Updated Research Report on Texas Capital - Analyst Blog

On Mar 27, 2014, we issued an updated research report on Texas Capital Bancshares Inc. TCBI. This commercial bank recently reported disappointing fourth-quarter 2013 results. Results were impacted by higher expenses, elevated level of provision for credit losses and lower mortgage finance volumes, partially offset by organic growth. We remain cautious on Texas Capital due to the current economic uncertainty across the industry.

Texas Capital reported fourth-quarter 2013 earnings of 67 cents per share, lagging the Zacks Consensus Estimate by 15.19%. Net income was down 11.1% year over year to $27.9 million.

Texas Capital continues to witness an increase in expenses, which rose at a 5-year CAGR of around 12% in 2013. 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 the revenues, negate the incremental effects of business expansion.

However, organic growth remains the key story at Texas Capital and it continues to perform well on a variety of metrics. Quite unlike its peers, the company continued to experience growth in loans (CAGR of 16.8%) and deposits (CAGR of around 17.8%) over the last five years (ended 2013).

We believe there are certain issues that may create pressure on the company's financials in the near term. These include absence of credible improvement in the mortgage market, declining net interest margin due to low interest rate environment and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 60 days declined 1.5% to $3.18 per share for 2014. Also, for 2015 it dipped about 1% to $3.84 per share, over the same time frame.

Texas Capital currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some better ranked Southwest banks include Southside Bancshares Inc. SBSI with a Zacks Rank #1 (Strong Buy), while Prosperity Bancshares Inc. PB and First Financial Bankshares Inc. FFIN carry a Zacks Rank #2 (Buy).