On Aug 4, 2014, we issued an updated research report on
Texas Capital Bancshares Inc.
). This commercial bank recently reported impressive second-quarter
2014 results. Results benefited from elevated net interest income,
lower provisions and growth in loans and deposits. However, decline
in non-interest income and higher expenses were among the
unfavorable factors. We remain cautious on Texas Capital due to the
current economic uncertainties across the industry.
Texas Capital reported second-quarter 2014 earnings of 71 cents per
share, beating the Zacks Consensus Estimate by 2.90%. Net income
was up 43.2% year over year to $31 million. Total revenue rose
14.3% year over year to $135.3 million.
Growth remains the key story at Texas Capital and it continues to
perform well on a variety of metrics. Notably, loans and deposits
grew 14.3% and 16.1%, respectively, over the period of six months
ended Jun 30, 2014. Amid the sluggish economic scenario in Texas,
we believe that this growth has stemmed from a gain in market share
from the company's economizing competitors that struggled against
Texas Capital's relationship-based model.
On the other side, Texas Capital continues to incur higher
expenses, which rose 11.8% year over year in first-half 2014. This
reflects poor expense control and is expected to adversely affect
top- and bottom-line growth. Though the company's efforts to hire
experienced bankers and expand its presence are encouraging, the
resultant expenses, which continue to rise at the same rate as
revenues, negate the incremental effects of business expansion.
Further, there are certain concerns that may mar the company's
financials in the near term. These include absence of credible
improvement in the mortgage market, declining net interest margin
due to a low interest rate environment and the prevailing stringent
Following the second-quarter results, the Zacks Consensus Estimate
for full-year 2014 remained stable at $2.79 per share over the last
30 days, while it declined 1.5% to $3.36 per share for 2015, over
the same time frame. Hence, Texas Capital currently carries a Zacks
Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked Southwest banks include Opus Bank (
), Cullen/Frost Bankers, Inc. (
) and BancFirst Corporation (
). All three carry a Zacks Rank #2 (Buy).
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