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On Jul 5, 2013, we reiterated our Neutral recommendation on Texas Capital BancShares Inc. (TCBI - Analyst Report), primarily based on increased revenues. However, higher expenses were the downside.

Why Neutral?

The company’s first-quarter earnings of 80 cents per share lagged the Zacks Consensus Estimate but beat prior-quarter earnings by 14%. Additionally, over the last 60 days, the Zacks Consensus Estimate for 2013 inched up 0.3% to $3.29 per share. For 2014, over the same time period, the Zacks Consensus Estimate moved north by 0.6%.

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 revenue and asset 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 help in both organic growth with the addition of loan and deposit relationships, and in opportunistic expansions in the future.

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.

Earnings Whispers?

Texas Capital is scheduled to release second-quarter earnings on Jul 24. The Zacks Consensus Estimate for the second quarter is 80 cents. The earnings ESP(Read: Zacks Earnings ESP: A Better Method) for the company is 1.25% for the quarter. This, along with its Zacks Rank #3 (Hold), makes us confident for a positive earnings surprise.

Other Stocks to Consider

Texas Capital BancShares is not the only firm looking up this earnings season. We also anticipate earnings beat by 3 other regional banks:

Prosperity Bancshares Inc. (PB - Analyst Report), with earnings ESP of 2.27% and a Zacks Rank #2 (Buy).

First Horizon National Corporation (FHN - Analyst Report), with earnings ESP of 5.26% and a Zacks Rank #3.

Fifth Third Bancorp (FITB - Analyst Report), with earnings ESP of 4.55% and a Zacks Rank #3.

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