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Texas Capital (TCBI) Q1 Earnings Lag Estimates, Costs Rise

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Texas Capital Bancshares Inc. (TCBI - Free Report) reported a negative surprise of 26.9% in the first quarter of 2016 on higher expenses. Earnings per share of 49 cents missed the Zacks Consensus Estimate of 67 cents by a wide margin. Moreover, results were also below the prior-year quarter earnings of 70 cents.

Elevated expenses and deteriorating credit quality remained concerns. However, higher revenues and strong loans and deposit balances reflected organic growth.

Net income available to common shareholders was $22.7 million, down 30% year over year.

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


Performance in Detail

Total revenue rose 9.7% year over year to $156.1 million driven by higher net interest income, partially offset by reduced non-interest income in the quarter. Yet, revenues lagged the Zacks Consensus Estimate of $159 million.

Texas Capital’s net interest income was $144.8 million, up 11.4% year over year. However, net interest margin decreased 9 basis points (bps) year over year to 3.13%. 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 declined 8.1% year over year to $11.3 million. The fall was primarily due to reduced swap fees.

Texas Capital’s non-interest expenses increased 13.5% year over year to $86.8 million due to a rise in almost all categories of expenses.

As of Mar 31, 2016, total loans rose 5% year over year to $16.9 billion, while deposits surged 15% year over year to $16.3 billion.

Credit Quality

Credit metrics deteriorated during the quarter. Nonperforming assets totaled 1.12% of the loan portfolio plus other real estate owned assets, reflecting a year-over-year increase of 69 basis points. Total nonperforming assets came in at $190.7 million, significantly up year over year. Provisions for credit losses summed $30 million, considerably up year over year.

The company’s net charge-offs more than doubled on a year-over-year basis to $7.4 million. Non-accrual loans were $173.2 million or 1.02% of total loans against $68.3 million or 0.42% in the prior-year quarter.

Capital and Profitability Ratios

Texas Capital’s capital ratios depicted a strong position. Tangible common equity to total tangible assets came in at 7.3% compared with 7.8% in the prior-year quarter. Return on average equity was 6.13% and return on average assets was 0.53% compared with 9.82% and 0.84%, respectively, in the year-ago quarter.

Stockholders’ equity escalated 9% year over year to $1.6 billion as of Mar 31, 2016. The upswing was chiefly associated 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 hamper its profitability, going forward. Moreover, the persistent low interest rate environment, bleak economic situation and regulatory concerns may continue to hurt the company’s performance in the future. Currently, Texas Capital has a Zacks Rank #4 (Sell).

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 first-quarter 2016 results on Apr 27.

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