Texas Capital Misses Estimate

Texas Capital Bancshares’ (TCBI - Analyst Report) third quarter earnings of 15 cents per share were down from the Zacks Consensus Estimate of 22 cents. The company had earned 27 cents in the year-ago quarter.

Results reflected the elevated provisioning levels for loan losses due to the challenging economic conditions. However, the company posted meaningful growth in loan and deposits.

Credit metrics continued to expand negatively overall. Non-performing assets equaled 2.77% of the loan portfolio plus other real estate owned assets, up 86 basis points (bps) sequentially and 141 bps year-over-year. Net charge-offs as a percentage of average loans on a 12-month trailing basis were 41 bps, flat sequentially but up 13 bps year-over-year. Provision for loan losses increased to $13.5 million from $11.0 million in the prior quarter and $4.0 million in the year-ago quarter.

Nevertheless, net interest margin was 4.06%, up 18 bps sequentially and 59 bps year-over-year, driven by low funding costs and improved yields on earning assets. The company has posted a 2% sequential and 16% year-over-year growth in loans while deposits were up 7% sequentially and 16% from the prior-year period. As a result, Texas Capital’s net interest income was $51.6 million, up from $48.8 million in the prior quarter and $38.3 million in the year-ago period.

Non-interest income increased to $7.1 million from $4.9 million reported in the prior-year period, primarily driven by increase in brokered loan fees and service charge income, partially offset by a decrease in trust fee income.

Non-interest expense increased to $37.1 million from $27.7 million reported in the previous year quarter. Results reflect an increase in salaries and employee benefits expenses primarily due to business expansion.

Texas Capital’s Tier 1 capital ratio was 11.2% (up 70 bps year-over-year) and total leverage ratio was 10.8%, up 30 basis points from the year-ago quarter.

Though credit metrics remain stretched in the quarter, Texas Capital’s strong loan and deposit growth and continued expansion in net interest margin is impressive.