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Texas Capital (TCBI) Q3 Earnings Top Estimates, Revenues Up

Zacks Equity Research

Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.70 in third-quarter 2019, outpacing the Zacks Consensus Estimate of $1.49. Results compare favorably with the prior-year quarter’s $1.65 as well.

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

Net income available to common stockholders came in at $85.7 million compared with the $83.1 million recorded in the prior-year quarter.

Revenues Rise, Loans & Deposits Go Up, Costs Escalate

Total revenues (net of interest expense) jumped 5.7% year over year to $272.5 million in the quarter, driven by higher net interest income, partly offset by lower non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $262.1 million.

Texas Capital’s net interest income was $252.2 million, up 8.6% year over year, mainly stemming from rise in average total loans and liquidity assets, partly muted by rise in average interest-bearing liabilities and deposit costs. Net interest margin, however, contracted 54 basis points (bps) year over year to 3.16%.

Non-interest income declined 20.4% year over year to $20.3 million. This downside  primarily resulted from decreased servicing income due to fall in mortgage servicing rights associated with the company’s MCA program and net gain/(loss) on sale of LHS,  partially offset by higher brokered loan fees.

Non-interest expenses flared up 9.8% year over year to $149.4 million. This upswing mainly resulted from rise in almost all components of expenses, partly muted by lower FDIC insurance assessment and other expenses.

As of Sep 30, 2019, total loans rose 8.3% on a sequential basis to $27.5 billion, while deposits climbed 19.1% sequentially to $27.4 billion.

Credit Quality: A Mixed Bag

Non-performing assets totaled 0.49% of the loan portfolio, plus other real estate-owned assets, in line with the prior year. Total non-performing assets came in at $120.7 million, up 12.2% year over year.

Provisions for credit losses summed $11 million, down 15.4% year on year. The company’s net charge-offs increased significantly on a year-over-year basis to $36.9 million.

Steady Capital and Profitability Ratios

The company’s capital ratios displayed a steady position during the July-September quarter. As of Sep 30, 2019, return on average equity was 13.22%, and return on average assets was 1.06% compared with 14.68% and 1.31%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 7.7% compared with 8.3% reported in the year-earlier quarter.

Common equity Tier 1 ratio was 8.6%, in line with the prior-year quarter. Leverage ratio was 8.6% compared with 9.7% as of Sep 30, 2018.

Stockholders’ equity was up 16.7% year over year to $2.8 billion as of Sep 30, 2019. The uptrend chiefly allied with the retention of net income.

Our Viewpoint

Texas Capital’s improved top line and a solid balance sheet during the third quarter look impressive. Moreover, an improving economic situation is anticipated to drive the company’s performance in the upcoming period. Though growth in net interest income is a favorable factor, the bank’s 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

PNC Financial PNC reported positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflected a 4.3% 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.

Goldman Sachs’ GS posted a negative earnings surprise of 4.8% for the September-end results. The company reported earnings per share of $4.79, missing the Zacks Consensus Estimate of $5.03. Further, the bottom-line figure compared unfavorably with earnings of $6.28 per share recorded in the year-earlier quarter.

Wells Fargo’s WFC third-quarter earnings of 92 cents per share lagged the Zacks Consensus Estimate of $1.15 on lower net interest income. The figure also came in lower than the prior-year quarter earnings of $1.13 per share. Results include discrete litigation accrual (not tax-deductible) worth 35 cents per share, and gain from the sale of Institutional Retirement and Trust (IRT) business worth 20 cents. Also, the partial redemption of Series K Preferred Stock decreased earnings by 5 cents.

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