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Texas Capital (TCBI) Q1 Earnings & Revenues Beat Estimates

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Driven by top-line strength, Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive earnings surprise of around 0.7% in first-quarter 2018. Earnings per share of $1.38 outpaced the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with 80 cents recorded in the prior-year quarter.

Results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances. However, elevated expenses and provisions were the undermining factors.

Net income available to common stockholders came in at $69.5 million compared with $40.1 million recorded in the prior-year quarter.

Revenues Rise, Loans & Deposits Go Up, Costs Escalate

Total revenues (net of interest expense) jumped 21.1% year over year to $230.2 million in the quarter, driven by higher net interest income and non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $225.4 million.

Texas Capital’s net interest income was $210.3 million, up 28.7% year over year, mainly due to rise in loans held for investment, improved earning asset composition and loan yields. In addition, net interest margin expanded 42 basis points (bps) year over year to 3.71%. This resulted from improvement in loan yields, partially offset by high cost of deposits.

Texas Capital’s non-interest income advanced 17% year over year to $19.9 million. The rise was primarily due to an increase in service charges, servicing income, wealth management and trust fee income, along with bank-owned life insurance income. These were partially offset by lower brokered loan fees, swap fees and other income.

However, non-interest expenses flared up 20% year over year to $127 million. This mainly stemmed from rise in almost all components of expenses.

As of Mar 31, 2018, total loans rose 22.2% year over year to $21.5 billion, while deposits climbed 13.3% year over year to $18.8 billion.

Credit Quality: A Mixed Quality

Non-performing assets totaled 0.65% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 34 bps. Total non-performing assets came in at $133.1 million, down 19.5% year over year.

The company’s net charge-offs slipped 8.8% on a year-over-year basis to $5.2 million. Non-accrual loans were $123.5 million or 0.60% of total loans, against $146.5 million or 0.88% in the year-ago quarter.

However, provisions for credit losses summed $12 million, up 33.3% year over year.

Steady Capital and Profitability Ratios

The company’s capital ratios displayed a steady position. As of Mar 31, 2018, return on average equity was 13.39%, and return on average assets was 1.22% compared with 8.60% and 0.83%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.6% compared with 9% reported in the year-earlier quarter.

Common equity Tier 1 ratio was 8.8% as compared with 9.6% in the prior-year quarter. Leverage ratio was 9.9% compared with 10.3% as of Mar 31, 2017.

Stockholders’ equity was up 11% year over year to $2.3 billion as of Mar 31, 2018. The uptrend chiefly allied with retention of net income.

Our Viewpoint

Texas Capital’s improved top line and a better balance sheet during the quarter impress us. However, bleak economic situation might hurt the company’s performance in the future. Though its inability to control expenses will likely impede near-term profitability, improvement in margin remains a favorable factor.
 

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

M&T Bank Corporation (MTB - Free Report) reported net operating earnings of $2.26 per share in first-quarter 2018. The bottom line improved 5.1% year over year. In addition, top-line growth was recorded. Moreover, improved credit quality was a positive factor. Further, pressure on margin eased. However, decrease in loan and deposit balances was a headwind. Also, results were affected by higher expenses.

Driven by top-line strength, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.3% in the first quarter. Earnings per share of $1.68 for the quarter easily outpaced the Zacks Consensus Estimate of $1.61. Also, earnings compared favorably with the year-ago tally of $1.35 per share. Overall top-line strength was reflected, driven by higher banking, equity markets and consumer banking revenues, along with loan growth. However, expenses escalated on ongoing investments.

Comerica (CMA - Free Report) reported adjusted earnings per share of $1.54 in first-quarter 2018, up from the prior-year quarter adjusted figure of $1.02 on high interest income. Including certain non-recurring items, earnings came in at $1.59. The Zacks Consensus Estimate was $1.49. Higher revenues and improved credit metrics were recorded. Moreover, rise in loans was another tailwind. However, lower deposits and rise in expenses were undermining factors.

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