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Texas Capital (TCBI) Q2 Earnings Lag Estimates, Revenues Up

Zacks Equity Research

Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.50 in second-quarter 2019, lagging the Zacks Consensus Estimate of $1.53. Results, however, compare favorably with the prior-year quarter’s $1.38.

Elevated expenses were on the downside. However, rise in revenues was a positive factor. Further, organic growth was reflected, with significant rise in loans and deposit balances.

Net income available to common stockholders came in at $75.5 million compared with the $69 million recorded in the prior-year quarter.

Revenues Rise, Loans & Deposits Go Up, Costs Escalate

Total revenues (net of interest expense) jumped 7.6% year over year to $268 million in the quarter, driven by higher net interest as well as non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $267.2 million.

Texas Capital’s net interest income was $243.6 million, up 5.1% year over year, mainly stemming from rise in average total loans, partly muted by rise in average interest-bearing liabilities and deposit costs. Net interest margin, however, contracted 52 basis points (bps) year over year to 3.41%.

Non-interest income escalated 41% year over year to $24.4 million. This upside primarily stemmed from higher brokered loan fees and other non-interest income. These were partially offset by decreased servicing income attributable to fall in mortgage servicing rights associated with the company’s MCA program.

Non-interest expenses flared up 7.2% year over year to $141.6 million. This upswing mainly resulted from rise in almost all components of expenses.

As of Jun 30, 2019, total loans rose slightly on a sequential basis to $25.4 billion, while deposits climbed 11.1% sequentially to $23 billion.

Credit Quality: A Mixed Bag

Non-performing assets totaled 0.47% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year expansion of 6 bps. Total non-performing assets came in at $114.4 million, up 23% year over year.

Non-accrual loans were $114.1 million or 0.47% of total loans, against $83.3 million or 0.37% recorded in the year-ago quarter.

Provisions for credit losses summed $27 million, flat year on year. The company’s net charge-offs plummeted 47.4% on a year-over-year basis to $20 million.

Steady Capital and Profitability Ratios

The company’s capital ratios displayed a steady position during the April-June quarter. As of Jun 30, 2019, return on average equity was 12.2%, and return on average assets was 1.05% compared with 12.72% and 1.16%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.3% compared with 7.8% reported in the year-earlier quarter.

Common equity Tier 1 ratio was 8.7% as compared with 8.3% in the prior-year quarter. Leverage ratio was 9.2% compared with 9.9% as of Jun 30, 2018.

Stockholders’ equity was up 17.4% year over year to $2.7 billion as of Jun 30, 2019. The uptrend chiefly allied with the retention of net income.

Our Viewpoint

Texas Capital’s improved top line and a better balance sheet during the quarter impress us. Moreover, improving economic situation might drive the company’s performance in the future. Though improvement in fee income remains a favorable factor, its inability to control expenses and higher non-performing assets will likely erode near-term profitability.

Texas Capital Bancshares, Inc. Price, Consensus and EPS Surprise

Texas Capital Bancshares, Inc. Price, Consensus and EPS Surprise

Texas Capital Bancshares, Inc. price-consensus-eps-surprise-chart | Texas Capital Bancshares, Inc. Quote

Currently, Texas Capital carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Driven by top-line strength, U.S. Bancorp’s USB second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the figure came in 6.9% higher than the prior-year quarter’s reported tally. Higher interest and fee income were the driving factors. Further, loan and deposit growth was recorded. Nevertheless, escalating expenses and provisions were the undermining factors.

PNC Financial PNC reported positive earnings surprise of 1.8% in the second quarter. Earnings per share of $2.88 outpaced the Zacks Consensus Estimate of $2.83. The bottom line also reflected a 5.9% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds.

Driven by top-line strength, Synovus Financial SNV reported a positive earnings surprise of 1.01% in the June-end period. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. This apart, the reported figure came in 8.4% higher than the prior-year quarter tally. Higher revenues, backed by strong loan balances, stoked organic growth. Notably, lower efficiency ratio and rising fee income were tailwinds. Nonetheless, escalating expenses and provisions were undermining factors.

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