CFR Cullen Frost Bankers Inc

We have upgraded our recommendation on Texas Capital Bancshares Inc. (TCBI) to Outperform from Neutral following better-than-expected fourth quarter 2011 earnings, backed by the increase in net interest income.  The improvements in the credit quality metrics were also quite impressive.

Texas Capital reported fourth-quarter 2011 operating earnings of 67 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The results were also above the prior-year earnings of 32 cents per share. Quarterly results of Texas Capital benefited from an increase in net interest income. However, lower non-interest income and higher expenses were the dampeners.

Growth remains the key story at Texas Capital, and the company continues to perform well on a variety of metrics. Quite unlike its peers, the company continued to experience growth in loans and deposits over the past several quarters. In the midst of a slowing economy in Texas, we believe that this growth has stemmed from a gain in market share from its economizing competitors which struggled against Texas Capital’s relationship-based model.

For Texas Capital, which has peers such as First Financial Bankshares Inc. (FFIN) and Cullen/Frost Bankers Inc. (CFR), the business model remains a chief growth driver. The company has grown significantly since its inception, partly based on its ability to hire local lenders from its national competitors.

The company’s efforts to hire experienced bankers and expand its presence are encouraging. Though, the resultant expenses that continue to grow remain a concern, going forward, we believe that with an eventual improvement in the Texan economy, the company would be further poised to experience an increase in earnings.

Texas Capital retains a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation.

 
CULLEN FROST BK (CFR): Free Stock Analysis Report
 
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