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Texas Capital's (TCBI) Q4 Earnings Miss on Higher Provisions

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Texas Capital Bancshares Inc. (TCBI - Free Report) reported negative earnings surprise of 13.8% in fourth-quarter 2018. Earnings per share of $1.38 lagged the Zacks Consensus Estimate of $1.60. However, the bottom line compares favorably with 84 cents recorded in the prior-year quarter.

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

Net income available to common stockholders came in at $69.5 million compared with $42.3 million recorded in the prior-year quarter.

For 2018, net income available to common shareholders was approximately $291.1 million or $5.79 per share compared with $187.3 million or $3.73 reported a year ago.

Revenues Rise, Loans & Deposits Up, Costs Decline

For full-year 2018, total revenues came in at $992.9 million, up 18.4% on a year-over-year basis. The reported figure topped the Zacks Consensus Estimate of $990.4 million.

Total revenues (net of interest expenses) jumped 11.3% year over year to $256 million in the quarter due to higher net interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $253.2 million.

Texas Capital’s net interest income was $240.7 million, up 14.3% year over year. In addition, net interest margin expanded 31 basis points (bps) to 3.78%. This resulted from improvement in loan yields, partially offset by high cost of deposits.

Non-interest income declined 21.2% year over year to $15.3 million. The fall was primarily due to decline in servicing income, loss on sale of LHS and brokered loan fees.

Non-interest expenses declined 2.5% year over year to $129.9 million. This mainly resulted from fall in salaries and allowance and other carrying costs for OREO.

As of Dec 31, 2018, total loans rose 13% year over year to $24.5 billion while deposits climbed 8% to $20.6 billion.

Credit Quality: A Mixed Bag

Non-performing assets totaled 0.36% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 19 bps. Total non-performing assets came in at $80.4 million, down 28.9% year over year.

Non-accrual loans were $80.4 million or 0.36% of total loans against $101.4 million or 0.49% recorded in the year-ago quarter.

However, provisions for credit losses summed $35 million compared with $2 million in the year-ago quarter. The company’s net charge-offs increased significantly from $1 million on a year-over-year basis to $32.6 million.

Steady Capital and Profitability Ratios

The company’s capital ratios displayed a steady position in the fourth quarter. As of Dec 31, 2018, return on average equity was 11.82% and return on average assets was 1.09% compared with 8.18% and 0.71%, respectively, recorded a year ago. Tangible common equity to total tangible assets came in at 8.3% compared with 8.1% reported in the year-earlier quarter.

Common equity Tier 1 ratio was 8.6% compared with 8.5% in the prior-year quarter. Leverage ratio was 9.9% compared with 9.2% as of Dec 31, 2017.

Stockholders’ equity was up 13.5% year over year to $2.5 billion as of Dec 31, 2018. The uptrend chiefly allied with the retention of net income.

Our Viewpoint

Texas Capital’s improved top line and a better balance sheet during the quarter impress us. Moreover, improving economic situation will likely drive the company’s performance, moving ahead. Though improvement in margin remains a favorable factor, decline in fee income and higher provisions will likely impede near-term profitability.

Texas Capital Bancshares, Inc. Price, Consensus and EPS Surprise


Currently, Texas Capital carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Horizon National Corporation (FHN - Free Report) reported fourth-quarter 2018 adjusted earnings per share of 35 cents, which lagged the Zacks Consensus Estimate of 36 cents. The figure, however, compares favorably with loss of 20 cents reported in the year-ago quarter.

Bank OZK’s (OZK - Free Report) fourth-quarter 2018 earnings per share of 89 cents surpassed the Zacks Consensus Estimate of 83 cents. The figure, however, compares unfavorably with the prior-year tally of $1.14. The year-ago number included adjustment related to the implementation of the tax act.

Zions Bancorporation’s (ZION - Free Report) fourth-quarter 2018 earnings per share of $1.08 surpassed the Zacks Consensus Estimate of $1.06. Also, the figure increased 100% from the prior-year quarter’s earnings of 54 cents.

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