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Texas Capital (TCBI) Q1 Earnings Lag, Revenues Beat, NII Up Y/Y (revised)
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Shares of Texas Capital Bancshares (TCBI - Free Report) gained 2.53% on Apr 20 normal trading session on the NYSE after it reported first-quarter 2023 adjusted earnings per share of 70 cents, up from 69 cents in the prior-year quarter. However, the bottom line missed the Zacks Consensus Estimate of 90 cents.
TCBI’s results were affected by increased expenses and deteriorating credit quality. Nonetheless, improving revenues and capital ratios were tailwinds.
Net income available to common stockholders came in at $34.3 million, declining from $35.3 million in the prior-year quarter.
Revenues and Costs Rise
Total revenues (net of interest expense) increased 33.8% year over year to $272.7 million due to an improvement in both non-interest income and net interest income (NII). Revenues surpassed the Zacks Consensus Estimate of $267.7 million.
NII was $235.3 million, climbing 28.2% year over year. The rise was aided by higher yields on average earning assets, partially offset by an increase in funding costs and a decline in total average earning assets.
The net interest margin (NIM) expanded 110 basis points (bps) to 3.33%.
Non-interest income increased considerably to $37.4 million. This was primarily due to a rise in investment banking and trading income and other non-interest income, partially offset by a fall in brokered loan fees.
Non-interest expenses increased 26.7% to $194.02 million. The rise is mainly attributable to an increase in salaries and benefits expenses as well as higher marketing, legal and professional and communications and technology expenses.
As of Mar 31, 2023, total loans improved 4.1% on a sequential basis to $20.1 billion. However, total deposits declined 2.9% to $22.2 billion.
Credit Quality Deteriorates
Non-performing assets totaled 0.47% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s 0.27%. Total non-performing assets jumped 58.5% to $94 million from the prior-year quarter’s level.
Provision for credit losses aggregated to $28 million against the year-ago quarter’s benefit of $2 million. Texas Capital’s net charge-offs (NCOs) were $19.9 million against net recoveries of $512,000 in the prior-year quarter.
Capital Ratios Improve
Tangible common equity to total tangible assets came in at 9.7% compared with the year-ago quarter’s 8.9%.
Common Equity Tier 1 (CET1) ratio was 12.4%, up from the prior-year quarter’s 11.5%. Leverage ratio was 12% compared with 9.9% as of Mar 31, 2022.
Share Repurchase Update
During the quarter, Texas Capital repurchased 1.01 million shares at an average price of $58.98 per share.
Our Viewpoint
Texas Capital’s rise in revenues and solid capital position during the first quarter look impressive. However, declining deposits, increasing provisions and expenses are concerns.
Texas Capital Bancshares, Inc. Price, Consensus and EPS Surprise
Citigroup Inc.’s (C - Free Report) first-quarter 2023 EPS (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
Net income for the quarter was $4.6 billion, increasing 7% from the prior-year quarter.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) first-quarter 2023 EPS of $3.98 surpassed the Zacks Consensus Estimate of $3.60 and improved 21% year over year. Per our estimate, the metric was $3.64 per share.
PNC's results were aided by an increase in NII, supported by higher rates and loan growth. However, rising expenses and higher provisions were headwinds.
Net income was $1.69 billion, higher than $1.43 billion in the prior-year quarter. Our model estimated this to be $1.62 billion.
(NOTE: We are re-issuing this article to correct a misconception. The original article, published early today, April 21, 2023, should no longer be relied upon. -Ed.)
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Texas Capital (TCBI) Q1 Earnings Lag, Revenues Beat, NII Up Y/Y (revised)
Shares of Texas Capital Bancshares (TCBI - Free Report) gained 2.53% on Apr 20 normal trading session on the NYSE after it reported first-quarter 2023 adjusted earnings per share of 70 cents, up from 69 cents in the prior-year quarter. However, the bottom line missed the Zacks Consensus Estimate of 90 cents.
TCBI’s results were affected by increased expenses and deteriorating credit quality. Nonetheless, improving revenues and capital ratios were tailwinds.
Net income available to common stockholders came in at $34.3 million, declining from $35.3 million in the prior-year quarter.
Revenues and Costs Rise
Total revenues (net of interest expense) increased 33.8% year over year to $272.7 million due to an improvement in both non-interest income and net interest income (NII). Revenues surpassed the Zacks Consensus Estimate of $267.7 million.
NII was $235.3 million, climbing 28.2% year over year. The rise was aided by higher yields on average earning assets, partially offset by an increase in funding costs and a decline in total average earning assets.
The net interest margin (NIM) expanded 110 basis points (bps) to 3.33%.
Non-interest income increased considerably to $37.4 million. This was primarily due to a rise in investment banking and trading income and other non-interest income, partially offset by a fall in brokered loan fees.
Non-interest expenses increased 26.7% to $194.02 million. The rise is mainly attributable to an increase in salaries and benefits expenses as well as higher marketing, legal and professional and communications and technology expenses.
As of Mar 31, 2023, total loans improved 4.1% on a sequential basis to $20.1 billion. However, total deposits declined 2.9% to $22.2 billion.
Credit Quality Deteriorates
Non-performing assets totaled 0.47% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s 0.27%. Total non-performing assets jumped 58.5% to $94 million from the prior-year quarter’s level.
Provision for credit losses aggregated to $28 million against the year-ago quarter’s benefit of $2 million. Texas Capital’s net charge-offs (NCOs) were $19.9 million against net recoveries of $512,000 in the prior-year quarter.
Capital Ratios Improve
Tangible common equity to total tangible assets came in at 9.7% compared with the year-ago quarter’s 8.9%.
Common Equity Tier 1 (CET1) ratio was 12.4%, up from the prior-year quarter’s 11.5%. Leverage ratio was 12% compared with 9.9% as of Mar 31, 2022.
Share Repurchase Update
During the quarter, Texas Capital repurchased 1.01 million shares at an average price of $58.98 per share.
Our Viewpoint
Texas Capital’s rise in revenues and solid capital position during the first quarter look impressive. However, declining deposits, increasing provisions and expenses are concerns.
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 #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Citigroup Inc.’s (C - Free Report) first-quarter 2023 EPS (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth
Management segments. However, the higher cost of credit was a spoilsport.
Net income for the quarter was $4.6 billion, increasing 7% from the prior-year quarter.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) first-quarter 2023 EPS of $3.98 surpassed the Zacks Consensus Estimate of $3.60 and improved 21% year over year. Per our estimate, the metric was $3.64 per share.
PNC's results were aided by an increase in NII, supported by higher rates and loan growth. However, rising expenses and higher provisions were headwinds.
Net income was $1.69 billion, higher than $1.43 billion in the prior-year quarter. Our model estimated this to be $1.62 billion.
(NOTE: We are re-issuing this article to correct a misconception. The original article, published early today, April 21, 2023, should no longer be relied upon. -Ed.)