Texas Capital Bancshares Inc. (TCBI) reported fourth-quarter 2014 earnings per share of 78 cents, surpassing the prior-year quarter earnings of 67 cents. However, results were in line with the Zacks Consensus Estimate.
Higher revenues along with loans and deposits were positives for the quarter. However, elevated expenses and higher provision for credit losses remain concerns.
Net income available to common shareholders was $35.4 million, up 27% year over year.
For full-year 2014, earnings per share reached $2.88 per share, slivering past the Zacks Consensus Estimate by a penny. Moreover, earnings compared favorably with the prior-year earnings of $2.72 per share.
Performance in Detail
For full-year 2014, the company reported revenue of $519.5 million, up 12.1% year over year. However, results marginally lagged the Zacks Consensus Estimate of $520 million.
Total revenue rose 13.1% year over year to $138.8 million driven by higher interest income in the quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $138.0 million.
Texas Capital’s net interest income was $127.6 million, up 14.4% from the year-ago quarter. However, net interest margin decreased 65 basis points year over year to 3.56%. The decline stemmed from a rise in loans with lower yields and a higher liquidity assets balance.
Texas Capital’s non-interest income inched up marginally year over year to $11.2 million. The rise was primarily due to higher service charges on deposit accounts and brokered loan fees, mostly offset by a fall in trust fee income and swap fees.
Texas Capital’s non-interest expenses increased 5.4% year over year to $74.1 million due to a rise in mostly all categories of expenses, partially offset by lower legal and professional expenses.
As of Dec 31, 2014, total loans climbed 27% year over year to $14.2 billion while deposits surged 37% to $12.7 billion from the prior-year period.
Credit Quality
Credit metrics reflected mixed results. Nonperforming assets equaled 0.31% of the loan portfolio plus other real estate owned assets, reflecting a year-over-year decrease of 2 basis points. Total nonperforming assets came in at $43.9 million, up 17.1% from the year-ago quarter. Provisions for credit losses summed up to $6.5 million, up 30% year over year.
The company’s net charge-offs rose 15.4% year over year to $1.1 million. Non-accrual loans were $43.3 million or 0.30% of total loans against $32.4 million or 0.29% 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 8.3% compared with 7.9% in the prior-year quarter. Return on average equity was 11.41% and return on average assets was 1.03% compared with 11.94% and 1.10%, respectively, in the year-ago quarter.
Stockholders’ equity escalated 36.4% year over year to $1.5 billion as of Dec 31, 2014. The upswing was chiefly associated with the offering of 1.9 million common shares in the first quarter of 2014, the offering of 2.5 million common shares in the fourth quarter of 2014 and retention of net income.
Our Viewpoint
Texas Capital’s improved top line and a better balance sheet were impressive during the quarter. However, the company’s inability to control expenses may hamper profitability going forward. Moreover, the persisting 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) is scheduled to release its fourth-quarter results on Jan 23, while BOK Financial Corporation (BOKF) and Cullen/Frost Bankers, Inc. (CFR) will report on Jan 28.
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