Texas Capital Misses Target

Texas Capital Bancshares, Inc.’s (TCBI - Analyst Report) 2Q08 operating results were $0.22 per share versus $0.31 per share recorded in the prior-year period. Results came in well below our expectation, even though 2Q08 average portfolio loans expanded 21.3% year-over-year. The miss from expectations resulted from significantly higher-than-expected provisions for loan losses and nonperforming assets recorded for the quarter.

Within the press release, the company’s guidance is now $30-33 million, or $1.12-1.23 per share. Therefore prior to the conference call, we are lowering our 2008 and 2009 earnings expectations to $1.18 per share and $1.40 per share, respectively, from $1.26 per share and $1.45 per share. We continue to view the shares of TCBI as a Hold.

Currently, the shares of TCBI trade at 1.16x its 2Q08 book value of $11.76 per share and 11.5x our new 2008 EPS target. Our new six-month target of $14.40 per share equates to 1.15x our projected 4Q08 book value of $12.45 per share. This target price also equates to 12.5x of our 2008 projected earnings per share. With no dividend to supplement the return, this equates to a 5.9% expected return over that period.

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