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Texas Capital (TCBI) Q3 Earnings, Revenues Surpass Estimates

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Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.08 in third-quarter 2020, beating the Zacks Consensus Estimate of 66 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.70.

The results reflect stellar growth in non-interest income. Higher deposit balances also acted as a tailwind. However, lower net interest income and a substantial rise in provisions remain major concerns.

Net income attributable to common shareholders was $54.7 million, down from the prior-year quarter’s $85.6 million.

Revenues Fall, Costs Rise

Total revenues edged down 1.7% year over year to $267.9 million in the third quarter on lower net-interest income. However, revenues surpassed the Zacks Consensus Estimate of $254 million.

Texas Capital’s net interest income was $207.6 million, down 17.7% year over year. Net interest margin, moreover, contracted 94 basis points (bps) year over year to 2.22%, mainly stemming from a decline in loan yields, partly muted by a decrease in funding costs.

Non-interest income increased significantly year over year to $60.3 million. This upside primarily resulted from higher gains from sale of loans held for investment and brokered loan fees.

Non-interest expenses went up 11% year over year to $165.7 million. This upswing mainly resulted from a rise in communications and technology expenses, partly offset by a fall in marketing expenses.

As of Sep 30, 2020, total loans edged down 1.2% on a sequential basis to $25.2 billion, while deposits rose 6% sequentially to $32 billion.

Credit Quality Deteriorates

Non-performing assets totaled 0.64% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s figure of 0.49%. Total non-performing assets rose 34.2% to $161.9 million compared with the year-ago quarter.

Provisions for credit losses came in at $30 million compared with the year-ago quarter’s $11 million. The company’s net charge-offs were $1.6 million compared with $36.9 million as of Sep 30, 2019.

Capital Ratios Steady

The company’s capital ratios displayed a steady position during the July-September quarter. Tangible common equity to total tangible assets came in at 6.8% compared with the year-earlier quarter’s 7.6%.

Common equity Tier 1 ratio was 9.1%, up from the prior-year quarter’s 8.6%. Leverage ratio was 7.6% compared with 8.6% as of Sep 30, 2019.

Stockholders’ equity was up 2.4% year over year to $2.8 billion as of Sep 30, 2020.

Our Viewpoint

Texas Capital’s solid deposits balance lends strength to the company’s balance sheet. Moreover, an improving economic situation is anticipated to aid the company’s performance in the future. However, the bank’s inability to control expenses and higher non-performing assets will likely affect 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 and EPS Surprise

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

Currently, Texas Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Signature Bank SBNY reported third-quarter 2020 earnings per share of $2.62, marginally missing the Zacks Consensus Estimate of $2.78. Also, the bottom line decreased 4.4% from the prior-year quarter’s reported tally.

Zions Bancorporation’s ZION third-quarter 2020 net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.17.

BancorpSouth Bank BXS delivered an earnings surprise of 32.7% in third-quarter 2020 on higher interest income. Net operating earnings of 69 cents per share beat the Zacks Consensus Estimate of 52 cents. The bottom line, however, remained flat year over year.

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