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Texas Capital (TCBI) Up 6.2% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Texas Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Texas Capital Q4 Earnings Miss, Provisions Escalate
Texas Capital reported negative earnings surprise of 13.8% in fourth-quarter 2018. Earnings per share of $1.38 lagged the Zacks Consensus Estimate of $1.60. However, the bottom line compares favorably with 84 cents recorded in the prior-year quarter.
Results were driven by rise in revenues and lower expenses. Organic growth was reflected, with significant rise in loans and deposit balances. However, lower fee income and higher provisions were the undermining factors.
Net income available to common stockholders came in at $69.5 million compared with $42.3 million recorded in the prior-year quarter.
For 2018, net income available to common shareholders was approximately $291.1 million or $5.79 per share compared with $187.3 million or $3.73 reported a year ago.
Revenues Rise, Loans & Deposits Up, Costs Decline
For full-year 2018, total revenues came in at $992.9 million, up 18.4% on a year-over-year basis. The reported figure topped the Zacks Consensus Estimate of $990.4 million.
Total revenues (net of interest expenses) jumped 11.3% year over year to $256 million in the quarter due to higher net interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $253.2 million.
Texas Capital’s net interest income was $240.7 million, up 14.3% year over year. In addition, net interest margin expanded 31 basis points (bps) to 3.78%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
Non-interest income declined 21.2% year over year to $15.3 million. The fall was primarily due to decline in servicing income, loss on sale of LHS and brokered loan fees.
Non-interest expenses declined 2.5% year over year to $129.9 million. This mainly resulted from fall in salaries and allowance and other carrying costs for OREO.
As of Dec 31, 2018, total loans rose 13% year over year to $24.5 billion while deposits climbed 8% to $20.6 billion.
Credit Quality: A Mixed Bag
Non-performing assets totaled 0.36% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 19 bps. Total non-performing assets came in at $80.4 million, down 28.9% year over year.
Non-accrual loans were $80.4 million or 0.36% of total loans against $101.4 million or 0.49% recorded in the year-ago quarter.
However, provisions for credit losses summed $35 million compared with $2 million in the year-ago quarter. The company’s net charge-offs increased significantly from $1 million on a year-over-year basis to $32.6 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the fourth quarter. As of Dec 31, 2018, return on average equity was 11.82% and return on average assets was 1.09% compared with 8.18% and 0.71%, respectively, recorded a year ago. Tangible common equity to total tangible assets came in at 8.3% compared with 8.1% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.6% compared with 8.5% in the prior-year quarter. Leverage ratio was 9.9% compared with 9.2% as of Dec 31, 2017.
Stockholders’ equity was up 13.5% year over year to $2.5 billion as of Dec 31, 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 $1.9 billion in 2019.
Texas Capital projects high single-digit percent growth in average loans held-for-investment in 2019 compared with 2018.
Growth in average balances for total mortgage finance loans is likely to be low single-digit for 2019. Notably, first quarter volumes are likely to be seasonally lower.
Average deposits are expected to record high single-digit percent growth in 2019. Growth in deposits is expected mostly from interest-bearing, though some traction from initiatives weighted towards the second half of 2019 is anticipated. Continue growth in core clients is likely to take place resulting in some upside on non-interest-bearing deposit trend.
Management expects net revenues in high single-digit percent growth.
Net interest margin (NIM) is projected to be within 3.75-3.85% range in 2019, with the assumption of no additional rate increases in 2019.
Provision expenses are projected to be around mid-to-high $80 million in 2019.
Rise in non-interest expenses are expected in mid single-digit in 2019. Efficiency ratio is projected in the low 50s.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Texas Capital has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 upward for the stock, and the magnitude of these revisions has been net zero. 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) Up 6.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Texas Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Texas Capital Q4 Earnings Miss, Provisions Escalate
Texas Capital reported negative earnings surprise of 13.8% in fourth-quarter 2018. Earnings per share of $1.38 lagged the Zacks Consensus Estimate of $1.60. However, the bottom line compares favorably with 84 cents recorded in the prior-year quarter.
Results were driven by rise in revenues and lower expenses. Organic growth was reflected, with significant rise in loans and deposit balances. However, lower fee income and higher provisions were the undermining factors.
Net income available to common stockholders came in at $69.5 million compared with $42.3 million recorded in the prior-year quarter.
For 2018, net income available to common shareholders was approximately $291.1 million or $5.79 per share compared with $187.3 million or $3.73 reported a year ago.
Revenues Rise, Loans & Deposits Up, Costs Decline
For full-year 2018, total revenues came in at $992.9 million, up 18.4% on a year-over-year basis. The reported figure topped the Zacks Consensus Estimate of $990.4 million.
Total revenues (net of interest expenses) jumped 11.3% year over year to $256 million in the quarter due to higher net interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $253.2 million.
Texas Capital’s net interest income was $240.7 million, up 14.3% year over year. In addition, net interest margin expanded 31 basis points (bps) to 3.78%. This resulted from improvement in loan yields, partially offset by high cost of deposits.
Non-interest income declined 21.2% year over year to $15.3 million. The fall was primarily due to decline in servicing income, loss on sale of LHS and brokered loan fees.
Non-interest expenses declined 2.5% year over year to $129.9 million. This mainly resulted from fall in salaries and allowance and other carrying costs for OREO.
As of Dec 31, 2018, total loans rose 13% year over year to $24.5 billion while deposits climbed 8% to $20.6 billion.
Credit Quality: A Mixed Bag
Non-performing assets totaled 0.36% of the loan portfolio, plus other real estate owned assets, reflecting a year-over-year contraction of 19 bps. Total non-performing assets came in at $80.4 million, down 28.9% year over year.
Non-accrual loans were $80.4 million or 0.36% of total loans against $101.4 million or 0.49% recorded in the year-ago quarter.
However, provisions for credit losses summed $35 million compared with $2 million in the year-ago quarter. The company’s net charge-offs increased significantly from $1 million on a year-over-year basis to $32.6 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position in the fourth quarter. As of Dec 31, 2018, return on average equity was 11.82% and return on average assets was 1.09% compared with 8.18% and 0.71%, respectively, recorded a year ago. Tangible common equity to total tangible assets came in at 8.3% compared with 8.1% reported in the year-earlier quarter.
Common equity Tier 1 ratio was 8.6% compared with 8.5% in the prior-year quarter. Leverage ratio was 9.9% compared with 9.2% as of Dec 31, 2017.
Stockholders’ equity was up 13.5% year over year to $2.5 billion as of Dec 31, 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 $1.9 billion in 2019.
Texas Capital projects high single-digit percent growth in average loans held-for-investment in 2019 compared with 2018.
Growth in average balances for total mortgage finance loans is likely to be low single-digit for 2019. Notably, first quarter volumes are likely to be seasonally lower.
Average deposits are expected to record high single-digit percent growth in 2019. Growth in deposits is expected mostly from interest-bearing, though some traction from initiatives weighted towards the second half of 2019 is anticipated. Continue growth in core clients is likely to take place resulting in some upside on non-interest-bearing deposit trend.
Management expects net revenues in high single-digit percent growth.
Net interest margin (NIM) is projected to be within 3.75-3.85% range in 2019, with the assumption of no additional rate increases in 2019.
Provision expenses are projected to be around mid-to-high $80 million in 2019.
Rise in non-interest expenses are expected in mid single-digit in 2019. Efficiency ratio is projected in the low 50s.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Texas Capital has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 upward for the stock, and the magnitude of these revisions has been net zero. Notably, Texas Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.