It has been about a month since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have lost about 6.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Texas Capital's Q2 Earnings Lag Estimates, Revenues Up
Texas Capital reported earnings per share of $1.50 in second-quarter 2019, lagging the Zacks Consensus Estimate of $1.53. Results, however, compare favorably with the prior-year quarter’s $1.38.
Elevated expenses were on the downside. However, rise in revenues was a positive factor. Further, organic growth was reflected, with significant rise in loans and deposit balances.
Net income available to common stockholders came in at $75.5 million compared with the $69 million recorded in the prior-year quarter.
Revenues Rise, Loans & Deposits Up, Costs Escalate
Total revenues (net of interest expense) jumped 7.6% year over year to $268 million in the quarter, driven by higher net interest and non-interest income. Furthermore, revenues surpassed the Zacks Consensus Estimate of $267.2 million.
Texas Capital’s net interest income was $243.6 million, up 5.1% year over year, mainly stemming from rise in average total loans, partly muted by rise in average interest-bearing liabilities and deposit costs. Net interest margin, however, contracted 52 basis points (bps) year over year to 3.41%.
Non-interest income escalated 41% year over year to $24.4 million. This upside primarily stemmed from higher brokered loan fees and other non-interest income. These were partially offset by decreased servicing income attributable to fall in mortgage servicing rights associated with the company’s MCA program.
Non-interest expenses flared up 7.2% year over year to $141.6 million. This upswing mainly resulted from rise in almost all components of expenses.
As of Jun 30, 2019, total loans rose slightly on a sequential basis to $25.4 billion while deposits climbed 11.1% to $23 billion.
Credit Quality: A Mixed Bag
Non-performing assets totaled 0.47% of the loan portfolio, plus other real estate owned assets, reflecting year-over-year expansion of 6 bps. Total non-performing assets were $114.4 million, up 23%.
Non-accrual loans were $114.1 million or 0.47% of total loans compare with $83.3 million or 0.37% recorded in the year-ago quarter.
Provisions for credit losses summed $27 million, flat year over year. The company’s net charge-offs plummeted 47.4% to $20 million.
Steady Capital and Profitability Ratios
The company’s capital ratios displayed a steady position during the April-June quarter. As of Jun 30, 2019, return on average equity was 12.2%, and return on average assets was 1.05% compared with 12.72% and 1.16%, respectively, recorded in the year-ago quarter. Tangible common equity to total tangible assets came in at 8.3%, up from 7.8%.
Common equity Tier 1 ratio was 8.7% compared with 8.3% in the prior-year quarter. Leverage ratio was 9.2% compared with 9.9% as of Jun 30, 2018.
Stockholders’ equity was up 17.4% year over year to $2.7 billion as of Jun 30, 2019. The uptrend chiefly allied with the retention of net income.
Management estimates the contribution of MCA business to total mortgage loans to be around $2.5 billion for 2019.
Texas Capital projects mid to high single-digit percent growth in average loans held-for-investment in 2019. Management expects C&I leveraged loans to decline 30% for 2019.
Growth in average balances for total mortgage finance loans is likely to be in low-to-mid teens for 2019. Also, average LHI is expected to grow in mid-single digits.
Average deposits are expected to record low double-digit percent growth for 2019.
Management expects net revenues in high single-digit percent growth.
Net interest margin (NIM) is projected to be within the 3.35-3.45% range for 2019, down from previous range of 3.60-3.70%, mainly due to expectations of a 25 bps rate cut in July 2019.
Provision expenses are projected to be around mid-to-high $80 million for 2019.
Rise in non-interest expenses are expected in mid to high single-digit in 2019. Efficiency ratio is projected in the low 50s.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -8.91% due to these changes.
Currently, Texas Capital has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Texas Capital has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.