Texas Capital Tops Estimate - Analyst Blog
July 22 2011 - 11:39AM
Zacks
Texas Capital Bancshares Inc. (TCBI) has
reported second quarter 2011 operating earnings of 44 cents per
share, which came in well ahead of the Zacks Consensus Estimate of
36 cents. The results were, however, well above the prior-year
quarter’s earnings of 22 cents per share.
Quarterly results benefited from an increase in net interest
income. However, lower non-interest income and higher expenses were
the dampeners.
Behind the Headline Numbers
Texas Capital’s net interest income was $71.1 million, up 23%
from the year-ago quarter. The increase stemmed from a spike of
$496.2 million in average earning assets over the year-ago level.
Total loans increased 15% while deposits were 10% more than the
prior-year period.
Net interest margin increased 40 basis points (bps) sequentially
and 54 bps year over year to 4.86%. Growth in loans and a reduction
in funding costs led to the sequential as well as year-over-year
growth in interest margin. This was also supported by an
improvement in loan spreads.
However, Texas Capital’s non-interest income was $8.0 million,
down 1% year over year. The decline stemmed from lesser equipment
rental income due to the continued decrease in the leased equipment
portfolio, partially offset by an increase in brokered loan fees
and small increases in various categories.
Additionally, Texas Capital’s non-interest expense increased 16%
year over year to $45.3 million. The growth reflects higher
salaries and employee benefit expenses primarily due to business
expansion.
Moreover, the company reported higher allowance and other
carrying costs pertaining to real estate owned assets, and an
increase in expenses for marketing activities, legal and
professional activities as well as for communications and
technology from the prior-year quarter.
Credit Quality
Credit metrics were mixed during the quarter at Texas Capital.
Net charge-offs increased to $10.5 million from $9.0 million in the
prior quarter but fell from $12.6 million in the year-ago
quarter.
Net charge-offs as a percentage of average loans on a trailing
12-month basis were 1.06%, down 5 bps sequentially but up 33 bps
year over year. Provisions for credit losses were $8.0 million,
slightly up from $7.5 million in the prior quarter but down from
$14.5 million in the year-ago quarter.
However, non-accrual loans at Texas Capital were $77.9 million
or 1.51% of loans held for investment at the end of the reported
quarter, down from $116.5 million or 2.47% at the end of the prior
quarter and $138.2 million or 3.10% at the end of the year-ago
quarter.
Non-performing assets reported both sequential and
year-over-year decline and equaled 2.03% of the loan portfolio plus
other real estate owned assets, reflecting 98 bps sequential and
197 bps year-over-year drops.
Capital Ratios
Capital ratios were mixed in the quarter. While Texas Capital’s
Tier 1 capital ratio was 10.2%, down 100 bps sequentially, leverage
ratio was 10.5%, up 20 bps sequentially.
Our Take
For Texas Capital, which has peers such as First
Financial Bankshares Inc. (FFIN) and Cullen/Frost
Bankers Inc. (CFR), the business model remains a key
driver for growth. Additionally, the gain in market share from its
competitors and organic growth augur well.
However, Texas Capital continues to experience an increase in
expenses. Though the company’s efforts to hire experienced bankers
and expand its presence are encouraging, the resultant expenses,
which continue to grow nearly as fast as revenues, negate the
incremental effects of business expansion. While credit quality
metrics showed some improvement in the quarter, we believe a
significant turnaround will remain elusive in the near term.
Texas Capital shares retain a Zacks #2 Rank, which translates
into a short-term Buy recommendation.
CULLEN FROST BK (CFR): Free Stock Analysis Report
FIRST FIN BK-TX (FFIN): Free Stock Analysis Report
TEXAS CAP BCSHS (TCBI): Free Stock Analysis Report
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