Why Texas Capital Bancshares Inc (NASDAQ: TCBI) stock is under pressure

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Texas Capital Bancshares Inc (NASDAQ: TCBI) stock fell over 4.75% on 18th July, 2019 (as of 11:34 am GMT-4; Source: Google finance) after the company posted mixed results for the second quarter of FY 19. TCBI reported NIM declined 32 basis points from the first quarter with 21 basis points related to the earning assets shift, specifically mortgage finance and liquidity. The company’s overall deposit costs decreased by 4 basis points from 133 basis points in the first quarter to 129 basis points in the second quarter. The decrease resulted from good growth in DDAs.

TCBI in the second quarter of FY 19 has reported the adjusted earnings per share of $1.50, missing the analysts’ estimates for the adjusted earnings per share of $1.53. The company had reported the adjusted revenue growth of 8 percent to $267.9 million in the second quarter of FY 19, beating the analysts’ estimates for revenue of $267.1 million. Non-interest expense, rose 1% from Q1 and 7% from Q2 2018. Net charge-offs to average total LHI of 0.34% from Q2, increase from 0.09% in Q1 2019 and decreased from 0.73% for Q2 2018. Non-accrual loans to total LHI of 0.47% was down from 0.57% in Q1 2019, an increase from 0.37% in Q2 2018.

Moreover, Energy loans make up approximately 6% of total loans or $1.6 billion as compared to 7% and $1.7 billion, respectively, at the end of Q1 2019. Year-over-year energy loans did not grow. Non-accrual energy loans were $61.1 million in Q2 2019 versus $76.7 million in Q1 2019. Allocated reserves for energy totaled $49.4 million or 3% of outstanding energy loans. Moving to C&I leveraged loans, TCBI saw a decline of $164.2 million or 13% from the end of 2018. TCBI are on track for an expected 30% reduction for the full year. Non-accruals for leveraged loans were $25 million at Q2 2019 as compared to $30.6 million in Q1 2019. Allocated reserves of $67.5 million amount to approximately 6% of outstanding C&I leveraged loans.

Additionally, TCBI expect the Q3 and Q4 expense levels to be fairly flat with Q2. Q2 level was consistent with the high-end of the previously discussed range from $1 million to $2.5 million increase, depending on volume. Those volumes are expected to be flat for the remainder of the year. In addition, TCBI is decreasing the guidance for average traditional LHI growth slightly mid-single-digit growth from the previous mid- to high-single-digit. On average mortgage finance, TCBI has increased the guidance to low- to mid-20% from high-teens percent. That takes into consideration the additional growth so far this year and an expected strong Q3. TCBI has decreased the guidance for NIM to 3.35% to 3.45% from 3.60% to 3.70%.

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