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Texas Capital (TCBI) Q4 Earnings Miss Estimates, Costs Up

Zacks Equity Research

Texas Capital Bancshares Inc. TCBI reported adjusted earnings per share of $1.44 in fourth-quarter 2019, lagging the Zacks Consensus Estimate of $1.55. However, results compare favorably with the prior-year quarter’s $1.38.

Elevated expenses and pressure on margin were negatives. Further, results reflect decline in both loans and deposit balances. Yet, rise in revenues and lower provisions were driving factors.

Including merger-related expenses of $1.3 million, or 2 cents per share, net income available to common stockholders came in at $71.5 million or $1.42 per share compared with the $69.5 million or $1.38 per share recorded in the prior-year quarter.

For full-year 2019, earnings per share reached $6.21 per share comparing favorably with the year-ago earnings of $5.79 per share. Net income available to common shareholders was $313.1 million, up 7.6% year over year.

Revenues Rise, Loans & Deposits Down, Costs Escalate

For full-year 2019, the company reported revenues of $1.07 billion, up 7.8% year over year. Moreover, the figure beat the Zacks Consensus Estimate of $1.06 billion.

Total revenues (net of interest expense) jumped 4% year over year to $266.2 million in the fourth quarter, driven by higher net interest and non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $259.7 million.

Texas Capital’s net interest income was $248.4 million, up 3.2% year over year, mainly stemming from rise in total loans, partly muted by decreased loan yields. Net interest margin, however, contracted 83 basis points (bps) year over year to 2.95%.

Non-interest income escalated 16% year over year to $17.8 million. This upside primarily resulted from increased brokered loan fees and servicing income, partly offset by decreased other non-interest income.

Non-interest expenses flared up 22% year over year to $158.7 million. This upswing mainly resulted from rise in almost all components of expenses, partly negated by lower other expenses.

As of Dec 31, 2019, total loans declined slightly on a sequential basis to $27.3 billion, while deposits slumped 3.3% sequentially to $26.5 billion.

Credit Quality: A Mixed Bag

Non-performing assets totaled 0.91% of the loan portfolio, plus other real estate-owned assets, compared with the prior-year quarter’s figure of 0.36%. Total non-performing assets more than doubled to $225.4 million compared with the prior-year quarter.

Provisions for credit losses summed $17 million, down 51.4% year on year. The company’s net charge-offs plummeted 60.7% on a year-over-year basis to $12.8 million.

Steady Capital and Profitability Ratios

The company’s capital ratios displayed a steady position during the October-December quarter. As of Dec 31, 2019, return on average equity was 10.68%, and return on average assets was 0.85% compared with the 11.82% and 1.09%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.2% compared with the year-earlier quarter’s 8.3%.

Common equity Tier 1 ratio was 8.9%, up from 8.6% in the prior-year quarter. Leverage ratio was 8.4% compared with 9.9% as of Dec 31, 2018.

Stockholders’ equity was up 13% year over year to $2.8 billion as of Dec 31, 2019. 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 quarter look impressive. Moreover, an improving economic situation is anticipated to drive the company’s performance in the future. Though growth in net interest income is a favorable factor, the bank’s inability to control expenses and higher non-performing assets will likely erode near-term profitability.

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

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

Performance of Other Banks

Riding on high revenues, PNC Financial PNC reported a positive earnings surprise of 1.7% in the fourth quarter. Earnings per share of $2.97 surpassed the Zacks Consensus Estimate of $2.92. Further, the bottom line reflects an 8% jump from the prior-year quarter’s reported figure.

Comerica CMA delivered a positive earnings surprise of 6.3% in fourth-quarter 2019. Earnings per share of $1.85 outpaced the Zacks Consensus Estimate of $1.74. Earnings, however, came in lower than the prior-year quarter figure of $1.95.

Northern Trust Corporation NTRS reported a negative earnings surprise of 4% in fourth-quarter 2019. Earnings per share of $1.70 lagged the Zacks Consensus Estimate of $1.77. Moreover, the reported figure declined 5.6% year over year. Results included certain one-time items.

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