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Texas Capital (TCBI) Down 4.5% Since Earnings Report: Can it Rebound?
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A month has gone by since the last earnings report for Texas Capital Bancshares, Inc. (TCBI - Free Report) . Shares have lost about 4.5% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is TCBI 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 drivers.
Texas Capital Q2 Earnings Meet Estimates, Costs Up
Texas Capital reported earnings per share of $1.38 in second-quarter 2018, in line with the Zacks Consensus Estimate. Results compared favorably with 97 cents recorded in the prior-year quarter.
Results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances. However, elevated expenses and provisions were major drags.
Net income available to common stockholders came in at $69 million compared with $48.7 million recorded in the prior-year quarter.
Revenues Rise, Loans & Deposits Go Up, Costs Escalate
Total revenues (net of interest expenses) jumped 23.4% year over year to $249 million in the quarter, driven by higher net interest income, partly offset by lower non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $242.6 million.
Texas Capital’s net interest income was $231.7 million, up 26.6% year over year, mainly stemming from rise in mortgage finance loans (including MCA) and loans-held-for-investment loans, improved earning asset composition and loan yields. In addition, net interest margin expanded 36 basis points (bps) year over year to 3.93%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
However, non-interest income declined 8% year over year to $17.3 million. The fall was primarily due to decrease in service charges and other non-interest income. These were partially offset by higher brokered loan fees, swap fees, servicing income, wealth management and trust fee income, along with bank-owned life insurance income.
Non-interest expenses flared up 18.2% year over year to $132.1 million. This mainly resulted from rise in almost all components of expenses.
As of Jun 30, 2018, total loans rose 16.7% year over year to $23.7 billion, while deposits climbed 17.3% to $20.3 billion.
Credit Quality: A Mixed Bag
Non-performing assets totaled 0.41% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 32 bps. Total non-performing assets came in at $92.8 million, down 34.8% year over year. Non-accrual loans were $83.3 million or 0.37% of total loans against $123.7 million or 0.64% recorded in the year-ago quarter.
Nonetheless, provisions for credit losses summed $27 million, more than doubling on a year-over-year basis. The company’s net charge-offs also increased significantly to $38 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the April-June quarter. As of Jun 30, 2018, return on average equity was 12.72%, and return on average assets was 1.16% compared with 10.08% and 0.96%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 7.8% compared with 8.4% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.3% compared with 8.6% in the prior-year quarter. Leverage ratio was 9.9% compared with 10.3% as of Jun 30, 2017. Stockholders’ equity was up 9.5% year over year to $2.3 billion as of Jun 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 $1.2 billion in 2018.
Texas Capital projects low-to-mid teens percent growth in average loans held-for-investment in 2018 compared with 2017. Growth in average balances for total mortgage finance loans is likely to be in mid-single digits for 2018 with volume pick-up in third quarter after seasonal decline in the first quarter. Average deposits are expected to record low-teens 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 3.60-3.70% range in 2018, with assumption of no additional rate increases in 2018.
Provision expenses are projected to be around low-to-mid $60 million in 2018.
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 an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
Texas Capital Bancshares, Inc. Price and Consensus
At this time, TCBI has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, TCBI 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 4.5% Since Earnings Report: Can it Rebound?
A month has gone by since the last earnings report for Texas Capital Bancshares, Inc. (TCBI - Free Report) . Shares have lost about 4.5% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is TCBI 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 drivers.
Texas Capital Q2 Earnings Meet Estimates, Costs Up
Texas Capital reported earnings per share of $1.38 in second-quarter 2018, in line with the Zacks Consensus Estimate. Results compared favorably with 97 cents recorded in the prior-year quarter.
Results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances. However, elevated expenses and provisions were major drags.
Net income available to common stockholders came in at $69 million compared with $48.7 million recorded in the prior-year quarter.
Revenues Rise, Loans & Deposits Go Up, Costs Escalate
Total revenues (net of interest expenses) jumped 23.4% year over year to $249 million in the quarter, driven by higher net interest income, partly offset by lower non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $242.6 million.
Texas Capital’s net interest income was $231.7 million, up 26.6% year over year, mainly stemming from rise in mortgage finance loans (including MCA) and loans-held-for-investment loans, improved earning asset composition and loan yields. In addition, net interest margin expanded 36 basis points (bps) year over year to 3.93%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
However, non-interest income declined 8% year over year to $17.3 million. The fall was primarily due to decrease in service charges and other non-interest income. These were partially offset by higher brokered loan fees, swap fees, servicing income, wealth management and trust fee income, along with bank-owned life insurance income.
Non-interest expenses flared up 18.2% year over year to $132.1 million. This mainly resulted from rise in almost all components of expenses.
As of Jun 30, 2018, total loans rose 16.7% year over year to $23.7 billion, while deposits climbed 17.3% to $20.3 billion.
Credit Quality: A Mixed Bag
Non-performing assets totaled 0.41% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 32 bps. Total non-performing assets came in at $92.8 million, down 34.8% year over year.
Non-accrual loans were $83.3 million or 0.37% of total loans against $123.7 million or 0.64% recorded in the year-ago quarter.
Nonetheless, provisions for credit losses summed $27 million, more than doubling on a year-over-year basis. The company’s net charge-offs also increased significantly to $38 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the April-June quarter. As of Jun 30, 2018, return on average equity was 12.72%, and return on average assets was 1.16% compared with 10.08% and 0.96%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 7.8% compared with 8.4% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.3% compared with 8.6% in the prior-year quarter. Leverage ratio was 9.9% compared with 10.3% as of Jun 30, 2017.
Stockholders’ equity was up 9.5% year over year to $2.3 billion as of Jun 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 $1.2 billion in 2018.
Texas Capital projects low-to-mid teens percent growth in average loans held-for-investment in 2018 compared with 2017. Growth in average balances for total mortgage finance loans is likely to be in mid-single digits for 2018 with volume pick-up in third quarter after seasonal decline in the first quarter. Average deposits are expected to record low-teens 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 3.60-3.70% range in 2018, with assumption of no additional rate increases in 2018.
Provision expenses are projected to be around low-to-mid $60 million in 2018.
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 an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
Texas Capital Bancshares, Inc. Price and Consensus
Texas Capital Bancshares, Inc. Price and Consensus | Texas Capital Bancshares, Inc. Quote
VGM Scores
At this time, TCBI has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, TCBI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.