. and its subsidiary,
the Bank. Certain prior period balances have been reclassified to conform to the current period presentation.
We have evaluated subsequent events for potential recognition and/or disclosure through February 18, 2010,
the date the consolidated financial statements were issued. See further discussion of subsequent events in
Note 21 — Subsequent Events.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates. The allowance for possible loan losses, the fair value of stock-
based compensation awards, the fair values of financial instruments and the status of contingencies are
particularly susceptible to significant change in the near term.
Cash and Cash Equivalents
Cash equivalents include amounts due from banks and federal funds sold.
Securities
Securities are classified as trading, available-for-sale or held-to-maturity. Management classifies securities at
the time of purchase and re-assesses such designation at each balance sheet date; however, transfers between
categories from this re-assessment are rare.
Trading Account
Securities acquired for resale in anticipation of short-term market movements are classified as trading, with
realized and unrealized gains and losses recognized in income. To date, we have not had any activity in our
trading account.
Held-to-Maturity and Available-for-Sale
Debt securities are classified as held-to-maturity when we have the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified
as held-to-maturity or trading and marketable equity securities not classified as trading are classified as
available-for-sale.
Available-for-sale securities are stated at fair value, with the unrealized gains and losses reported in a separate
component of accumulated other comprehensive income (loss), net of tax. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is
59
included in interest income from securities. Realized gains and losses and declines in value judged to be
other-than-temporary are included in gain (loss) on sale of securities. The cost of securities sold is based on the
specific identification method.
All securities are available-for-sale as of December 31, 2009 and 2008.
Loans
Loans held for investment (which include equipment leases accounted for as financing leases) are stated at
the amount of unpaid principal reduced by deferred income (net of costs). Interest on loans is recognized
using the simple-interest method on the daily balances of the principal amounts outstanding. Loan origi-
nation fees, net of direct loan origination costs, and commitment fees, are deferred and amortized as an
adjustment to yield over the life of the loan, or over the commitment period, as applicable.
A loan held for investment is considered impaired when, based on current information and events, it is
probable that we will be unable to collect all amounts due (both principal and interest) according to the terms
of the loan agreement. Reserves on impaired loans are measured based on the present value of expected
future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow
may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past
due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed.
Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset
is deemed to be collectible. If collectibility is questionable, then cash payments are applied to principal. A
loan is placed back on accrual status when both principal and interest are current and it is probable that we will
be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.
We purchase participations in mortgage loans primarily for sale in the secondary market through our mortgage
warehouse division. Accordingly, these loans are classified as held for sale and are carried at the lower of cost or
fair value, determined on an aggregate basis. As a result of dislocations in the mortgage industry starting in
2007, some loan participations may not be sold within the normal time frames or at previously negotiated
prices. Due to market conditions, certain mortgage warehouse loans have been transferred to our loans held
for investment portfolio, and such loans are transferred at a lower of cost or market. Mortgage warehouse loans
transferred to our loans held for investment portfolio could require allocations of the allowance for loan losses
or be subject to charge off in the event the loans become impaired.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged against income. The
allowance for loan losses includes specific reserves for impaired loans and an estimate of losses inherent in the
loan portfolio at the balance sheet date, but not yet identified with specific loans. Loans deemed to be
uncollectible are charged against the allowance when management believes that the collectibility of the
principal is unlikely and subsequent recoveries, if any, are credited to the allowance. Management’s periodic
evaluation of the adequacy of the allowance is based on an assessment of the current loan portfolio, including
known inherent risks, adverse situations that may affect the borrowers’ ability to repay, the estimated value of
any underlying collateral and current economic conditions.
Repossessed Assets
Repossessed assets, which are included in other assets on the balance sheet, consist of collateral that has been
repossessed. Collateral that has been repossessed is recorded at fair value less selling costs prior to repos-
session. Write-downs are provided for subsequent declines in value and are recorded in other non-interest
expense.
60
Other Real Estate Owned
OREO, which is included in other assets on the balance sheet, consists of real estate that has been foreclosed.
Real estate that has been foreclosed is recorded at the lower of the amount of the loan balance or the fair value
of the real estate, less selling costs prior to foreclosure, through a charge to the allowance for loan losses, if
necessary. Subsequent write-downs required for declines in value are recorded through a valuation allowance
and provision for losses charged to other non-interest expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range from three to ten years. Gains or
losses on disposals of premises and equipment are included in results of operations.
Marketing and Software
Marketing costs are expensed as incurred. Ongoing maintenance and enhancements of websites are expensed
as incurred. Costs incurred in connection with development or purchase of internal use software are
capitalized and amortized over a period not to exceed five years. Internal use software costs are included
in other assets in the consolidated financial statements.
Goodwill and Other Intangible Assets
Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill
because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on
its own or in combination with a related contract, asset, or liability. Our intangible assets relate primarily to
loan customer relationships. Goodwill and intangible assets with definite useful lives are amortized on an
accelerated basis over their estimated life. Intangible assets are tested for impairment annually or whenever
events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from
future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Segment Reporting
We have determined that all of our lending divisions and subsidiaries meet the aggregation criteria of ASC
280, Segment Reporting, since all offer similar products and services, operate with similar processes, and have
similar customers.
Stock-based Compensation
On January 1, 2006, we changed our accounting policy related to stock-based compensation in connection
with the adoption of ASC 718, Compensation — Stock Compensation (“ASC 718”), which requires that stock
compensation transactions be recognized as compensation expense in the statement of operations based on
their fair values on the measurement date, which is the date of the grant. We transitioned to fair value based
accounting for stock-based compensation using a modified version of prospective application (“modified
prospective application”). Under modified prospective application, as it is applicable to us, ASC 718 applies to
new awards and to awards modified, repurchased or cancelled after January 1, 2006. Additionally, compen-
sation expense for the portion of awards for which the requisite period has not been rendered (generally
referring to nonvested awards) that are outstanding as of January 1, 2006 are being recognized as the
remaining requisite service is rendered during and after the period of adoption of ASC 718.
The compensation expense for the earlier awards is based on the same method and on the same grant date fair
values previously determined for the pro forma disclosures required for all companies that did not previously
adopt the fair value accounting method for stock-based compensation.
61
Accumulated Other Comprehensive Income (Loss)
Unrealized gains or losses on our available-for-sale securities (after applicable income tax expense or benefit)
are included in accumulated other comprehensive income (loss), net. Accumulated comprehensive income
(loss), net for the year ended December 31, 2009 and 2008 is reported in the accompanying consolidated
statements of changes in stockholders’ equity.
Income Taxes
The Company and its subsidiary file a consolidated federal income tax return. We utilize the liability method
in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based
upon the difference between the values of the assets and liabilities as reflected in the financial statements and
their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be
recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. A valuation reserve is provided against deferred tax assets unless it is
more likely than not that such deferred tax assets will be realized.
Basic and Diluted Earnings Per Common Share
Basic earnings per common share is based on net income available to common stockholders divided by the
weighted-average number of common shares outstanding during the period excluding non-vested stock.
Diluted earnings per common share include the dilutive effect of stock options and non-vested stock awards
granted using the treasury stock method. A reconciliation of the weighted-average shares used in calculating
basic earnings per common share and the weighted average common shares used in calculating diluted
earnings per common share for the reported periods is provided in Note 14 — Earnings Per Share.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions.
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit
risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect the estimates. Effective January 1, 2008, we
adopted the reporting requirements of ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
The adoption of ASC 820 did not have an impact on our financial statements except for the expanded
disclosures noted in Note 15 — Fair Value Disclosures.
2. Securities
The following is a summary of securities (in thousands):
Available-for-Sale Securities:
Mortgage-backed securities
Corporate securities
Municipals
Equity securities(1)
December 31, 2009
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Estimated
Fair
Value
$8,192
—
1,514
126
$9,832
$ (29)
(317)
(2)
—
$209,987
4,683
43,826
7,632
$(348)
$266,128
Amortized
Cost
$201,824
5,000
42,314
7,506
$256,644
62
Available-for-Sale Securities:
U. S. Treasuries
Mortgage-backed securities
Corporate securities
Municipals
Equity securities(1)
Amortized
Cost
$ 28,299
288,701
5,000
46,370
7,506
$375,876
December 31, 2008
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
1
$
4,145
—
370
—
$4,516
(4)
$
(1,130)
(190)
(209)
(107)
$ 28,296
291,716
4,810
46,531
7,399
$(1,640)
$378,752
(1) Equity securities consist of Community Reinvestment Act funds.
The amortized cost and estimated fair value of securities are presented below by contractual maturity (in
thousands, except percentage data):
Less Than
One Year
After One
Through
Five Years
At December 31, 2009
After Five
Through
Ten Years
After Ten
Years
Total
Available-for-sale:
Mortgage-backed securities:(1)
Amortized cost
Estimated fair value
Weighted average yield(3)
Corporate securities:
Amortized cost
Estimated fair value
Weighted average yield(3)
Municipals:(2)
Amortized cost
Estimated fair value
Weighted average yield(3)
Equity securities:
Amortized cost
Estimated fair value
Total available-for-sale
securities:
Amortized cost
Estimated fair value
$23,359
23,719
4.242%
$34,200
35,143
4.386%
$68,930
72,477
4.815%
$75,335
78,648
$201,824
209,987
4.414%
4.527%
—
—
—
5,000
4,683
7.375%
—
—
—
1,985
2,000
7.391%
19,571
20,317
8.166%
20,758
21,509
8.723%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,000
4,683
7.375%
42,314
43,826
8.403%
7,506
7,632
$256,644
$266,128
(1) Actual maturities may differ from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties. The average expected life of the mortgage-
backed securities was 2.1 years at December 31, 2009.
(2) Yields have been adjusted to a tax equivalent basis assuming a 35% federal tax rate.
(3) Yields are calculated based on amortized cost.
Securities with carrying values of approximately $152,888,000 and $292,731,000 were pledged to secure
certain borrowings and deposits at December 31, 2009 and 2008, respectively. See Note 8 for discussion of
63
securities securing borrowings. Of the pledged securities at December 31, 2009 and 2008, approximately
$116,923,000 and $204,574,000, respectively, were pledged for certain deposits.
The following tables disclose, as of December 31, 2009 and 2008, our investment securities that have been in
a continuous unrealized loss position for less than 12 months and those that have been in a continuous
unrealized loss position for 12 or more months (in thousands):
Less Than 12 Months
12 Months or Longer
Total
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
December 31, 2009
Mortgage-backed securities
Corporate securities
Municipals
December 31, 2008
U.S. Treasuries
Mortgage-backed securities
Corporate securities
Municipals
Equity securities
$
452
—
1,018
$
1,470
$ 24,996
106,167
4,810
10,817
7,399
$
$
$
(1)
—
(2)
(3)
(4)
(1,121)
(190)
(209)
(107)
$2,553
4,683
—
$7,236
$ —
2,977
—
—
—
$ (28)
(317)
—
$
3,005
4,683
1,018
$
(29)
(317)
(2)
$(345)
$
8,706
$ (348)
$ —
(9)
—
—
—
$ 24,996
109,144
4,810
10,817
7,399
(4)
$
(1,130)
(190)
(209)
(107)
$154,189
$(1,631)
$2,977
$ (9)
$157,166
$(1,640)
At December 31, 2009, the number of investment positions in this unrealized loss position totals 5. We do not
believe these unrealized losses are “other than temporary” as (1) we do not have the intent to sell any of the
securities in the table above; and (2) it is not probable that we will be unable to collect the amounts
contractually due. The unrealized losses noted are interest rate related, and losses have decreased as rates
have decreased in 2008 and 2009. We have not identified any issues related to the ultimate repayment of
principal as a result of credit concerns on these securities.
Unrealized gains or losses on our available-for-sale securities (after applicable income tax expense or benefit)
are included in accumulated other comprehensive income (loss), net. We had comprehensive income of
$28.4 million for the year ended December 31, 2009 and comprehensive income of $27.0 million for the year
ended December 31, 2008. Comprehensive income during the year ended December 31, 2009 included a net
after-tax gain of $4.3 million, and comprehensive income during the year ended December 31, 2008 included
a net after-tax gain of $2.7 million due to changes in the net unrealized gains/losses on securities
available-for-sale.
64
3. Loans and Allowance for Loan Losses
Loans held for investment are summarized by category as follows (in thousands):
December 31
2009
2008
Commercial
Construction
Real estate
Consumer
Equipment leases
Gross loans held for investment
Deferred income (net of direct origination costs)
Allowance for loan losses
Total loans held for investment, net
$2,457,533
669,426
1,233,701
25,065
99,129
$2,276,054
667,437
988,784
32,671
86,937
4,484,854
(27,561)
(67,931)
4,051,883
(24,012)
(45,365)
$4,389,362
$3,982,506
The majority of the loan portfolio is comprised of loans to businesses and individuals in Texas. This
geographic concentration subjects the loan portfolio to the general economic conditions within this area. The
risks created by this concentration have been considered by management in the determination of the
adequacy of the allowance for loan losses. Management believes the allowance for loan losses is adequate to
cover estimated losses on loans at each balance sheet date.
The changes in the allowance for loan losses are summarized as follows (in thousands):
Year Ended December 31
2008
2009
2007
Balance, beginning of year
Provision for loan losses
Loans charged off
Recoveries
Balance, end of year
$ 45,365
42,022
(19,728)
272
$ 31,686
26,415
(13,634)
898
$20,063
13,805
(2,970)
788
$ 67,931
$ 45,365
$31,686
The change in the allowance for off-balance sheet credit losses is summarized as follows (in thousands):
Year Ended December 31
2008
2009
2007
Balance, beginning of year
Provision for off-balance sheet credit losses
Balance, end of year
Total provision for credit losses
$ 1,470
1,478
$ 1,135
335
$
940
195
$ 2,948
$ 1,470
$ 1,135
$43,500
$26,750
$14,000
During the normal course of business, the Company and subsidiary may enter into transactions with related
parties, including their officers, employees, directors, significant stockholders and their related affiliates. It is
the Company’s policy that all such transactions are on substantially the same terms as those prevailing at the
time for comparable transactions with third parties. Loans to related parties, including officers and directors,
were approximately $14,158,000 and $15,295,000 at December 31, 2009 and 2008, respectively. During the
years ended December 31, 2009 and 2008, total advances were approximately $10,314,000 and $27,807,000
and total paydowns were $11,451,000 and $27,594,000, respectively.
65
4. OREO and Valuation Allowance for Losses on OREO
The table below presents a summary of the activity related to OREO (in thousands):
Year Ended December 31
2009
2008
2007
Beginning balance
Additions
Sales
Valuation allowance for OREO
Direct write-downs
Ending balance
$ 25,904
23,466
(14,265)
(6,619)
(1,222)
$ 2,671
28,835
(5,602)
—
—
$ 882
2,582
(793)
—
—
$ 27,264
$25,904
$2,671
5. Goodwill and Other Intangible Assets
In November 2009, we acquired another premium finance company and recorded a total intangible asset of
$2.3 million. Of this total, $224,000 was allocated to goodwill, $1.9 million to customer relationships and
$162,000 to trade name. The $1.9 million customer relationship intangible will be amortized over 15 years and
the $162,000 intangible related to the trade name will be amortized over 5 years.
Goodwill and other intangible assets at December 31, 2009 and December 31, 2008 are summarized as follows
(in thousands):
Gross Goodwill and
Intangible
Assets
Accumulated
Amortization
Net Goodwill and
Intangible Assets
December 31, 2009
Goodwill
Intangible assets — customer relationships
and trademarks
December 31, 2008
Goodwill
Intangible assets — customer relationships
and trademarks
$ 7,225
3,705
$10,930
$ 7,001
1,622
$ 8,623
$ (374)
(750)
$(1,124)
$ (374)
(560)
$ (934)
$6,851
2,955
$9,806
$6,627
1,062
$7,689
Amortization expense related to intangible assets totaled $189,000 in 2009 and $162,000 in 2008 and 2007.
The estimated aggregate future amortization expense for intangible assets remaining as of December 31,
2009 is as follows:
2010
2011
2012
2013
2014
Thereafter
66
$ 323
323
323
323
317
1,346
$2,955
6. Premises and Equipment
Premises and equipment at December 31, 2009 and 2008 are summarized as follows (in thousands):
December 31
2009
2008
Premises
Furniture and equipment
Accumulated depreciation
Total premises and equipment, net
$ 9,765
20,235
$ 6,504
19,024
30,000
(18,811)
25,528
(16,061)
$ 11,189
$ 9,467
Depreciation expense for the above premises and equipment was approximately $3,311,000, $2,837,000 and
$2,150,000 in 2009, 2008 and 2007, respectively.
7. Deposits
The scheduled maturities of interest bearing time deposits are as follows at December 31, 2009 (in
thousands):
2010
2011
2012
2013
2014
2015 and after
$1,321,738
19,545
5,070
351
9,500
100
$1,356,304
At December 31, 2009 and 2008, the Bank had approximately $35,900,000 and $35,500,000, respectively, in
deposits from related parties, including directors, stockholders, and their related affiliates on terms similar to
those from third parties.
At December 31, 2009 and 2008, interest bearing time deposits, including deposits in foreign branches, of
$100,000 or more were approximately $1,293,883,000 and $1,659,289,000, respectively.
8. Borrowing Arrangements
The following table summarizes our borrowings at December 31, 2009, 2008 and 2007 (in thousands):
Federal funds purchased
Customer repurchase agreements(1)
Treasury, tax and loan notes(2)
FHLB borrowings(3)
Other short-term borrowings
Long-term borrowings
TLGP borrowings
Trust preferred subordinated debentures
2009
Balance
$ 580,519
25,070
5,940
325,000
—
—
20,500
113,406
Rate(4)
2008
Balance
.33% $ 350,155
77,732
.10%
2,720
.00%
800,000
.11%
10,000
—
40,000
—
—
.84%
113,406
3.19%
2007
Rate(4)
Balance
.47% $344,813
7,148
.05%
6,890
.00%
400,000
.71%
25,000
1.19%
—
1.19%
—
—
113,406
4.40%
Rate(4)
4.29%
3.30%
4.00%
4.18%
5.82%
—
—
6.77%
Total borrowings
$1,070,435
Maximum outstanding at any month end
$1,753,181
$1,394,013
$1,280,606
$897,257
$783,851
67
(1) Securities pledged for customer repurchase agreements were $36.0 million, $88.2 million and $24.4 mil-
lion at December 31, 2009, 2008 and 2007, respectively.
(2) Securities pledged for treasury, tax and loans notes were $11.3 million, $13.0 million and $7.1 million at
December 31, 2009, 2008 and 2007, respectively.
(3) FHLB borrowings are collateralized by a blanket floating lien based on real estate loans and also certain
pledged securities.
(4) Interest rate as of period end.
The following table summarizes our other borrowing capacities in addition to balances outstanding at
December 31, 2009, 2008 and 2007 (in thousands):
FHLB borrowing capacity relating to loans
FHLB borrowing capacity relating to securities
2009
$1,382,682
57,101
2008
$139,000
62,420
2007
$205,900
231,000
Total FHLB borrowing capacity
$1,439,783
$204,120
$436,900
Unused federal funds lines available from commercial
banks
$ 736,560
$573,500
$458,000
On September 27, 2007, we entered into a Credit Agreement with KeyBank National Association. This Credit
Agreement permits revolving borrowings of up to $50 million and matured on September 24, 2008. At our
option, the unpaid principal balance on the Credit Agreement as of September 24, 2008 was converted into a
two-year term loan, which will accrue interest at the same rate(s) as the revolving loans existing on such date.
The Credit Agreement permits multiple borrowings that may bear interest at the prime rate minus 1.25% or
the LIBOR plus 1% at our election. The Credit Agreement is unsecured and proceeds may be used for
general corporate purposes. The Credit Agreement contains customary financial covenants and restrictions.
At December 31, 2008, we had drawn $50.0 million, $10.0 million of which matured in 2009 and was included
in other short-term borrowings at December 31, 2008. The remaining $40.0 million matured in September of
2010 and was, therefore, included in long-term borrowings. The entire note was paid in full in March of 2009.
The scheduled maturities of our borrowings at December 31, 2009, were as follows (in thousands):
Within One
Year
After One
But Within
Three Years
After Three
But Within
Five Years
After Five
Years
Total
Federal funds purchased(1)
Customer repurchase agreements(1)
Treasury, tax and loan notes(1)
FHLB borrowings(1)
TLGP borrowings(1)
Trust preferred subordinated debentures(1)
Total borrowings
$580,519
25,070
5,940
325,000
20,500
—
$957,029
$—
—
—
—
—
—
$—
$—
—
—
—
—
—
$—
$
— $ 580,519
25,070
—
5,940
—
325,000
—
20,500
—
113,406
113,406
$113,406
$1,070,435
(1) Excludes interest.
9. Trust Preferred Subordinated Debentures
From November 2002 to September 2006 various Texas Capital Statutory Trusts were created and subse-
quently issued fixed and/or floating rate Capital Securities in various private offerings totaling $113.4 million.
68
As of December 31, 2008, the details of the trust preferred subordinated debentures are summarized below (in
thousands):
Texas
Capital
Bancshares
Statutory
Trust I
Texas
Capital
Bancshares
Statutory
Trust II
Texas
Capital
Bancshares
Statutory
Trust III
Texas
Capital
Bancshares
Statutory
Trust IV
Texas
Capital
Bancshares
Statutory
Trust V
Date issued
Capital securities issued
Floating or fixed rate securities
Interest rate on
subordinated debentures
Maturity date
November 19, 2002
April 10, 2003
October 6, 2005
April 28, 2006
$
10,310 $
10,310 $
25,774 $
25,774 $
Floating
3 month LIBOR +
Floating
3 month LIBOR +
Fixed/Floating(1)
Floating
3 month LIBOR +
September 29, 2006
41,238
Floating
3 month LIBOR +
3.35%
3.25% 3 month LIBOR + 1.51%
1.60%
1.71%
November 2032
April 2033
December 2035
June 2036
September 2036
(1) Interest rate is a fixed rate of 6.19% for five years through December 15, 2010, and a floating rate of
interest for the remaining 25 years that resets quarterly to 1.51% above the three-month LIBOR.
After deducting underwriter’s compensation and other expenses of each offering, the net proceeds were
available to the Company to increase capital and for general corporate purposes, including use in investment
and lending activities. Interest payments on all subordinated debentures are deductible for federal income tax
purposes.
10.
Income Taxes
We have a gross deferred tax asset of $40.1 million at December 31, 2009, which relates primarily to our
allowance for loan losses, loan origination fees and stock compensation. Management believes it is more likely
than not that all of the deferred tax assets will be realized. Our net deferred tax asset is included in other assets
in the consolidated balance sheet.
At December 31, 2008, we had a gross deferred tax asset of $26.7 million, which related primarily to our
allowance for loan losses, loan origination fees and stock compensation.
Income tax expense/(benefit) consists of the following for the years ended (in thousands):
Year Ended December 31
2008
2009
2007
Current:
Federal
State
Total
Deferred:
Federal
State
Total
Total expense:
Federal
State
Total
$20,955
219
$17,349
221
$18,643
269
$21,174
$17,570
$18,912
$ (8,774)
—
$ (4,971)
—
$ (3,508)
—
$ (8,774)
$ (4,971)
$ (3,508)
$12,181
219
$12,378
221
$15,135
269
$12,400
$12,599
$15,404
69
The following table shows the breakdown of total income tax expense for continuing operations and
discontinued operations for the years ended December 31, 2009, 2008 and 2007 (in thousands):
Total expense:
From continuing operations
From discontinued operations
Total
2009
2008
2007
$12,522
(122)
$12,924
(325)
$16,420
(1,016)
$12,400
$12,599
$15,404
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of deferred tax assets and liabilities are as follows (in
thousands):
December 31
2009
2008
Deferred tax assets:
Allowance for credit losses
Organizational costs/intangibles
Loan origination fees
Stock compensation
Depreciation
Mark to market on mortgage loans
Reserve for potential mortgage loan repurchases
Non-accrual interest
OREO valuation allowance
Other
Deferred tax liabilities:
Loan origination costs
FHLB stock dividends
Leases
Depreciation
Unrealized gain on securities
Other
Net deferred tax asset
$ 25,111
254
3,970
4,412
—
547
446
2,174
2,764
421
$ 16,602
238
3,545
3,235
385
561
818
1,219
—
107
40,099
26,710
(871)
(678)
(15,375)
(540)
(3,319)
(28)
(909)
(675)
(10,982)
—
(1,006)
(28)
(20,811)
(13,600)
$ 19,288
$ 13,110
We adopted the provisions of ASC 740-10, Income Taxes — Accounting for Uncertainties in Income Taxes (“ASC
740-10”), effective January 1, 2007. ASC 740-10 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it
is more likely than not that the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. A tax position that meets the more-
likely-than-not recognition threshold is measured at the largest amount of cumulative benefit that is greater
than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to
meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting
period in which that threshold is no longer met. ASC 740-10 also provides guidance on the accounting for and
70
disclosure of unrecognized tax benefits, interest and penalties. Adoption and subsequent application of ASC
740-10 did not have a significant impact on our financial statements.
We file income tax returns in the U.S. federal jurisdiction and several U.S. state jurisdictions. We are no longer
subject to U.S. federal income tax examinations by tax authorities for years before 2006.
The reconciliation of income attributable to continuing operations computed at the U.S. federal statutory tax
rates to income tax expense (benefit) is as follows:
Tax at U.S. statutory rate
State taxes
Non-deductible expenses
Non-taxable income
Other
Total
11. Employee Benefits
Year Ended December 31
2009
2007
2008
35%
1%
1%
(3)%
—
34%
35%
1%
1%
(3)%
—
34%
35%
1%
1%
(2)%
(1)%
34%
We have a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the
Internal Revenue Code (the 401(k) Plan). The 401(k) Plan permits our employees to defer a portion of their
compensation. Matching contributions may be made in amounts and at times determined by the Company.
We contributed approximately $627,000, $588,000 and $323,000 for the years ended December 31, 2009, 2008
and 2007, respectively. Employees are eligible to participate in the 401(k) Plan when they meet certain
requirements concerning minimum age and period of credited service. All contributions to the 401(k) Plan are
invested in accordance with participant elections among certain investment options.
During 2000, we implemented an Employee Stock Purchase Plan (ESPP). Employees are eligible for the plan
when they have met certain requirements concerning period of credited service and minimum hours worked.
Eligible employees may contribute a minimum of 1% to a maximum of 10% of eligible compensation up to
the Section 423 of the Internal Revenue Code limit of $25,000. During January 2006, a plan (“2006 ESPP”)
was adopted that allocated 400,000 shares to the plan. The 2006 Employee Stock Purchase Plan was approved
by stockholders at the 2006 annual meeting. As of December 31, 2009, 2008 and 2007, 53,281, 37,556 and
23,930 shares had been purchased on behalf of the employees under the 2006 ESPP.
As of December 31, 2009, we have two stock option plans, the 1999 Stock Omnibus Plan (“1999 Plan”) and
the 2005 Long-Term Incentive Plan (“2005 Plan”). The 1999 Plan is no longer available for grants of equity
based compensation; however, options to purchase shares previously issued under the plan will remain
outstanding and be subject to administration by our board of directors. Under the 2005 Plan, equity-based
compensation grants were made by the board of directors, or its designated committee. Grants under the 2005
Plan are subject to vesting requirements. Under the 2005 Plan, we may grant, among other things,
nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation
rights, or any combination thereof. The 2005 Plan includes grants for employees and directors. Totals shares
authorized under the plan for awards is 1,500,000. Total shares which may be issued under the 2005 Plan at
December 31, 2009, 2008 and 2007 were 216,694, 442,505 and 510,749, respectively.
The fair value of our stock option and stock appreciation right (SAR) grants are estimated at the date of grant
using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective assumptions including the
expected stock price volatility. Because our employee stock options have characteristics significantly dif-
ferent from those of traded options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide the
best single measure of the fair value of its employee stock options.
71
The fair value of the options and stock appreciation rights were estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
Risk-free rate
Dividend yield
Market price volatility factor
Weighted-average expected life of options
2009
2008
2007
2.23%
0.00
.423
5 years
3.04%
0.00
.323
5 years
4.33%
0.00
.298
5 years
Market price volatility and expected life of options is based on historical data and other factors.
A summary of our stock option activity and related information for 2009, 2008 and 2007 is as follows (in
thousands, except per share data):
December 31, 2009
December 31, 2008
December 31, 2007
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Options
Weighted
Average
Exercise
Price
Options outstanding at beginning of
year
Options granted
Options exercised
Options forfeited
1,460,461
—
(226,485)
(66,240)
$11.54
—
7.69
15.35
1,983,352
—
(496,051)
(26,840)
$10.63
—
7.55
17.95
2,308,103
—
(239,751)
(85,000)
$10.51
—
7.99
15.45
Options outstanding at year-end
1,167,736
$12.07
1,460,461
$11.54
1,983,352
$10.63
Options vested and exercisable at
year-end
Intrinsic value of options vested and
exercisable
Weighted average remaining
contractual life of options vested
and exercisable
Fair value of shares vested during
year
Intrinsic value of options exercised
Weighted average remaining
contractual life of options currently
outstanding in years:
1,131,486
$11.76
1,337,461
$10.79
1,600,431
$ 9.52
$2,490,378
$3,433,347
$13,971,000
3.52
4.13
4.33
$ 245,422
$1,608,048
$ 492,638
$4,551,326
$
969,187
$ 3,325,000
3.58
4.29
4.73
We expensed approximately $629,000, $1,152,000 and $1,401,000 in 2009, 2008 and 2007, respectively, related
to stock option awards. Expenses are calculated utilizing the straight-line method. No stock options were
granted in 2009.
In connection with the 2005 Long-term Incentive Plan, stock appreciation rights were issued in 2009, 2008
and 2007. These rights are service-based and generally vest over a period of five years. Of the SARs granted in
2006, 300,312 were Performance Stock Appreciation Rights (PSARs) which were cancelled on December 31,
2008 as company performance targets were not met.
72
SARs outstanding at beginning of year
SARs granted
SARs exercised
SARs forfeited
December 31,2009
December 31, 2008
December 31, 2007
Weighted
Average
Exercise
Price
$16.66
14.93
—
20.51
Weighted
Average
Exercise
Price
$18.24
17.46
—
22.62
SARs/
PSARs
1,203,087
142,000
—
(337,508)
Weighted
Average
Exercise
Price
$21.56
21.39
—
21.27
SARs/
PSARs
1,083,054
186,000
—
(65,967)
SARs
1,007,579
246,500
—
(47,341)
SARs outstanding at year-end
1,206,738
$16.16
1,007,579
$16.66
1,203,087
$18.24
SARs vested at year-end
Weighted average remaining contractual life of SARs
vested
Compensation expense
Weighted average fair value of SARs granted during
2009, 2008 and 2007
Fair value of shares vested during the year
Weighted average remaining contractual life of SARs
currently outstanding in years
491,254
$20.92
315,293
$21.14
207,617
$21.72
6.85
7.73
8.51
$1,709,000
$1,127,000
$1,275,000
$ 5.93
$ 5.93
$ 7.36
$1,278,207
$1,255,341
$1,389,543
5.61
6.73
8.71
As of December 31, 2009, 2008 and 2007, the intrinsic value of SARs vested was negative as the December 31,
2009, 2008 and 2007 market prices were lower than the grant price of the SARs.
The following table summarizes the status of and changes in our nonvested restricted stock units (in
thousands, except per share data):
Balance, January 1, 2007
Granted
Vested and issued
Forfeited
Cancelled
Balance, December 31, 2007
Granted
Vested and issued
Forfeited
Cancelled
Balance, December 31, 2008
Granted
Vested and issued
Forfeited
Cancelled
Non-Vested Stock Awards
Outstanding
Number of
Shares
411,568
205,550
(87,503)
(3,365)
—
526,200
205,150
(91,354)
(13,748)
—
626,248
257,210
(134,570)
(34,489)
—
Weighted-
Average
Grant-Date
Fair Value
$20.52
19.90
20.49
22.65
—
20.27
18.00
20.51
20.23
—
19.49
12.81
19.59
19.98
—
Balance, December 31, 2009
714,399
$17.04
The RSUs granted during 2009, 2008 and 2007 generally vest over four to five years. Compensation cost for
restricted stock units was $3,623,000, $2,434,000 and $2,084,000 for years ended December 31, 2009, 2008 and
73
2007, respectively. The weighted average remaining contractual life of RSUs currently outstanding is
2.94 years.
Total compensation cost for all share-based arrangements, net of taxes, was $3,904,000, $3,063,000 and
$3,119,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
Unrecognized stock-based compensation expense related to unvested options issued prior to adoption of ASC
718 is $219,000, pre-tax. The weighted average period over which this unrecognized expense is expected to
be recognized was 1.0 years. Unrecognized stock-based compensation expense related to SAR grants issued
during 2007, 2008 and 2009 is $4.4 million. At December 31, 2009, the weighted average period over which
this unrecognized expense is expected to be recognized was 2.0 years. Unrecognized stock-based compen-
sation expense related to RSU grants during 2007, 2008 and 2009 is $9.5 million. At December 31, 2009, the
weighted average period over which this unrecognized expense is expected to be recognized was 1.9 years.
Cash flows from financing activities included $213,000, $4,527,000 and $3,325,000 in cash inflows from excess
tax benefits related to stock compensation in 2009, 2008 and 2007, respectively. The tax benefit realized from
stock options exercised is $75,000 $1,584,000 and $1,164,000 in 2009, 2008 and 2007, respectively.
Upon share option exercise, new shares are issued as opposed to treasury shares.
In 1999, we entered into a deferred compensation agreement with one of our executive officers. The
agreement allows the employee to elect to defer up to 100% of his compensation on an annual basis. All
deferred compensation is invested in the Company’s common stock held in a rabbi trust. The stock is held in
the name of the trustee, and the principal and earnings of the trust are held separate and apart from other
funds of the Company, and are used exclusively for the uses and purposes of the deferred compensation
agreement. The accounts of the trust have been consolidated with the accounts of the Company. During 2009,
under the terms of the agreement, the stock was released from the trust and issued to the executive.
12. Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments include commitments to extend credit
and standby letters of credit which involve varying degrees of credit risk in excess of the amount recognized in
the consolidated balance sheets. The Bank’s exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of
collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termi-
nation clauses and may require payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer’s credit-worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.
74
At December 31, 2009 and 2008, commitments to extend credit and standby and commercial letters of credit
were as follows (in thousands):
December 31
2009
2008
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Standby and commercial letters of credit
$1,143,427
66,385
$1,404,964
70,103
13. Regulatory Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and
possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect
on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2009, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the tables below. As shown below, the
Bank’s capital ratios exceed the regulatory definition of well capitalized as of December 31, 2009 and 2008. As
of June 30, 2009, the most recent notification from the OCC categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. There have been no conditions or events since the
notification that management believes have changed the Bank’s category. Based upon the information in its
most recently filed call report, the Bank continues to meet the capital ratios necessary to be well capitalized
under the regulatory framework for prompt corrective action and continues to meet the capital ratios
necessary to be well capitalized under the regulatory framework for prompt corrective action.
75
(in thousands except percentage data)
As of December 31, 2009:
Total capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to average assets):
Company
Bank
As of December 31, 2008:
Total capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to risk-weighted assets):
Company
Bank
Tier 1 capital (to average assets):
Company
Bank
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well
Capitalized
Under Prompt
Corrective
Action Provisions
Amount
Ratio
$642,371
555,635
11.98% $429,102
429,012
10.36%
8.00%
N/A
8.00% $536,265
N/A
10.00%
$575,338
488,602
10.73% $214,551
214,506
9.11%
4.00%
N/A
4.00% $321,759
$575,338
488,602
10.54% $218,381
218,336
8.95%
4.00%
N/A
4.00% $272,920
N/A
6.00%
N/A
5.00%
$533,781
502,693
10.92% $390,890
390,799
10.29%
8.00%
N/A
8.00% $488,498
N/A
10.00%
$486,946
455,858
9.97% $195,445
195,399
9.33%
N/A
4.00%
4.00% $293,099
$486,946
455,858
10.21% $190,782
190,736
9.56%
4.00%
N/A
4.00% $238,420
N/A
6.00%
N/A
5.00%
Dividends that may be paid by subsidiary banks are routinely restricted by various regulatory authorities. The
amount that can be paid in any calendar year without prior approval of the Bank’s regulatory agencies cannot
exceed the lesser of net profits (as defined) for that year plus the net profits for the preceding two calendar
years, or retained earnings. No dividends were declared or paid on common stock during 2009, 2008 or 2007.
The required balance at the Federal Reserve at December 31, 2009 and 2008 was approximately $9,595,000
and $13,137,000, respectively.
76
14. Earnings Per Share
The following table presents the computation of basic and diluted earnings per share (in thousands except
share data):
2009
Year Ended December
2008
2007
Numerator:
Net income from continuing operations
Preferred stock dividends
$
24,387
5,383
$
24,882
—
$
31,353
—
Net income from continuing operations available
to common shareholders
Loss from discontinued operations
Net income
Denominator:
19,004
(235)
24,882
(616)
31,353
(1,931)
$
18,769
$
24,266
$
29,422
Denominator for basic earnings per share-
weighted average shares
Effect of employee stock options(1)
Effect of warrants to purchase common stock
Denominator for dilutive earnings per share-
adjusted weighted average shares and assumed
conversions
Basic earning per share from continuing operations
Basic earning per share
Diluted earnings per share from continuing
operations
Diluted earnings per share
34,113,285
278,882
18,287
27,952,973
95,490
—
26,187,084
491,487
—
34,410,454
28,048,463
26,678,571
$
$
$
$
.56
.55
.55
.55
$
$
$
$
.89
.87
.89
.87
$
$
$
$
1.20
1.12
1.18
1.10
(1) Stock options outstanding of 1,669,686, 1,761,281 and 944,170 in 2009, 2008 and 2007, respectively, have
not been included in diluted earnings per share because to do so would have been antidilutive for the
periods presented. Stock options are antidilutive when the exercise price is higher than the average
market price of the Company’s common stock.
15. Fair Value Disclosures
Effective January 1, 2008, we adopted ASC 820, which defines fair value, establishes a framework for
measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is
defined under ASC 820 as the price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal market for the asset or liability in an orderly transaction between market participants on
the measurement date. The adoption of ASC 820 did not have an impact on our financial statements except
for the expanded disclosures noted below.
We determine the fair market values of our financial instruments based on the fair value hierarchy. The
standard describes three levels of inputs that may be used to measure fair value as provided below.
Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 assets include
U.S. Treasuries that are highly liquid and are actively traded in over-the-counter markets.
77
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities. Level 2 assets include U.S. government and agency mortgage-backed debt secu-
rities, corporate securities, municipal bonds, and Community Reinvestment Act funds. This
category includes derivative assets and liabilities where values are based on internal cash flow
models supported by market data inputs
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted cash flow method-
ologies, or similar techniques, as well as instruments for which the determination of fair values
requires significant management judgment or estimation. This category also includes impaired
loans and OREO where collateral values have been based on third party appraisals; however,
due to current economic conditions, comparative sales data typically used in appraisals may be
unavailable or more subjective due to lack of market activity. Additionally, this category
includes certain mortgage loans that were transferred from loans held for sale to loans held for
investment at a lower of cost or fair value.
Assets and liabilities measured at fair value at December 31, 2009 are as follows (in thousands):
Fair Value Measurements Using
Level 1
Level 3
Level 2
Available for sale securities:(1)
Mortgage-backed securities
Corporate securities
Municipals
Other
Loans (2)(4)
OREO (3)(4)
Derivative asset
Derivative liability
$—
—
—
—
—
—
—
—
$209,987
4,683
43,826
7,632
$ —
—
—
—
— 64,921
— 27,264
—
—
1,837
(1,837)
(1) Securities are measured at fair value on a recurring basis, generally monthly.
(2) Includes certain mortgage loans that have been transferred to loans held for investment from loans held
for sale at the lower of cost or market. Also, includes impaired loans that have been measured for
impairment at the fair value of the loan’s collateral.
(3) OREO is transferred from loans to OREO at fair value less selling costs.
(4) Fair value of loans and OREO is measured on a nonrecurring basis, generally annually or more often as
warranted by market and economic conditions
Level 3 Valuations
Financial instruments are considered Level 3 when their values are determined using pricing models,
discounted cash flow methodologies or similar techniques and at least one significant model assumption or
input is unobservable. Level 3 financial instruments also include those for which the determination of fair
value requires significant management judgment or estimation. Currently, we measure fair value for certain
loans on a nonrecurring basis as described below.
Loans During the year ended December 31, 2009, certain impaired loans were remeasured and reported
at fair value through a specific valuation allowance allocation of the allowance for possible loan losses based
upon the fair value of the underlying collateral. The $64.9 million total above includes impaired loans at
December 31, 2009 with a carrying value of $77.5 million that were reduced by specific valuation allowance
allocations totaling $18.4 for a total reported fair value of $59.1 million based on collateral valuations utilizing
78
Level 3 valuation inputs. Fair values were based on third party appraisals; however, based on the current
economic conditions, comparative sales data typically used in the appraisals may be unavailable or more
subjective due to the lack of real estate market activity. Also included in this total are $6.8 million in mortgage
warehouse loans that were reduced by specific valuation allowance allocations totaling $1.0 million, for a total
reported fair value of $5.8 million. Certain mortgage loans that are transferred from loans held for sale to loans
held for investment are valued based on third party broker pricing. As the dollar amount and number of loans
being valued is very small, a comprehensive market analysis is not obtained or considered necessary. Instead,
we conduct a general polling of one or more mortgage brokers for indications of general market prices for the
types of mortgage loans being valued, and we consider values based on recent experience in selling loans of
like terms and comparable quality. The total also includes impaired loans that have been measured for
impairment at the fair value of the loan’s collateral based on a third party real estate appraisal.
OREO Certain foreclosed assets, upon initial recognition, were valued based on third party appraisals. At
December 31, 2009, OREO with a carrying value of $33.9 million was reduced by specific valuation allowance
allocations totaling $6.6 million for a total reported fair value of $27.3 million based on valuations utilizing
Level 3 valuation inputs. Fair values were based on third party appraisals; however, based on the current
economic conditions, comparative sales data typically used in the appraisals may be unavailable or more
subjective due to the lack of real estate market activity.
Generally accepted accounting principles require disclosure of fair value information about financial instru-
ments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. This disclosure does not and is not intended to represent the
fair value of the Company.
A summary of the carrying amounts and estimated fair values of financial instruments is as follows (in
thousands):
December 31, 2009
December 31, 2008
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Cash and cash equivalents
Securities, available-for-sale
Loans held for sale
Loans held for sale from discontinued operations
Loans held for investment, net
Derivative asset
Deposits
Federal funds purchased
Borrowings
Trust preferred subordinated debentures
Derivative liability
$ 125,439
266,128
693,504
586
4,389,362
1,837
4,120,725
580,519
376,510
113,406
1,837
$ 125,439
266,128
693,504
586
4,542,572
1,837
4,121,993
580,519
376,510
113,876
1,837
$
82,027
378,752
496,351
648
3,982,506
2,767
3,333,187
350,155
930,452
113,406
2,767
$
82,027
378,752
496,351
648
3,996,738
2,767
3,337,887
350,155
930,452
114,157
2,767
The following methods and assumptions were used by the Company in estimating its fair value disclosures for
financial instruments:
Cash and cash equivalents
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents approximate
their fair value.
79
Securities
The fair value of investment securities is based on prices obtained from independent pricing services which
are based on quoted market prices for the same or similar securities.
Loans, net
For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are
generally based on carrying values. The fair value for all other loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair value. The carrying amount of loans
held for sale approximates fair value.
Derivatives
The estimated fair value of the interest rate swaps are based on internal cash flow models supported by
market data inputs.
Deposits
The carrying amounts for variable-rate money market accounts approximate their fair value. Fixed-term
certificates of deposit fair values are estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.
Federal funds purchased, other borrowings and trust preferred subordinated debentures
The carrying value reported in the consolidated balance sheet for federal funds purchased and short-term
borrowings approximates their fair value. The fair value of term borrowings and trust preferred subordinated
debentures is estimated using a discounted cash flow calculation that applies interest rates currently being
offered on similar borrowings.
Off-balance sheet instruments
Fair values for our off-balance sheet instruments which consist of lending commitments and standby letters of
credit are based on fees currently charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties’ credit standing. Management believes that the fair value of
these off-balance sheet instruments is not significant.
16. Commitments and Contingencies
We lease various premises under operating leases with various expiration dates. Rent expense incurred under
operating leases amounted to approximately $6,968,000, $4,981,000 and $4,874,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Minimum future lease payments under operating leases are as follows (in thousands):
Year Ending December 31,
2010
2011
2012
2013
2014
2015 and thereafter
80
Minimum
Payments
$ 7,605
7,550
7,573
7,294
7,054
45,915
$82,991
17. Parent Company Only
Summarized financial information for Texas Capital Bancshares, Inc. — Parent Company Only follows (in
thousands):
Balance Sheets
Assets
Cash and cash equivalents
Investment in subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ Equity
Other liabilities
Other short-term borrowings
Long-term borrowings
Trust preferred subordinated debentures
Total liabilities
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
Statements of Earnings
(In thousands)
December 31
2009
2008
$ 80,033
507,930
7,363
$595,326
$ 74,873
469,391
7,352
$551,616
$
460
—
—
113,406
$
1,037
10,000
40,000
113,406
113,866
359
326,224
148,720
(8)
6,165
481,460
164,443
310
255,051
129,951
(8)
1,869
387,173
$595,326
$551,616
Year Ended December 31
2008
2007
2009
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
127
441
568
4,353
669
1,425
392
6,839
$
193
125
318
7,662
501
1,597
329
$
245
125
370
8,387
455
1,218
382
10,089
10,442
Loss before income taxes and equity in undistributed income
of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before equity in undistributed income of subsidiary . . . . .
(6,271)
(2,139)
(4,132)
(9,771)
(3,375)
(6,396)
(10,072)
(3,463)
(6,609)
Equity in undistributed income of subsidiary . . . . . . . . . . . . . . .
28,284
30,662
36,031
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,152
$24,266
$ 29,422
81
Statements of Cash Flows
(in thousands)
Year Ended December 31
2008
2009
2007
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,152
Adjustments to reconcile net income to net cash used in
$ 24,266
$ 29,422
operating activities:
Equity in undistributed income of subsidiary. . . . . . . . . . . .
Increase in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from stock option exercises . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation
arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . .
(28,284)
(11)
75
(30,662)
(657)
1,584
(36,031)
(114)
1,164
(213)
(577)
(4,527)
320
(3,325)
(45)
Net cash used in operating activities of continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,858)
(9,676)
(8,929)
Investing Activity
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activity . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of preferred stock and related
warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation
arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . .
— (25,000)
— (25,000)
(30,000)
(30,000)
61,024
58,662
1,932
75,000
(75,000)
(1,219)
(50,000)
213
—
10,018
—
—
—
25,000
4,527
—
88,189
—
—
—
25,000
3,325
(8)
30,249
Net increase (decrease) in cash and cash equivalents . . . . . . .
5,160
53,513
(8,680)
Cash and cash equivalents at beginning of year . . . . . . . . . . . .
74,873
21,360
30,040
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . $ 80,033
$ 74,873
$ 21,360
18. Related Party Transactions
See Notes 3 and 7 for a description of loans and deposits with related parties.
19. Sale of Discontinued Operation — Residential Mortgage Lending and TexCap Insurance
Services
Subsequent to the end of the first quarter of 2007, Texas Capital Bank and the purchaser of its residential
mortgage loan division (RML) agreed to terminate and settle the contractual arrangements related to the sale
of the division, which had been completed as of the end of the third quarter of 2006. Historical operating
results of RML are reflected as discontinued operations in the financial statement.
During 2009, the loss from discontinued operations from RML was $235,000, net of taxes. The 2009 losses are
primarily related to continuing legal and salary expenses incurred in dealing with the remaining loans and
requests from investors related to the repurchase of previously sold loans. We still have approximately
82
$586,000 in loans held for sale from discontinued operations that are carried at estimated market value at
December 31, 2009, which is less than the original cost. We plan to sell these loans, but timing and price to be
realized cannot be determined at this time due to market conditions. In addition, we continue to address
requests from investors related to repurchasing loans previously sold. While the balances as of December 31,
2009 include a liability for exposure to additional contingencies, including risk of having to repurchase loans
previously sold, we recognize that market conditions may result in additional exposure to loss and the
extension of time necessary to complete the discontinued mortgage operation.
On March 30, 2007, Texas Capital Bank completed the sale of its TexCap Insurance Services subsidiary; the
sale is, accordingly, reported as a discontinued operation. Historical operating results of TexCap and the net
after-tax gain of $1.09 million from the sale are reflected as discontinued operations in the financial
statements and schedules. All prior periods have been restated to reflect the change. Except as otherwise
noted, all amounts and disclosures throughout this document reflect only the Company’s continuing
operations.
The results of operations of the discontinued components are presented separately in the accompanying
consolidated statements of income for 2009, 2008 and 2007, net of tax, following income from continuing
operations. Details are presented in the following tables (in thousands):
Year Ended December 31, 2009
RML
Total
TexCap
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 64
421
(357)
(122)
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . .
$(235)
$—
—
—
—
$—
$ 64
421
(357)
(122)
$(235)
Year Ended December 31, 2008
RML
Total
TexCap
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 105
1,046
(941)
$ (325)
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . .
$ (616)
$—
—
—
$—
$—
$ 105
1,046
(941)
$ (325)
$ (616)
Year Ended December 31, 2007
TexCap
RML
Total
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (369)
3,645
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(4,014)
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
(1,379)
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 424
1,018
1,662
1,068
364
$
55
4,663
1,662
(2,946)
(1,015)
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . $(2,635)
$ 704
$(1,931)
20. Derivative Financial Instruments
The fair value of derivative positions outstanding is included in other assets and other liabilities in the
accompanying consolidated balance sheets.
83
During 2009 and 2008, we entered into certain interest rate derivative positions that are not designated as
hedging instruments. These derivative positions relate to transactions in which we enter into an interest rate
swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap,
cap and/or floor with another financial institution. In connection with each swap transaction, we agree to pay
interest to the customer on a notional amount at a variable interest rate and receive interest from the customer
on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial
institution the same fixed interest rate on the same notional amount and receive the same variable interest
rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate
loan to a fixed rate. Because we act as an intermediary for our customer, changes in the fair value of the
underlying derivative contracts substantially offset each other and do not have a material impact on our results
of operations.
The notional amounts and estimated fair values of interest rate derivative positions outstanding at Decem-
ber 31, 2009 presented in the following table (in thousands):
Notional Amount
Estimated Fair Value
Non-hedging interest rate derivative:
Commercial loan/lease interest rate swaps
Commercial loan/lease interest rate swaps
$ 159,183
(159,183)
$ 1,837
(1,837)
The weighted-average receive and pay interest rates for interest rate swaps outstanding at December 31, 2009
were as follows:
Interest Rate Received
Interest Rate Paid
Weighted-Average
Non-hedging interest rate swaps
4.75%
1.88%
Our credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all
swaps by each counterparty. In such cases collateral may be required from the counterparties involved if the
net value of the swaps exceeds a nominal amount considered to be immaterial. Our credit exposure, net of any
collateral pledged, relating to interest rate swaps was approximately $1.8 million at December 31, 2009, all of
which relates to bank customers. Collateral levels are monitored and adjusted on a regular basis for changes in
interest rate swap values.
21. Subsequent Event
On January 27, 2010, we announced that we have entered into an Equity Distribution Agreement with
Morgan Stanley & Co. Incorporated, pursuant to which we may, from time to time, offer and sell shares of our
common stock, having aggregate gross sales proceeds of up to $40,000,000. Sales of the shares are being made
by means of brokers’ transactions on or through the NASDAQ Global Select Market at market prices
prevailing at the time of the sale or as otherwise agreed to by the Company and Morgan Stanley. As of
February 17, 2010 we have sold 271,973 shares at an average price of $16.88. Net proceeds on the sales are
approximately $4.5 million, after payment of a 1% sales commission paid to Morgan Stanley, and are being
used for general corporate purposes. In addition to the 1% sales commission, we paid Morgan Stanley a
$400,000 program fee.
22. New Accounting Standards
FASB ASC 105 Generally Accepted Accounting Principles (“ASC 105”) establishes the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) as the source of author-
itative accounting principles recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative
guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All
84
non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and
deemed non-authoritative. ASC 105 was adopted on September 15, 2009, and did not have a significant
impact on our financial statements.
FASB ASC 810 Consolidation (“ASC 810”) became effective for us on January 1, 2009, and was amended to
change how a company determines when an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The determination of whether a company is
required to consolidate an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly impact the entity’s economic
performance. The new authoritative accounting guidance requires additional disclosures about the reporting
entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that
involvement as well as its affect on the entity’s financial statements. The new authoritative accounting
guidance under ASC 810 will be effective January 1, 2010 and is not expected to have a significant impact on
our financial statements.
FASB ASC 860 Transfers and Servicing (“ASC 860”) was amended to enhance reporting about transfers of
financial assets, including securitizations, and where companies have continuing exposure to the risks related
to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a
“qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The
new authoritative accounting guidance also requires additional disclosures about all continuing involvements
with transferred financial assets including information about gains and losses resulting from transfers during
the period. The new authoritative accounting guidance under ASC 860 will be effective January 1, 2010 and is
not expected to have a significant impact on our financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT-
ING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We have established and maintain disclosure controls and other procedures that are designed to ensure that
material information relating to us and our subsidiaries required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. For the period covered in this report, we
carried out an evaluation, under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation of these disclosure controls and procedures, the
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2009.
The Chief Executive Officer and Chief Financial Officer have also concluded that there were no changes in
our internal control over financial reporting identified in connection with the evaluation described in the
preceding paragraph that occurred during the fiscal quarter ended December 31, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control over financial reporting is a process designed under the
supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of our financial statements for external
purposes in accordance with generally accepted accounting principles.
85
As of December 31, 2009, management assessed the effectiveness of the Company’s internal control over
financial reporting based on the criteria for effective internal control over financial reporting established in
“Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO)
of the Treadway Commission. Based on the assessment, management determined that the Company
maintained effective internal control over financial reporting as of December 31, 2009, based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated
financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation
report on the effectiveness of the Company’s internal control over financial reporting as of December 31,
2009. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009, is included in this Item under the heading “Report
of Independent Registered Public Accounting Firm.”
86
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Texas Capital Bancshares, Inc.
We have audited Texas Capital Bancshares, Inc.’s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Texas Capital Bancshares, Inc.’s
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Texas Capital Bancshares, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the 2009 consolidated financial statements of Texas Capital Bancshares, Inc. and our report
dated February 18, 2010 expressed an unqualified opinion thereon.
Dallas, Texas
February 18, 2010
87
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of
stockholders to be held May 18, 2010, which proxy materials will be filed with the SEC no later than April 8,
2010.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of
stockholders to be held May 18, 2010, which proxy materials will be filed with the SEC no later than April 8, 2010.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of
stockholders to be held May 18, 2010, which proxy materials will be filed with the SEC no later than April 8, 2010.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of
stockholders to be held May 18, 2010, which proxy materials will be filed with the SEC no later than April 8, 2010.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is set forth in our definitive proxy materials regarding our annual meeting of
stockholders to be held May 18, 2010, which proxy materials will be filed with the SEC no later than April 8, 2010.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report
(1) All financial statements
Independent Registered Public Accounting Firms’ Report of Ernst & Young LLP
(2) All financial statements required by Item 8
Independent Registered Public Accounting Firms’ Report of Ernst & Young LLP
(3) Exhibits
2.1
2.2
3.1
3.2
3.3
3.4
Agreement and Plan to Consolidate Texas Capital Bank with and into Resource Bank, National
Association and under the Title of “Texas Capital Bank, National Association,” which is incorporated
by reference to Exhibit 2.1 to our registration statement on Form 10 dated August 24, 2001
Amendment to Agreement and Plan to Consolidate, which is incorporated by reference to Exhibit 2.2
to our registration statement on Form 10 dated August 24, 2001
Certificate of Incorporation, which is incorporated by reference to Exhibit 3.1 to our registration
statement on Form 10 dated August 24, 2001
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to
Exhibit 3.2 to our registration statement on Form 10 dated August 24, 2001
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to
Exhibit 3.3 to our registration statement on Form 10 dated August 24, 2001
Certificate of Amendment of Certificate of Incorporation, which is incorporated by reference to
Exhibit 3.4 to our registration statement on Form 10 dated August 24, 2001
88
3.5
3.6
Amended and Restated Bylaws of Texas Capital Bancshares, Inc. which is incorporated by reference
to Exhibit 3.5 to our registration statement on Form 10 dated August 24 ,2001
First Amendment to Amended and Restated Bylaws of Texas Capital Bancshares, Inc. which is
incorporated by reference to Current Report on Form 8-K dated July 18, 2007
4.1 Texas Capital Bancshares, Inc. 1999 Omnibus Stock Plan, which is incorporated by reference to
Exhibit 4.1 to our registration statement on Form 10 dated August 24, 2001+
4.2 Texas Capital Bancshares, Inc. 2006 Employee Stock Purchase Plan, which is incorporated by
reference to our registration statement on Form S-8 dated February 3, 2006+
4.3 Texas Capital Bancshares, Inc. 2005 Long-Term Incentive Plan, which is incorporated by reference to
4.4
4.5
4.6
4.7
our registration statement on Form S-8 dated June 3, 2005+
Placement Agreement by and between Texas Capital Bancshares Statutory Trust I and SunTrust
Capital Markets, Inc., which is incorporated by reference to our Current Report on Form 8-K dated
December 4, 2002
Certificate of Trust of Texas Capital Bancshares Statutory Trust I, dated November 12, 2002 which is
incorporated by reference to our Current Report on Form 8-K dated December 4, 2002
Amended and Restated Declaration of Trust by and among State Street Bank and Trust Company of
Connecticut, National Association, Texas Capital Bancshares, Inc. and Joseph M. Grant, Raleigh
Hortenstine III and Gregory B. Hultgren, dated November 19, 2002 which is incorporated by
reference to our Current Report on Form 8-K dated December 4, 2002
Indenture dated November 19, 2002 which is incorporated by reference to our Current Report on
Form 8-K dated December 4, 2002
4.8 Guarantee Agreement between Texas Capital Bancshares, Inc. and State Street Bank and Trust of
Connecticut, National Association dated November 19, 2002, which is incorporated by reference to
our Current Report on Form 8-K dated December 4, 2002
Placement Agreement by and among Texas Capital Bancshares, Inc., Texas Capital Statutory Trust II
and Sandler O’Neill & Partners, L.P., which is incorporated by reference to our Current Report
Form 8-K dated June 11, 2003
4.9
4.10 Certificate of Trust of Texas Capital Statutory Trust II, which is incorporated by reference to our
Current Report on Form 8-K dated June 11, 2003
4.11 Amended and Restated Declaration of Trust by and among Wilmington Trust Company, Texas
Capital Bancshares, Inc., and Joseph M. Grant and Gregory B. Hultgren, dated April 10, 2003, which is
incorporated by reference to our Current Report on Form 8-K dated June 11, 2003
4.12 Indenture between Texas Capital Bancshares, Inc. and Wilmington Trust Company, dated April 10,
2003, which is incorporated by reference to our Current Report on Form 8-K dated June 11, 2003
4.13 Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company,
dated April 10, 2003, which is incorporated by reference to our Current Report on Form 8-K dated
June 11, 2003
4.14 Amended and Restated Declaration of Trust for Texas Capital Statutory Trust III by and among
Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Texas Capital
Bancshares, Inc. as Sponsor, and the Administrators named therein, dated as of October 6, 2005,
which is incorporated by reference to our Current Report on Form 8-K dated October 13, 2005
4.15 Indenture between Texas Capital Bancshares, Inc., as Issuer, and Wilmington Trust Company, as
Trustee, for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures, dated as of
October 6, 2005, which is incorporated by reference to our Current Report on Form 8-K dated
October 13, 2005
4.16 Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company,
dated as of October 6, 2005, which is incorporated by reference to our Current Report on Form 8-K
dated October 13, 2005
4.17 Amended and Restated Declaration of Trust for Texas Capital Statutory Trust IV by and among
Wilmington Trust Company, as Institutional Trustee and Delaware Trustee, Texas Capital
Bancshares, Inc. as Sponsor, and the Administrators named therein, dated as of April 28, 2006,
which is incorporated by reference to our Current Report on Form 8-K dated May 3, 2006
89
4.18 Indenture between Texas Capital Bancshares, Inc., as Issuer, and Wilmington Trust Company, as
Trustee, for Floating Rate Junior Subordinated Deferrable Interest Debentures dated as of April 28,
2006, which is incorporated by reference to our Current Report on Form 8-K dated May 3, 2006
4.19 Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company,
dated as of April 28, 2006, which is incorporated by reference to our Current Report on Form 8-K
dated May 3, 2006
4.20 Amended and Restated Trust Agreement for Texas Capital Statutory Trust V by and among
Wilmington Trust Company, as Property Trustee and Delaware Trustee, Texas Capital
Bancshares, Inc., as Depositor, and the Administrative Trustees named therein, dated as of
September 29, 2006, which is incorporated by reference to our Current Report on Form 8-K
dated October 5, 2006
4.21 Junior Subordinated Indenture between Texas Capital Bancshares,
Inc. and Wilmington
Trust Company, as Trustee,
for Floating Rate Junior Subordinated Note dated as of
September 29, 2006, which is incorporated by reference to our Current Report on Form 8-K
dated October 5, 2006
4.22 Guarantee Agreement between Texas Capital Bancshares, Inc. and Wilmington Trust Company,
dated as of September 29, 2006, which is incorporated by reference to our Current Report on
Form 8-K dated October 5, 2006
10.1 Deferred Compensation Agreement, which is incorporated by reference to Exhibit 10.2 to our
10.2
10.3
10.4
10.5
10.6
registration statement on Form 10-K dated August 24, 2001+
Amended and Restated Deferred Compensation Agreement Irrevocable Trust dated as of
November 2, 2004, by and between Texas Capital Bancshares, Inc. and Texas Capital Bank,
National Association, which is incorporated by reference to our Annual Report on Form 10-K
dated March 14, 2005.+
Chairman Emeritus and Consulting Agreement between Joseph M. Grant and Texas Capital
Bancshares, Inc., dated April 8, 2008, which is incorporated by reference to our Form 10-Q dated
May 2, 2008.+
Executive Employment Agreement between George F. Jones, Jr. and Texas Capital Bancshares, Inc.
dated December 31, 2008, which is incorporated by reference to our Current Report on Form 8-K
dated January 6, 2009+
Executive Employment Agreement between C. Keith Cargill and Texas Capital Bancshares, Inc.
dated December 31, 2008, which is incorporated by reference to our Current Report on Form 8-K
dated January 6, 2009+
Executive Employment Agreement between Peter B. Bartholow and Texas Capital Bancshares, Inc.
dated December 31, 2008, which is incorporated by reference to our Current Report on Form 8-K
dated January 6, 2009+
10.7 Officer Indemnity Agreement dated December 20, 2004, by and between Texas Capital Bancshares,
Inc. and George F. Jones, Jr., which is incorporated by reference to our Current Report on Form 8-K
dated December 23, 2004+
10.8 Officer Indemnity Agreement dated December 20, 2004, by and between Texas Capital Bancshares,
Inc. and C. Keith Cargill, which is incorporated by reference to our Current Report on Form 8-K dated
December 23, 2004+
10.9 Officer Indemnity Agreement dated December 20, 2004, by and between Texas Capital Bancshares,
Inc. and Peter B. Bartholow, which is incorporated by reference to our Current Report on Form 8-K
dated December 23, 2004+
10.10 Texas Capital Bancshares, Inc. 1999 Omnibus Stock Plan, which is incorporated by reference to
Exhibit 4.1 to our registration statement on Form 10 dated August 24, 2001+
10.11 Texas Capital Bancshares, Inc. 2006 Employee Stock Purchase Plan, which is incorporated by
reference to our registration statement on Form S-8 dated February 3, 2006+
10.12 Texas Capital Bancshares, Inc. 2005 Long-Term Incentive Plan, which is incorporated by reference to
our registration statement on Form S-8 dated June 3, 2005+
90
10.13 Credit Agreement between Texas Capital Bancshares, Inc. and KeyBank National Association, dated
as of September 27, 2007, which is incorporated by reference to our Current Report on Form 8-K
dated October 1, 2007
10.14 Letter Agreement between Texas Capital Bancshares, Inc. and the United States Department of the
Treasury dated as of January 16, 2009, which is incorporated by reference to our Current Report on
Form 8-K dated January 16, 2009
Subsidiaries of the Registrant*
Consent of Ernst & Young LLP*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act*
Section 1350 Certification of Chief Executive Officer*
Section 1350 Certification of Chief Financial Officer*
21
23.1
31.1
31.2
32.1
32.2
* Filed herewith
+ Management contract or compensatory plan arrangement
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
TEXAS CAPITAL BANCSHARES, INC.
By: /s/ GEORGE F. JONES , JR.
George F. Jones, Jr.
President and Chief Executive Officer
Date: February 18, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
/s/
JAMES R. HOLLAND, JR.
James R. Holland, Jr.
Chairman of the Board and Director
/s/ GEORGE F. JONES, JR.
George F. Jones, Jr.
President, Chief Executive Officer and Director
(principal executive officer)
/s/ PETER BARTHOLOW
Peter Bartholow
Executive Vice President, Chief Financial Officer
and Director
(principal financial officer)
JULIE ANDERSON
/s/
Julie Anderson
Controller
(principal accounting officer)
92
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
Date: February 18, 2010
/s/
JAMES H. BROWNING
James H. Browning
Director
JOSEPH M. GRANT
/s/
Joseph M. Grant
Director
/s/ FREDERICK B. HEGI, JR.
Frederick B. Hegi, Jr.
Director
/s/ LARRY L. HELM
Larry L. Helm
Director
/s/ WALTER W. MCALLISTER III
Walter W. McAllister III
Director
/s/ LEE ROY MITCHELL
Lee Roy Mitchell
Director
/s/ ELYSIA H. RAGUSA
Elysia H. Ragusa
Director
/s/ STEVEN P. ROSENBERG
Steven P. Rosenberg
Director
93
NASDAQ ®: TCBI
Texas Capital Bancshares, Inc. is the parent company of Texas Capital
Bank, a commercial bank that caters to businesses and private clients
with offi ces in Austin, Dallas, Fort Worth, Houston and San Antonio.
IN VESTMEN T HI GH LIG HTS
•
Business model intact, producing strong core earnings in 2009
•
Improved earnings power driven by margin expansion throughout the year
•
Strong deposit growth, especially DDA, at signifi cantly reduced cost
•
Intense focus on credit quality continued in 2009 and into 2010
2009 FIN ANCIA L SUMMA RY
Dollars in the thousands
Dec 2009
Dec 2008
% Change
Total Assets
Total Deposits
Loans Held for Investment
Total Loans
Net Income
Diluted Earnings Per Share
Return on Assets
Return on Equity
$5,698,318
$4,120,725
$4,457,293
$5,150,797
$ 24,387
$
0.55
$5,141,034
$3,333,187
$4,027,871
$4,524,222
$ 24,882
$
0.89
11%
24%
11%
14%
(2)%
(38)%
0.46%
0.55%
—
5.15% 7.46% —
DEP OSIT AN D LOA N GROWTH
Loan Held for Investment CAGR:
Total Deposits CAGR:
Total Assets CAGR:
23%
18%
17%
3
0
0
,
3
9
5
6
3
,
9
6
0
3
,
2
2
7
,
2
7
8
2
4
,
2
6
4
3
,
6
6
0
3
,
3
8
5
2
,
0
9
7
,
1
5
6
5
,
1
,
5
9
4
6 2
7
0
2
,
–
1
4
1
,
5
8
2
0
4
,
3
3
3
,
3
8
9
6
,
5
7
5
4
,
4
1
2
1
,
4
($ in millions)
$6,000
$5,500
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2004
2005
2006
2007
2008
2009
Note: All balances above reflect continuing operations
* Excludes loans held for sale.
^From continuing operations.
Loans HFI* Deposits Total Assets^
CO R PO RAT E INFO R MATIO N
Stock Exchange
Texas Capital Bancshares, Inc is
traded under the symbol TCBI
on the Nasdaq Stock Market.®
Transfer Agent
Computershare Investor Services LLC
250 Royall Street, Mail Stop 1A
Canton, Massachusetts 02021
800.568.3476
Annual Meeting
The annual meeting of shareholders
will be held on May 18 at 10 a.m. at
2000 McKinney Avenue 7th fl oor
in Dallas.
Other Information
Corporate governance and other
investor information may be found at
www.texascapitalbank.com
LO CAT IO NS
Corporate Headquarters
Dallas/Premier Place
Plano
2000 McKinney Avenue
5910 North Central Expressway
5800 Granite Parkway
Dallas, Texas 75201
214.932.6600
Austin
114 West 7th Street
Austin, Texas 78701
512.236.6770
Midway/Spring Valley
14131 Midway Road
Addison, Texas 75001
972.450.5050
Dallas, Texas 75206
214.890.5800
Fort Worth
500 Throckmorton
Plano, Texas 75024
972.963.3000
San Antonio
745 East Mulberry
Fort Worth, Texas 76102
San Antonio, Texas 78212
817.212.8333
210.785.3600
Houston
One Riverway
San Antonio/Quarry Heights
7373 Broadway
Houston, Texas 77056
San Antonio, Texas 78209
713.439.5900
210.283.5220
BOAR D O F DIRE CT O RS
Peter B. Bartholow
James H. Browning
Joseph M. Grant
James R. Holland, Jr.
George F. Jones, Jr.
W.W. “Bo” McAllister III
Frederick B. Hegi, Jr.
Lee Roy Mitchell
Larry L. Helm
Elysia Holt Ragusa
Steven P. Rosenberg
Robert W. Stallings
Ian J. Turpin
2
0
0
9
A
N
N
U
A
L
R
E
P
O
R
T
2 0 0 9 A N N U A L R E P O RT
TEXAS CAPITAL BANCSHARES, INC.
TEXAS CAPITAL BANK
www.texascapitalbank.com