Texas Capital Misses on Q1 Earnings - Analyst Blog

The effect of common stock and subordinated note offerings led Texas Capital Bancshares Inc. TCBI to post disappointing first-quarter 2014 results wherein earnings per share of 60 cents lagged the Zacks Consensus Estimate of 74 cents. The reported figure was also below 80 cents per share earned in the year-ago quarter.

Results also suffered due to a rise in expenses and higher levels of provision for credit losses. However, improvement in net interest income and increased loans and deposits were the positives.

Net income available to common shareholders was $25.8 million, down 22% from the prior-year quarter.

Performance in Detail

Total revenue reached $127.0 million in the quarter, up 10.0% year over year. The rise was driven by higher interest income. Moreover, revenues surpassed the Zacks Consensus Estimate of $124.0 million.

Texas Capital's net interest income was $108.3 million, up 10.5% from the year-ago quarter. Total loans increased 22% to $11.6 billion while deposits increased 26% to $9.7 billion from the prior-year period.

However, net interest margin decreased 28 basis points (bps) year over year to 3.99%. The decline stemmed from rise in loans with lower yields and due to the impact of subordinated note offering.

Texas Capital's non-interest income of $10.4 million declined 8.2% year over year. The decrease was mainly due to a fall in brokered loan fees, which resulted from declining mortgage finance volumes and lower swap fees.

Texas Capital's non-interest expenses rose 24.5% year over year to $69.3 million. This rise was mainly owing to higher salaries and employee benefits, partly offset by a fall in marketing expenses.

Credit Quality

Credit metrics were a mixed bag in the quarter. Nonperforming assets equaled 0.39% of the loan portfolio plus other real estate owned assets, reflecting a year-over-year decline of 21 bps. Total nonperforming assets declined 21.1% year over year to $45.6 million.

However, the company's net charge-offs increased 71.1% year over year to $2.0 million. Non-accrual loans came in at $43.2 million or 0.37% of total loans as against $43.4 million or 0.46% in the prior-year quarter. Provisions for credit losses were $5.0 million, significantly up from the prior-year quarter.

Capital and Profitability Ratios

Texas Capital's tangible common equity to total tangible assets was 8.7%, up from 8.4% in the prior-year quarter. Return on average equity was 10.20% and return on average assets was 1.01%, compared with 15.82% and 1.38%, respectively, in the year-ago quarter.

Stockholders' equity escalated 21% year over year to $1.2 billion as of Mar 31, 2014. The increase was mainly related to the offering of 1.9 million common shares in the first quarter of 2014.

Our Viewpoint

Growth in Texas Capital's loans and deposits indicate that it is growing organically. The company's capital raising will also likely improve results going forward.

Though mounting expenses remain a concern, we believe that with top-line growth, the company will report better earnings in the near future.

Currently, Texas Capital has a Zacks Rank #3 (Hold).

About Other Southwest Banks

First Financial Bankshares Inc.'s FFIN first-quarter 2014 earnings of 70 cents per share beat the Zacks Consensus Estimate of 66 cents. Results benefited from higher revenues, partially offset by a rise in expenses.

BOK Financial Corp. BOKF is slated to report results on Apr 30.

Banc of California, Inc. BANC is expected to release its earnings on May 14.