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We have reaffirmed our long term Outperform recommendation on Texas Capital Bancshares Inc. (TCBI - Analyst Report), based on its business model that remains a chief growth driver. In addition, the gain in market share from its competitors and organic growth is impressive.

Texas Capital reported second-quarter 2012 operating earnings of 76 cents per share, surpassing the Zacks Consensus Estimate by a nickel. The results were significantly ahead of the prior-year quarter’s earnings of 44 cents per share.

Quarterly results of Texas Capital benefited from an elevation in the top line aided by an augmentation in both net interest income as well as non-interest income. However, it was partially offset by higher expenses.

Following a community banking model, Texas Capital strives to attract local business owners and individuals, and thereby creates an above-average retention ratio. The company has grown significantly since its inception, partly based on its ability to hire local lenders from its national competitors.

Moreover, quite unlike its peers, Texas Capital continued to experience growth in loans and deposits over the last five years. In the midst of a slowing economy in Texas, we believe that this growth has stemmed from a gain in market share from its economizing competitors who struggled against Texas Capital’s relationship-based model.

Though Texas Capital’s efforts to hire experienced bankers and expand its presence are encouraging, the resultant growth in expenses partly offset the incremental effects of business expansion. While this remains a concern, we believe that with an eventual improvement in the Texan economy, the company would be poised to experience a further increase in earnings.

Texas Capital is scheduled to report its third quarter 2012 earnings after market release on October 24, 2012. The company is expected to report earnings of 77 cents per share according to the Zacks Consensus Estimate.

Also, Texas Capital currently retains its Zacks #2 Rank, which translates into a short-term Buy rating. One of its closest peers, BOK Financial Corporation (BOKF - Analyst Report) has a Zacks #1 Rank, implying a short term Strong Buy rating.
 

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