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Texas Capital (TCBI) Up 23.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Texas Capital (TCBI). Shares have added about 23.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Texas Capital Reports Q1 Loss, Costs Rise

Texas Capital reported adjusted loss per share of 11 cents in first-quarter 2020, against the Zacks Consensus Estimate for earnings of 94 cents. The reported figure excluded certain noteworthy items such as the impacts of the MSR impairment charges and merger-related expenses.

Elevated expenses and pressure on margin were negatives. Further, results reflect a decline in loan balances. Also, a fall in revenues, a substantial rise in provisions and reserve build related to the coronavirus-led crisis were other key headwinds.

After considering one-time items, net loss available to common stockholders was $19.1 million or 38 cents per share against net income of $80.4 million or $1.60 per share recorded in the prior-year quarter.

Revenues Rise, Costs Escalate

Total revenues declined 9.4% year over year to $240.1 million in the first quarter due to lower net interest and non-interest income. Furthermore, revenues lagged the Zacks Consensus Estimate of $244.6 million.

Texas Capital’s net interest income was $228.3 million, down 3.1% year over year, mainly stemming from a decline in loan yields, partly muted by a decrease in funding costs. Net interest margin, however, contracted 95 basis points (bps) year over year to 2.78%.

Non-interest income declined 61% year over year to $17.8 million. The downside primarily resulted from lower other non-interest income, partially offset by increases in brokered loan fees, servicing income and swap fees.

Non-interest expenses flared up 17.8% year over year to $165.4 million. The upswing mainly resulted from a rise in almost all components of expenses, partly negated by lower marketing expenses.

As of Mar 31, 2020, total loans declined 7.7% on a sequential basis to $25.2 billion, while deposits rose 2.3% sequentially to $27.1 billion.

Credit Quality Deteriorates

Non-performing assets totaled 0.9% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s figure of 0.57%. Total non-performing assets rose 64% to $219.2 million compared with the prior-year quarter.

Provisions for credit losses summed $96 million compared with $20 million in the year-ago quarter. The company’s net charge-offs were $57.7 million compared with $4.6 million as of Mar 31, 2019.

Capital Ratios Steady

The company’s capital ratios displayed a steady position during the first quarter. Tangible common equity to total tangible assets came in at 7.3% compared with the year-earlier quarter’s 8.5%.

Common equity Tier 1 ratio was 9.3%, up from 8.6% in the prior-year quarter. Leverage ratio was 8.5% compared with 10% as of Mar 31, 2019.

Stockholders’ equity was up 8.6% year over year to $2.8 billion as of Dec 31, 2019. The uptrend chiefly allied with the retention of net income.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -43.96% due to these changes.

VGM Scores

At this time, Texas Capital has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. 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. It's no surprise Texas Capital has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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