67 WALL STREET, New York - July 7, 2014 - The Wall Street Transcript has just published its Banking Review 2014 Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Banking Review 2014
Companies include: Texas Capital BancShares Inc. (TCBI) and many more.
In the following excerpt from the Banking Review 2014 Report, the President and CEO of Texas Capital Bank (TCBI) discusses company strategy and the outlook for this vital industry:
TWST: I saw that your portfolio now includes energy loans. Why did you decide to target that specific niche?
Mr. Cargill: We have some special niches that are more lending-oriented like energy. We do a lot of Treasury management for our energy clients, too, but of course drilling oil and gas wells requires a lot of capital. There is a lot of demand for bank debt to reduce their overall cost of capital and retain their equity ownership as they grow their oil and gas business. So that's a great business for us.
The reason we chose to get into it is, we obviously are the Texas bankers. Those of us who founded the company, we've done oil and gas energy lending our entire career. We have done it for a very long time and even during the worst of times. There can be some hard times because of the volatility of a commodity business and the volatility in price. Even in the worst of times, we found back in the 1980s that the energy lending business we did with prudent in-house petroleum engineering and good bankers produced good results. You have five or eight wells that you are loaning against on the very first loan you make, and these are wells that already are producing.
If you have your own petroleum engineering know-how in the bank as we do, then you have that additional confidence that the reserve reports on the future production prospects on these wells, that you will have a really good understanding of what that future cash flow really will be and structure your debt accordingly. If you do those things well and you don't become caught up in loaning these companies too much money on their reserves, it's really a business you shouldn't lose money in. You shouldn't have loan losses.
Today that business approaches $1 billion of our loan portfolio, our oil and gas business, and we've been in it now for 13 years. So it was two years into the life of the company that we launched our energy lending business, and we have only lost $300,000 in 13 years with over $1 billion today in loans in that sector. It's a very, very good business, but you have to really be disciplined and you have to have, in our opinion, a very deep knowledge under your roof with the petroleum engineers in the same boat as the banker. If there is a leak in the boat and the boat starts to sink, the petroleum engineer is responsible with the banker.
We don't use outside petroleum engineers to determine whether or not we are making a good loan. We have our own opinion. Of course our clients use outside engineering firms to develop their reserve reports, and we look at those reports, but our engineers then apply their different discounts to some of those engineering metrics so that we have a really consistent way to approach loaning money against oil and gas reserves, and it works very well for us.
TWST: You talked a little bit about your background and about founding the bank. Can you tell us a little bit more about your background and then about the rest of your management team as well?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.