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Texas Capital (TCBI) Q1 Earnings Top Estimates, Provisions Fall

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Texas Capital Bancshares Inc. (TCBI - Free Report) 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 $0.38 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.

Our Viewpoint

Texas Capital’s controlled expenses and a solid balance sheet during the March-end quarter look impressive. Apart from this, an improving economic situation is anticipated to drive the company’s performance in the days to come. Though growth in fee income is a favorable factor, margin pressure might erode near-term profitability.

 

Currently, Texas Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp (FITB - Free Report) delivered an earnings surprise of 34.7% in first-quarter 2021. Earnings of 93 cents per share surpassed the Zacks Consensus Estimate of 69 cents. Results also compared favorably with the prior-year quarter’s earnings of 13 cents.

Comerica (CMA - Free Report) delivered first-quarter 2021 positive earnings surprise of 76.1%. Earnings per share of $2.43 easily surpassed the Zacks Consensus Estimate of $1.38. Also, the bottom line compared favorably with the loss of 46 cents reported in the prior-year quarter.

M&T Bank Corp. (MTB - Free Report) ) reported first-quarter 2021 positive earnings surprise of 15%. Net operating earnings per share of $3.41 beat the Zacks Consensus Estimate of $2.96. Also, the bottom line compared favorably with the $1.95 per share reported in the year-ago quarter.

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