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Texas Capital (TCBI) Q2 Earnings, Revenues Surpass Estimates

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Texas Capital Bancshares Inc. (TCBI - Free Report) reported adjusted earnings per share of 26 cents in second-quarter 2020, beating the Zacks Consensus Estimate for earnings of 16 cents. The reported figure excluded certain noteworthy items, such as the impacts of the MSR impairment charges, severance accruals, non-recurring software and merger-related expenses.

The results reflect stellar revenue growth on higher non-interest income. Higher deposits and loan balances also acted as tailwinds. However, escalating expenses, lower net interest income and a substantial rise in provisions and reserve build due to the coronavirus crisis remain major concerns.

After considering one-time items, net loss available to common stockholders was $36.8 million or 73 cents per share as against the net income of $75.4 million or $1.50 per share recorded in the prior-year quarter.

Revenues Rise, Costs Escalate

Total revenues increased 4.7% year over year to $280.4 million in the second quarter on higher non-interest income. Furthermore, revenue surpassed the Zacks Consensus Estimate of $235.2 million.

Texas Capital’s net interest income was $209.9 million, down 13.8% year over year, mainly stemming from a decline in loan yields, partly muted by a decrease in funding costs. Net interest margin, moreover, contracted 111 basis points (bps) year over year to 2.30%.

Non-interest income increased significantly year over year to $70.5 million. This upside primarily resulted from higher gains from sale of loans held for investment, brokered loan fees and servicing income, partially offset by lower other non-interest income.

Non-interest expenses flared up 57% year over year to $222.4 million. The upswing mainly resulted from a rise in almost all components of expenses.

As of Jun 30, 2020, total loans were up 3% on a sequential basis to $26 billion, while deposits rose 11.3% sequentially to $30.2 billion.

Credit Quality Deteriorates

Non-performing assets totaled 0.68% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s figure of 0.47%. Total non-performing assets rose 52.5% to $174 million compared with the year-ago quarter.

Provisions for credit losses came in at $100 million compared with the year-ago quarter’s $27 million. The company’s net charge-offs were $74.1 million compared with $20 million as of Jun 30, 2019.

Capital Ratios Steady

The company’s capital ratios displayed a steady position during the second quarter. Tangible common equity to total tangible assets came in at 7% compared with the year-earlier quarter’s 8.3%.

Common equity Tier 1 ratio was 8.9%, up from the prior-year quarter’s 8.7%. Leverage ratio was 7.5% compared with 9.2% as of Jun 30, 2019.

Stockholders’ equity was up 3% year over year to $2.7 billion as of Jun 30, 2020.  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 reported quarter look impressive. Moreover, an improving economic situation is anticipated to aid the company’s performance in the future. The bank’s inability to control expenses and higher non-performing assets will likely affect near-term profitability.

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 - Free Report) reported second-quarter 2020 earnings per share of $2.21, missing the Zacks Consensus Estimate of $2.27. Also, the bottom line decreased 18.5% from the prior-year quarter’s reported tally.

Zions Bancorporation’s (ZION - Free Report) net earnings of 34 cents per share missed the Zacks Consensus Estimate of 37 cents in the June-end quarter. Moreover, the bottom line compared unfavorably with the year-ago quarter’s 99 cents.

BancorpSouth Bank (BXS - Free Report) delivered an earnings surprise of a whopping 90.3% in second-quarter 2020 on higher interest income. Net operating earnings of 59 cents per share beat the Zacks Consensus Estimate of 31 cents. However, the bottom line compared unfavorably with the year-ago quarter’s 61 cents.

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