We estimate that our net proceeds from this offering, after deducting
underwriting discounts, commissions and estimated offering expenses, will be
approximately $142.0 million, or approximately $173.4 million if the
underwriters exercise their over-allotment option in full, based on an assumed
initial offering price of $15.00 per share (the midpoint of the estimated
public offering price set forth on the cover page of this prospectus). A $1.00
increase (decrease) in the assumed initial public offering price of $15.00 per
share (the midpoint of the estimated public offering price set forth on the
cover page of this prospectus) would increase (decrease) the net proceeds to
us from this offering by approximately $9.6 million, assuming the number of
shares offered by us, as set forth on the cover page of this prospectus,
remains the same, or approximately $11.7 million if the underwriters’
overallotment option is exercised in full, and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. We
intend to use the net proceeds from this offering:
• first, to redeem, for approximately $92 million, our Series A and Series B
Preferred Stock that we issued to the U.S. Treasury pursuant to the U.S.
Treasury’s Capital Purchase Program, at their $1,000 per share liquidation
preference, plus accrued and unpaid dividends;
• second, to repay approximately $20 million of our existing debt under a
revolving line of credit owed to an affiliate of J.P. Morgan Securities
Inc. (the “JPMorgan Debt”), which bears interest at the LIBOR rate plus
2.5% payable quarterly and matures in July, 2010, and a portion of which
was drawn during 2008 and was used for general corporate purposes; and
• third, the remaining net proceeds to support and enhance our operations.
We will not receive any proceeds from the sales of our Common Stock in the
offering by the selling shareholders. As a result of the intended repayment of
the JPMorgan Debt and the fact that our wholly-owned subsidiary, First
Southwest Company, is participating as a broker-dealer in this offering, the
offering is being conducted in accordance with certain conflict of interest
rules.
The approval of the Federal Reserve Board is required for the repurchase of
the Series A and Series B Preferred Stock. We do not know when, or if, we will
receive such approval. If we do not receive the necessary regulatory approval
to repurchase the Series A and Series B Preferred Stock, or our board of
directors subsequently determines not to repurchase the Series A and Series B
Preferred Stock, then we intend to use approximately $20 million of the net
proceeds of the offering to repay the JPMorgan Debt and to use the remaining
net proceeds to support and enhance operations.
We face significant competition with respect to the business segments in which
we operate and the geographic markets we serve. Our lending and mortgage
origination competitors include commercial banks, savings banks, savings and
loan associations, credit unions, finance companies, pension trusts, mutual
funds, insurance companies, mortgage bankers and brokers, brokerage and
investment banking firms, asset-based non-bank lenders, government agencies
and certain other non-financial institutions. Competition for deposits and in
providing lending and mortgage origination products and services to businesses
in our market area is intense and pricing is important. Additionally, other
factors encountered in competing for savings deposits are convenient office
locations and rates offered. Direct competition for savings deposits also
comes from other commercial bank and thrift institutions, money market mutual
funds and corporate and government securities which may offer more attractive
rates than insured depository institutions are willing to pay. Competition for
loans includes such additional factors as interest rate, loan origination fees
and the range of services offered by the provider. While the competition that
we face for in our banking and mortgage origination segments is intense, the
competition that we face varies based upon the market in which we operate. For
example, our banking segment faces less competition in the Lubbock market than
it does in the Dallas/Fort Worth metroplex.
We also face significant competition for financial advisory services on a
number of factors such as price, perceived expertise, range of services, and
local presence. Our financial advisory business competes directly with
numerous other financial advisory and investment banking firms, broker-dealers
and banks, including large national and major regional firms and smaller niche
companies, some of whom are not broker dealers and, therefore, not subject to
the broker dealer regulatory framework. Many of our competitors have
substantially greater financial resources, lending limits and larger branch
networks than we do, and offer a broader range of products and services.
together
for the last 21 years. We have paid constant or increased dividends to our
shareholders for each of the past 20 years and have been profitable for each
of those years. For the years 1990 though 2008, our consolidated assets
increased from $346.0 million to $4.0 billion and our consolidated net income
increased from $2.0 million to $24.1 million, representing a compounded annual
growth rate of 14% and 15%, respectively. As of September 30, 2009, we
employed approximately 2,600 people in 211 locations in 36 states across our
three business segments.
We provide the personalized client service and responsiveness most often
associated with smaller financial institutions while offering the
sophisticated products and services frequently associated with larger
financial institutions. In addition to traditional banking services, we also
provide wealth and investment management, treasury management, capital
equipment leasing, residential mortgage lending, investment banking, public
finance advisory services, fixed income sales and trading, asset management
and correspondent clearing.
As of September 30, 2009, on a consolidated basis, we had total assets of
approximately $4.7 billion, total deposits of approximately $3.2 billion,
total loans, including loans held for sale, of approximately $3.5 billion and
shareholders’ equity of approximately $431.1 million. We have experienced
significant growth since our inception. Over the five-year period ending
December 31, 2008, our net revenues, which we define as the sum of net
interest income and noninterest income, increased 30.3% from $189.1 million to
$246.4 million.
Business segments
We operate through three complementary business segments: banking, mortgage
origination and financial advisory. We believe the diversification of income
sources from each of our business segments mitigates business risk and
provides opportunities for growth in varied economic conditions. We derive
our revenue and net income primarily from our banking and mortgage
origination segments, while the remainder of our revenue and net income is
generated from our financial advisory segment. During 2009 and the first six
months of 2010, approximately 35.9% and 38.5%, respectively, of our net
revenue and 29.4% and 64.6%, respectively, of our net income, were derived
from our banking segment. The mortgage origination segment generated
approximately 43.3% and 43.3%, respectively, of our net revenue and 54.3%
and 24.4%, respectively, of our net income during 2009 and the first six
months of 2010. During 2009 and the first six months of 2010, the financial
advisory segment contributed 20.8% and 18.2%, respectively, of our net
revenue and 16.3% and 11.0%, respectively, of our net income.
Banking . The Bank was the ninth largest bank headquartered in Texas based
upon deposits as of June 30, 2009, and currently has 36 locations in the
Austin, Dallas/Fort Worth, Lubbock and San Antonio markets. The Bank seeks
to differentiate itself from its competitors by offering highly personalized
service and tailoring its operating strategy to different markets. The
Lubbock market serves as a strong source of core deposits for the Bank. In
other markets, we operate a model focusing on middle-market companies and
high net worth individuals. With $4.6 billion in assets as of June 30, 2010,
and capital ratios that significantly exceed regulatory guidelines for “well
capitalized” banks, we believe the Bank is well positioned for continued
growth.
Mortgage origination . Our mortgage origination segment is operated through
the Bank’s wholly owned subsidiary, PrimeLending, and offers a variety of
residential mortgage loan products from offices in 32 states. We sell
substantially all mortgage loans we originate in the secondary market and do
not service these loans. Last year we originated approximately $5.7 billion
in mortgage loans, setting a company record for the highest aggregate dollar
amount of loans originated in a year. By dollar volume, approximately half of
our loans originated during the first six months of 2010 were collateralized
by residential real estate located in Texas. In 2009, according to Computer
Business Methods, Inc., we ranked as the 20 th largest retail mortgage loan
producer in the United States and first in Texas for Federal Housing
Administration (“FHA”) mortgage loan originations in Texas.
Financial advisory . Through our wholly owned subsidiary, First Southwest,
we offer public finance, advisory and related services, which, for the six
months ended June 30, 2010, represented a majority of the net revenues of
First Southwest. Additionally, First Southwest offers corporate finance,
investment banking, fixed income sales and trading services, asset management
and correspondent clearing. Our financial advisory segment includes 24
offices nationwide, 12 of which are in Texas. We believe that the public
finance industry is well positioned to capitalize on the federal government’s
infrastructure stimulus legislation. Our public finance advisory business
ranked first nationally, based upon number of issuances, and third nationally,
based upon par volume of issuances, for the five-year period ending on June
30, 2010, according to information derived from MuniAnalytics. First
Southwest currently has a financial advisory relationship with more than
1,600 public sector clients.
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Our principal executive office is located at 2323 Victory Avenue, Suite 1400,
Dallas, TX 75219. Our telephone number is (214) 252-4100 and our corporate
website address is www.plainscapital.com.