Updated Research Report on Texas Capital - Analyst Blog

On May 7, 2014, we issued an updated research report on Texas Capital Bancshares Inc. TCBI. This commercial bank recently reported disappointing first-quarter 2014 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 uncertainties across the industry.

Texas Capital reported first-quarter 2014 earnings of 60 cents per share, lagging the Zacks Consensus Estimate by 17.81%. Net income was down 22% year over year to $25.8 million.

Texas Capital continues to incur higher expenses, which rose 24.5% year over year in first-quarter 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.

Texas Capital's business is mainly concentrated in Texas. We apprehend that lack of diversifying efforts will hamper the company's top- and bottom-line growth in the near future.

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 regulatory landscape.

Following first-quarter results, the Zacks Consensus Estimate for full-year 2014 declined 8.9% to $2.87 per share over the last 30 days. Also, the same for 2015 decreased 6.3% to $3.58 per share, over the same time frame. Hence, Texas Capital currently carries a Zacks Rank #5 (Strong Sell).

Key Picks from the Sector

Some better-ranked companies in the same sector include Chemical Financial Corporation CHFC, MidWest One Financial Group, Inc. MOFG and BancFirst Corporation BANF. While Chemical Financial and MidWest One Financial sport a Zacks Rank #1 (Strong Buy), BancFirst carries a Zacks Rank #2 (Buy).

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