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Texas Capital (TCBI) Down 9.8% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have lost about 9.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Texas Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Texas Capital's Q3 Earnings Miss on Elevated Expenses
Texas Capital reported negative earnings surprise of 4.1% in third-quarter 2018. Earnings per share of $1.65 lagged the Zacks Consensus Estimate of $1.72. However, results compare favorably with $1.12 recorded in the prior-year quarter.
Elevated expenses and provisions were major drags. However, results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances.
Net income available to common stockholders came in at $83.1 million compared with $56.2 million recorded in the prior-year quarter.
Revenues Rise, Loans & Deposits Go Up, Costs Escalate
Total revenues (net of interest expense) jumped 15.4% year over year to $257.7 million in the quarter, driven by higher net interest and non-interest income. Furthermore, revenues marginally surpassed the Zacks Consensus Estimate of $257.1 million.
Texas Capital’s net interest income was $232.2 million, up 13.6% year over year. In addition, net interest margin expanded 11 basis points (bps) year over year to 3.70%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
Non-interest income surged 34.2% year over year to $25.5 million. The rise was primarily due to increase in almost all components of income.
Non-interest expenses flared up 18.6% year over year to $136.1 million. This mainly resulted from rise in almost all components of expenses.
As of Sep 30, 2018, total loans rose 11.2% year over year to $23.8 billion, while deposits climbed 6.8% year over year to $20.4 billion.
Credit Quality: A Marked Improvement
Non-performing assets totaled 0.49% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 18 bps. Total non-performing assets came in at $107.6 million, down 21.1% year over year.
Non-accrual loans were $107.5 million or 0.49% of total loans, against $118.2 million or 0.58% recorded in the year-ago quarter.
Moreover, provisions for credit losses summed $13.2 million, down 32% on a year-over-year basis. The company’s net charge-offs also tanked 81.3% on a year-over-year basis to $2 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the Jul-Sep quarter. As of Sep 30, 2018, return on average equity was 14.68%, and return on average assets was 1.31% compared with 11.2% and 0.99%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.3% compared with 8.2% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.6% as compared with 8.4% in the prior-year quarter. Leverage ratio was 9.7% compared with 9.6% as of Sep 30, 2017.
Stockholders’ equity was up 9.1% year over year to $2.4 billion as of Sep 30, 2018. The uptrend chiefly allied with the retention of net income.
Outlook
Management estimates the contribution of MCA business to total mortgage loans to be around $1.4 billion in 2018.
Texas Capital projects low-to-mid teens percent growth in average loans held-for-investment in 2018 compared with 2017. However, a slower growth in loan pipeline is expected in fourth quarter.
Growth in average balances for total mortgage finance loans is likely to be low to mid-teens for 2018. Average deposits are expected to record high single-digit percent growth in 2018.
Management expects net revenues in mid-to-high teens percent growth, with assumption of higher deposit costs.
Net interest margin (NIM) is projected to be within 3.70-3.75% range in 2018, with the assumption of no additional rate increases for the remainder of the year.
Provision expenses are projected to be around low-to-mid $60 million in 2018, with fourth quarter provision levels to continue to be normalized.
Rise in non-interest expenses are expected in low-teens in 2018. Efficiency ratio is projected in the low 50s.
Effective tax rate is expected to be 22% in the year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Texas Capital has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Texas Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Texas Capital (TCBI) Down 9.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have lost about 9.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Texas Capital due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Texas Capital's Q3 Earnings Miss on Elevated Expenses
Texas Capital reported negative earnings surprise of 4.1% in third-quarter 2018. Earnings per share of $1.65 lagged the Zacks Consensus Estimate of $1.72. However, results compare favorably with $1.12 recorded in the prior-year quarter.
Elevated expenses and provisions were major drags. However, results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances.
Net income available to common stockholders came in at $83.1 million compared with $56.2 million recorded in the prior-year quarter.
Revenues Rise, Loans & Deposits Go Up, Costs Escalate
Total revenues (net of interest expense) jumped 15.4% year over year to $257.7 million in the quarter, driven by higher net interest and non-interest income. Furthermore, revenues marginally surpassed the Zacks Consensus Estimate of $257.1 million.
Texas Capital’s net interest income was $232.2 million, up 13.6% year over year. In addition, net interest margin expanded 11 basis points (bps) year over year to 3.70%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
Non-interest income surged 34.2% year over year to $25.5 million. The rise was primarily due to increase in almost all components of income.
Non-interest expenses flared up 18.6% year over year to $136.1 million. This mainly resulted from rise in almost all components of expenses.
As of Sep 30, 2018, total loans rose 11.2% year over year to $23.8 billion, while deposits climbed 6.8% year over year to $20.4 billion.
Credit Quality: A Marked Improvement
Non-performing assets totaled 0.49% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 18 bps. Total non-performing assets came in at $107.6 million, down 21.1% year over year.
Non-accrual loans were $107.5 million or 0.49% of total loans, against $118.2 million or 0.58% recorded in the year-ago quarter.
Moreover, provisions for credit losses summed $13.2 million, down 32% on a year-over-year basis. The company’s net charge-offs also tanked 81.3% on a year-over-year basis to $2 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the Jul-Sep quarter. As of Sep 30, 2018, return on average equity was 14.68%, and return on average assets was 1.31% compared with 11.2% and 0.99%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.3% compared with 8.2% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.6% as compared with 8.4% in the prior-year quarter. Leverage ratio was 9.7% compared with 9.6% as of Sep 30, 2017.
Stockholders’ equity was up 9.1% year over year to $2.4 billion as of Sep 30, 2018. The uptrend chiefly allied with the retention of net income.
Outlook
Management estimates the contribution of MCA business to total mortgage loans to be around $1.4 billion in 2018.
Texas Capital projects low-to-mid teens percent growth in average loans held-for-investment in 2018 compared with 2017. However, a slower growth in loan pipeline is expected in fourth quarter.
Growth in average balances for total mortgage finance loans is likely to be low to mid-teens for 2018. Average deposits are expected to record high single-digit percent growth in 2018.
Management expects net revenues in mid-to-high teens percent growth, with assumption of higher deposit costs.
Net interest margin (NIM) is projected to be within 3.70-3.75% range in 2018, with the assumption of no additional rate increases for the remainder of the year.
Provision expenses are projected to be around low-to-mid $60 million in 2018, with fourth quarter provision levels to continue to be normalized.
Rise in non-interest expenses are expected in low-teens in 2018. Efficiency ratio is projected in the low 50s.
Effective tax rate is expected to be 22% in the year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Texas Capital has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Texas Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.