Four commercial loans flagged as problems at Texas Capital

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Growth in both commercial lending and mortgage finance fueled an improvement in profits at Texas Capital Bancshares in Dallas, although credit quality issues were evident.

Second-quarter net income rose 42% year over year to $69 million, the $28 billion-asset company said Wednesday. Earnings per share of $1.38 were 2 cents lower than the mean estimate of analysts polled by FactSet Research Systems.

Net interest income after the loan-loss provision increased 20% to $205 million. The provision more than doubled to $27 million, as Texas Capital placed four loans on nonaccrual status; one of the loans is to a borrower in the energy industry, two are to health care-sector borrowers and the fourth is a general commercial-and-industrial loan.

Loans held for investment rose 16% to $16.5 billion. Mortgage finance loans increased 19% to $5.9 billion.

Total deposits rose 18% to $20.3 billion. However, demand deposits, banks’ cheapest category of deposits, dropped 6% to $7.6 billion. Interest-bearing deposits increased 39% to $12.7 billion.

Noninterest income dropped 8% to $17 million, largely as a result of a $3.9 million reduction of income from gains on the sale of mortgage correspondent aggregation loans. However, Texas Capital booked a $1.3 million increase to income from mortgage servicing rights.

Noninterest expense climbed 18% to $132 million. Salaries and employee benefits, marketing, legal expenses and federal deposit insurance assessments all increased as a result of general business growth.

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Earnings Commercial lending Commercial banking MSR Correspondent Texas