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Why Is Texas Capital (TCBI) Up 7.8% Since Last Earnings Report?

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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 7.8% 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 Q1 Earnings Top Estimates, Provisions Fall

Texas Capital reported adjusted earnings per share of $1.33 in first-quarter 2021, inching past the Zacks Consensus Estimate of $1.11. Also, results compare favorably with the prior-year quarter’s loss of 38 cents per share.
Rise in non-interest income and lower expenses were driving factors.

Moreover, the firm’s credit quality witnessed an improvement. However, fall in net interest income along with pressure on margin were deterrents.

Net income available to common stockholders for the quarter came in at $68.2 million, substantially up year over year.

Revenues Fall, Costs Decline

Total revenues (net of interest expense) declined slightly year on year to $239.2 million in the first quarter, as higher non-interest income was offset by lower net interest income. Also, revenues lagged the Zacks Consensus Estimate of $250.68 million.

Texas Capital’s net interest income was $200.1 million, down 12.4% year over year, as lower interest income was partly muted by fall in interest expenses. Net interest margin contracted 69 basis points (bps) year over year to 2.09%.

Non-interest income increased substantially to $39.1 million. This rise primarily resulted from increases in net gain on sale of loans held for sale, servicing income and other non-interest income.

Non-interest expenses decreased 9% to $150.3 million from the prior-year quarter. This mainly resulted from decreases in marketing expense, legal and professional, servicing-related and merger-related expenses, offset by increases in salaries and employee benefits, along with communication and technology expenses.

As of Mar 31, 2021, total loans declined marginally on a sequential basis to $24.41 billion, while deposits rose 7.7% to $33.4 billion.

Credit Quality Improves

Non-performing assets totaled 0.4% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s figure of 0.9%. Total non-performing assets declined 55.4% to $97.7 million compared with the prior-year quarter.

Negative provisions for credit losses aggregated $6 million against the provision expense of $96 million in the year-ago quarter. The company’s net charge-offs were $6.4 million compared with $57.7 million as of Mar 31, 2020.

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 6.7% compared with the year-earlier quarter’s 7.3%.

Common equity Tier 1 ratio was 10.2%, up from the prior-year quarter’s 9.3%. Leverage ratio was 8.3% compared with 8.5% as of Mar 31, 2020.
Stockholders’ equity was up 3.6% year over year to $2.9 billion as of Dec 31, 2020. The uptrend chiefly allied with the retention of net income.

Outlook

Management anticipates gain on sale margins to remain strong through the first half of 2021, though some continued compression is likely.

Management expects expenses to remain stable on a year-over-year basis.

Deposit costs are expected to decline over the next few quarters.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 15.82% due to these changes.

VGM Scores

Currently, Texas Capital has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 looks promising. 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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