Why Texas Capital Bancshares Inc. Floundered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Texas Capital Bancshares , a provider of banking products and services to commercial customers within the state of Texas through Texas Capital Bank, tumbled as much as 15% after the company released its first-quarter earnings results after the closing bell last night.

So what: For the quarter, Texas Capital reported a bevy of balance sheet growth with total assets increasing 21% to $12.1 billion, led by a $2 billion improvement in total deposits. Despite this growth, Texas Capital shareholders witnessed a 15% drop in net income to $28.3 million from the year-ago quarter as adjusted EPS dipped 25% to $0.60. Return on assets, perhaps one of the truest measure of banking success, fell 37 basis points to 1.01% from 1.38% in Q1 2013. By comparison, Wall Street had been expecting Texas Capital to report a profit of $0.73 per share. The company partially blamed its lower EPS on a 1.9 million common share offering completed in January, but higher interest expenses were also to blame.

Now what: In spite of its strong asset growth, its year-over-year deterioration in ROA and the fact that its net interest margin dipped below 4% would have me concerned if were I an investor in Texas Capital Bancshares. Texas Capital has traded at quite the premium to its peers in recent years, and put plainly if its ROA continues to sink to levels on par with many of its rivals then it no longer deserves that premium. With the company valued at more than 230% of tangible book value even following today's slide I would suggest looking elsewhere for more attractively priced companies in the banking sector.

Texas Capital has soared over the past year, but even so it may not be able to hold a candle to this top stock in 2014 when all is said and done
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The article Why Texas Capital Bancshares Inc. Floundered originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

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