On Oct 3, 2013, we reiterated our Neutral recommendation on
Texas Capital BancShares Inc.
), primarily based on a rise in revenues. However, higher
expenses were the downside.
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The company's second-quarter operating earnings of 52 cents per
share substantially lagged the Zacks Consensus Estimate and the
prior-quarter earnings by 32%. Additionally, over the last 60
days, the Zacks Consensus Estimate for 2013 dropped 0.7% to $2.93
per share. For 2014, the Zacks Consensus Estimate moved down 0.3%
over the same time period. Therefore, Texas Capital currently
carries a Zacks Rank #4 (Sell).
However, we are impressed with the growth of Texas Capital
BancShares. Amid a sluggish Texan economy, the company's gain in
market share from its economizing competitors was a positive.
Texas Capital BancShares' relationship-based model has been the
main driver for loan and deposit growth over the past 5 years.
Additionally, the company's capital ratios remain above the
levels required to be considered well capitalized. We believe
that Texas Capital BancShares' strong capital position will drive
organic growth with enhancement of loan and deposit relationships
as well as boost opportunistic expansions.
However, we are concerned about the company's rising expenses,
which are likely to affect top and bottom-line growth. Further,
Texas Capital BancShares is primarily a Texas-based company and
without any efforts at diversification, its top and bottom lines
are likely to suffer.
Additionally, intense competition from nationwide and regional
financial institutions and declining demand in mortgage warehouse
lending volume could weigh on non-interest income. Further, the
prevailing low interest-rate environment and a stringent
regulatory landscape are expected to adversely affect the
company's financials in the subsequent quarters.
Other Stocks to Consider
Some other better-performing regional banks include
Cullen/Frost Bankers, Inc.
Prosperity Bancshares Inc.
). All these stocks carry a Zacks Rank #2 (Buy).