Texas Capital Bancshares boosted its loan-loss provision in the fourth quarter to cover deteriorating leveraged loans, which caused the Dallas company to miss profit estimates.
Texas Capital’s provision rose to $35 million, compared with $2 million in the same period in 2017. Net income at the $28 billion-asset company increased 64% to $69.5 million. But earnings per share of $1.38 were 21 cents lower than the mean estimate of analysts compiled by FactSet Research Systems.
The bank charged off $32.6 million of loans in the quarter, primarily in the leveraged commercial-and-industrial category. The loans were to businesses in the health care, fast-food and energy industries. The credit quality problems were limited to “just a handful of deals” in the leveraged-loan space, Julie Anderson, chief financial officer, said during a Wednesday conference call.
“This is one category that we began to see raise its ugly head back in the second quarter,” Texas Capital CEO Keith Cargill said during the call. “We think it’s not unique to us."
Regional banks have increased their exposure to leveraged loans, a trend that
Texas Capital will stop originating new loans in the leveraged loan and sponsored-finance categories “until the cycle runs its course,” Cargill said. The bank does not plan to leave those business, he said.
Net interest income declined 1.4% to $205.7 million primarily because of the higher provision. Net loans held for investment rose 9% to $22.4 billion.
Noninterest income fell 40% to $15.3 million on an uptick of losses from the sale of loans, and lower mortgage servicing income.
Noninterest expense dropped 2% to $129.9 million on lower costs for carrying foreclosed properties on the bank’s books, and lower mortgage servicing expenses.
