Texas Capital BancShares Inc. (NASDAQ:TCBI) Q2 2016 Earnings Conference Call - Final Transcript

Jul 20, 2016 • 05:00 pm ET


Texas Capital BancShares Inc. (NASDAQ:TCBI) Q2 2016 Earnings Conference Call - Final Transcript


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Good afternoon and welcome to the Texas Capital Bancshares Inc. Second Quarter 2016 Earnings Conference Call. [Operator Instructions]

At this time, I will turn the call over to Heather Worley, Director of Investor Relations. Please go ahead.

Heather Worley

Thank you for joining us for the Texas Capital Bancshares Inc. second quarter 2016 earnings conference call. I'm Heather Worley, Director of Investor Relations.

Before we get started, please remember that this call will include forward-looking statements that are based on our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from the statements. Our forward looking statements are as the date of this call, and we do not assume any obligation to update or revise them. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earning release, our most recent annual report on form 10-K and subsequent filings with the SEC.

With me on the call today are Keith Cargill, President and CEO, and Peter Bartholow, CFO and COO. After a few prepared remarks, our operator Laura will facilitate a Q&A session.

At this time, I will turn the call over to Keith and who will begin on slide 3 of the webcast. Keith?

Keith Cargill

Thank you, Heather.

We welcome you to our second quarter earnings call. I'm Keith Cargill, President and CEO of Texas Capital BancShares. We will lead with my opening remarks followed by comments from Peter Bartholow, CFO and Chief Operating Officer. Then I will close, and Laura, our operator, will open the call for Q&A.

Second quarter of 2016 show continued strong growth in loans and deposits. Average core LHI growth equaled 3% linked quarter. Year-over-year, core LHI grew 12%. Average growth in mortgage finance amounted to 18% linked quarter, with the seasonally strong second quarter volumes. Year-over-year, mortgage financing increased 2%, netting out the increase in participation sold. Our newest mortgage business, mortgage correspondent aggregation or MCA, grew 25% on average from Q1 to Q2. We look forward to a first time profit contribution from the MCA Business in the third quarter preceding its one year anniversary since we launched MCA at the end of September 2015. Demand deposits increased on average 15% linked quarter and 14% year-over-year.

Let's move to credit. First, we were able to record a significantly reduced provision for loan losses of $16 million versus the $30 million in Q1. Despite higher charge-offs, the reserve for our energy portfolio remained at 5%. We ended the second quarter with an overall loan loss reserve of 1.41% against LHI net of mortgage finance. Nonaccrual loans for LHI decreased 2.93% [Phonetic] from 1.02% [Phonetic] linked quarter. Nonaccruals were 0.77% at Q2 2015. Net charge-offs were $12 million or 39 basis points versus 25 basis points in Q1. In Q2 2015, net charge-offs were 14 basis points.

Clearly, the pace has increased of realizing the loan losses in energy for which