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Texas Capital (TCBI) Q2 Earnings, Revenues Beat Estimates

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Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive surprise of 2.6% in the second-quarter 2016 on higher revenues. Earnings per share of 78 cents outpaced the Zacks Consensus Estimate as well as the prior-year quarter figure of 76 cents.

Organic growth was driven by higher revenues along with strong loans and deposit balances. However, elevated expenses and deteriorating credit quality remained headwinds.

Net income available to common shareholders was $36.4 million, up 3% year over year.
 

Texas Capital Bancshares Inc. (TCBI - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Revenue Escalate; Costs Rises

Total revenue rose 10.3% year over year to $171 million driven by higher net interest income and non-interest income in the quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $166 million.

Texas Capital’s net interest income was $157.1 million, up 10.4% year over year. However, net interest margin decreased 4 basis points (bps) year over year to 3.18%. The decline was triggered by higher liquidity asset balance along with increased deposits and borrowings with higher average cost.

Texas Capital’s non-interest income climbed 8.6% year over year to $13.9 million. The rise was primarily due to rise in almost all components of income.

Texas Capital’s non-interest expenses increased 16% year over year to $94.3 million due to a rise in almost all categories of expenses.

As of Jun 30, 2016, total loans rose 11% year over year to $17.8 billion, while deposits surged 17.6% year over year to $16.7 billion.

Deteriorating Credit Quality

Credit metrics declined during the quarter. Non-performing assets totaled 1.04% of the loan portfolio plus other real estate owned assets, reflecting a year-over-year increase of 27 bps. Total non-performing assets came in at $184.2 million, up 49.1% year over year. Provisions for credit losses summed $16.9 million, up 17.4% year over year.

The company’s net charge-offs more than tripled on a year-over-year basis to $12.0 million. Non-accrual loans were $165.4 million or 0.93% of total loans against $122.9 million or 0.77% in the prior-year quarter.

Strong Capital and Profitability Ratios

Texas Capital’s capital ratios demonstrated a strong position. Tangible common equity to total tangible assets came in at 7.2% compared with 7.8% in the prior-year quarter. Return on average equity was 9.65% and return on average assets was 0.77% compared with 10.32% and 0.83%, respectively, in the year-ago quarter.

Stockholders’ equity escalated 8% year over year to $1.7 billion as of Jun 30, 2016. The uptrend was chiefly allied with retention of net income.

Our Viewpoint

Texas Capital’s improved top line and strong capital position remained impressive during the quarter. However, the company’s escalating expenses may hinder its profitability, going forward. Moreover, the persistent low interest rate environment, dreary economic situation and regulatory concerns may continue to hurt the company’s performance in the future.
 

TEXAS CAP BCSHS Price, Consensus and EPS Surprise

TEXAS CAP BCSHS Price, Consensus and EPS Surprise | TEXAS CAP BCSHS Quote

Currently, Texas Capital has a Zacks Rank #3 (Hold).

Among other Southwest banks, Prosperity Bancshares Inc. (PB - Free Report) , BOK Financial Corporation (BOKF - Free Report) and Cullen/Frost Bankers, Inc. (CFR - Free Report) are expected to release second-quarter 2016 results on Jul 27.

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