Texas Capital Bancshares Inc.
) has reported impressive results for third quarter 2012 with
operating earnings of 80 cents per share surpassing the Zacks
Consensus Estimate by 3 cents. Moreover, the results were
significantly ahead of the prior-year quarter's earnings of 56
cents per share.
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Texas Capital's quarterly results benefited from an increase in
the top line, aided by an augmentation in both net interest
income and non-interest income. However, it was partially offset
by higher expenses.
Quarter in Detail
Texas Capital's net interest income was $96.9 million, up 22%
from the year-ago quarter. Total loans increased 30% while
deposits elevated 22% from the prior-year period. Net
interest margin decreased 45 basis points (bps) year over year to
The decrease in net interest margin from the prior-year period
stemmed from an expansion in loans with lower yields. However,
that was partially offset by the benefit from a reduction in
funding costs. Yet, growth in loans offset the negative impact
from a fall in yields and hence contributed to higher net
Texas Capital's non-interest income of $10.6 million advanced 39%
year over year. The increase was mainly backed by the rise in
brokered loan fees earned in the mortgage warehouse lending unit.
However, Texas Capital's non-interest expense bolstered 16% year
over year to $53.5 million. The growth mainly reflects higher
salaries and employee benefit expenses primarily related to
business expansion as well as expenses associated with
performance-based incentives due to the increase in stock price.
Moreover, marketing expense and legal and professional costs
Credit metrics were mixed during the quarter at Texas Capital.
Net charge-offs increased to $1.2 million from $0.5 million in
the prior quarter but were below $6.3 million reported in the
Net charge-offs as a percentage of average loans were 0.08%, up 4
bps sequentially but down 40 bps year over year. Provisions for
credit losses were $3.0 million in the reported quarter, up from
$1.0 million in the prior quarter but down from $7.0 million in
the year-ago quarter.
However, non-performing assets equaled 1.16% of the loan
portfolio plus other real estate owned assets, reflecting a
sequential drop of 19 bps and a year-over-year decline of 76 bps.
Capital ratios advanced in the quarter. Texas Capital's Tier 1
capital ratio improved to 10.4% in the quarter under review from
9.5% in the prior quarter and 9.7% in the year-ago quarter.
Moreover, return on average equity was 17.27% and return on
average assets was 1.40% for the reported quarter, up from 14.93%
and 1.25%, respectively, for the prior-year quarter.
Moreover, stockholders' equity escalated 36% year over year to
$802.4 million as of September 30, 2012, mainly related to the
offering of 2.3 million common shares for net proceeds of $87
million as well as net income retention. Moreover, the company
accomplished a subordinated debt offering of $111 million,
lifting its total regulatory capital by about $198 million.
For Texas Capital, which has peers such as
First Financial Bankshares Inc.
Cullen/Frost Bankers Inc.
), the business model remains a chief growth driver. In addition,
the gain in market share from its competitors and organic growth
is impressive. Its efforts to hire experienced bankers and expand
its presence are encouraging.
Though the resultant expenses that continue to mount remain a
concern for Texas Capital, we believe that with an eventual
improvement in the Texan economy, the company would be poised to
experience a further boost in earnings.
Texas Capital retains a Zacks #2 Rank, which translates into a
short-term Buy recommendation. Considering the company's
fundamentals, we also have an Outperform recommendation on the