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Why Is Texas Capital (TCBI) Up 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Texas Capital (TCBI - Free Report) . Shares have added about 2.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Texas Capital Q2 Earnings Top Estimates, Revenues Dip

Texas Capital reported adjusted earnings per share of $1.31 in second-quarter 2021, surpassing the Zacks Consensus Estimate of $1.22. The bottom line recorded significant improvement compared with the prior-year quarter’s figure.

Lower expenses were driving factors. The firm’s credit quality witnessed an improvement. A fall in NII along with margin pressure was a deterrent.

Management noted, “Building on an incredibly productive first quarter, second quarter successes included executing our largest capital markets transaction to-date with a $375.0 million subordinated note issuance, making the strategic decision to sell our portfolio of mortgage servicing rights to better align resources for the future and continuing to add new talent in key strategic areas at a record-setting pace.”

Net income available to common stockholders was $67.2 million against a net loss of $36.8 million in the prior-year quarter.

Revenues Decline, Costs Fall

Total revenues (net of interest expense) declined 19% year over year to $227.1 million due to a decline in both non-interest income and NII. Revenues lagged the Zacks Consensus Estimate of $238.3 million.

NII was around $197 million, down 6% year over year, as a fall in interest expenses was partly muted by lower interest income. NIM contracted 20 basis points (bps) year over year to 2.10%.

Non-interest income decreased 57% to $30.1 million. The decline primarily resulted from a dip in net gain on the sale of loans held for sale as well as brokered loan fees, offset by increases in service charges on deposit accounts and other non-interest income.

Non-interest expenses decreased 32% to $149.1 million from the prior-year quarter. This mainly resulted from decreases in marketing expenses, communication and technology expenses, servicing-related and merger-related expenses.

As of Jun 30, 2021, total loans declined 1.9% on a sequential basis to $23.94 billion, while deposits declined 13.6% to $28.8 billion.

Credit Quality Strengthens

Non-performing assets totaled 0.36% of the loan portfolio plus other real estate-owned assets compared with the prior-year quarter’s figure of 0.68%. Total non-performing assets declined 50.2% to $86.6 million compared with the prior-year quarter.

Negative provisions for credit losses aggregated $19 million against the provision expenses of $100 million in the year-ago quarter. The company’s net charge-offs were $2.4 million, down substantially from $74.1 million as of Jun 30, 2020.

Capital Ratios Improve

Tangible common equity to total tangible assets came in at 7.9% compared with the year-earlier quarter’s 7%.

Common equity Tier 1 ratio was 10.5%, up from the prior-year quarter’s 8.8%. Leverage ratio was 8.4% compared with 7.5% as of Jun 30, 2020.

Stockholders’ equity was up 11.9% year over year to $3.2 billion as of Jun 30, 2021.

Outlook

Management expects expenses from correspondent lending in the third quarter of 2021 to be down $5 million sequentially.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Texas Capital has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, 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. 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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