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Texas Capital Gains From Loan Growth Amid Low Interest Rates

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Texas Capital Bancshares, Inc.’s (TCBI - Free Report) top line continues to grow on the back of increasing net interest income, which in turn benefited from rise in average earning assets. Also, diversified fee income base is likely to support the company’s revenues.

Moreover, growth in total loans held for investment and deposits, backed by gain in market share due to the company’s relationship-based model, is a tailwind.

While margins contracted in the first nine months of 2019 due to challenging interest rate environment, the same is likely to get support from rising deposit costs, improving economy and decent loan growth in the future.

Furthermore, Texas Capital’s capital ratios remain well above the required levels, and have increased with the additional capital raised since 2008. Notably, the ratio of tangible common equity to total tangible assets was 7.7% as of Sep 30, 2019. Such a strong capital position makes the company well poised to undertake any opportunistic expansion efforts.

Shares of Texas Capital have gained 10.1%, outperforming the industry’s growth of 8.6% over the past three months.

However, the company’s expenses remain elevated due to its efforts to hire experienced bankers and expand its presence. Such initiatives seem encouraging in the long run, but in the near term, these may lead to higher costs.

Moreover, Texas Capital’s provisions and total non-performing assets have increased in the first nine months of 2019, indicating deterioration in credit quality. This might increase its risk profile, and makes us apprehensive about its performance amid a challenging global economy and competitive markets.

Currently, Texas Capital carries a Zacks Rank #3 (Hold).

Key Picks

Luther Burbank Corporation (LBC - Free Report) has witnessed upward earnings estimate revision of 8.5% for 2019 in the past 60 days. Moreover, the Zacks Rank #1 (Strong Buy) stock has gained 24.7% in the year-to-date period. You can see the complete list of today’s Zacks #1 Rank stocks here.

First Community Corporation’s (FCCO - Free Report) earnings estimates for the ongoing fiscal year have moved 3.6% north over the past 60 days. Additionally, the stock has gained 9% so far this year. It currently sports a Zacks Rank #1.

FS Bancorp, Inc.’s (FSBW - Free Report) earnings estimates for 2019 have moved 5.4% upward in the past 60 days. Moreover, the Zacks #1 Ranked stock has risen 38.8% year to date.

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