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TheStreet Open House

10 Best Bank Stocks of 2010

10. Texas Capital Bancshares

Company Profile

Texas Capital Bancshares of Dallas has seen its shares rise 49% year-to-date, closing at $20.82 Wednesday.

The company is one of the lucky banks that maintained profitability throughout the financial crisis by the very nature of its location and business model, catering to high-net-worth individuals and commercial clients in a state that's held up pretty well throughout the downturn.

At the start of this month, Standard & Poor's added Texas Capital to its SmallCap 600 index, potentially adding to the investor pool, as index funds pile into the stock.

Income Statement

The company reported third-quarter net income of 9.5 million, or 25 cents a share, increasing from $5.4 million, or 15 cents a share, a year earlier. Texas Capital's annualized return on average assets (ROA) for the third quarter was 0.63% according to SNL Financial, for its best earnings performance since the third quarter of 2008.

The company was still building reserves, as its $13.5 million provision for credit losses exceeded net charge-offs - loan losses minus recoveries - of $12.1 million.

Following the industry trend, the company's net interest margin improved to 4.25% during the third quarter, from 4.05% a year earlier.

The improvement in the margin reflected an 11% year-over-year increase in non-interest bearing deposits to $3.8 billion as of September 30.

Balance Sheet

Total assets were $6.3 billion as of September 30, increasing from 19% from a year earlier. Nonperforming assets made up 2.63% of total assets, increasing from 2.39% a year earlier but declining from a peak of 3.24% at the end of the second quarter.

The ratio of net charge-offs to average loans for the third quarter was 0.87% and loan loss reserves covered 1.29% of total loans as of September 30.

The company reported a Tier 1 leverage ratio of 10.00% as of September 30 and a total risk-based capital ratio of 11.93%, well-above the 5% and 10% required for most banks to be considered well-capitalized by regulators. The tangible common equity ratio was 7.99% according to SNL Financial.

Texas Capital Bancshares exited the Troubled Assets Relief Program, or TARP, in May 2009, when it repaid the government $75 million in bailout assistance. In January the company announced an equity distribution agreement under which it would raise up to $40 million in equity by issuing new common shares from time to time. So far, Texas Capital has raised $4.6 million through this program.

Stock Ratios

The shares trade for 1.5 times tangible book value, which Wunderlich Securities analyst Kevin Reynolds called a "full valuation" when he lowered his rating on Texas Capital Bancshares from a buy to a hold, with a price target of $20, earlier this month. The shares trade for 15.9 times the 2011 consensus earnings estimate among analysts polled by Thomson Reuters of $1.31 a share. The forward P/E drops to 12.6 based on the 2012 consensus earnings estimate of $1.65 a share.

Analyst Ratings

Out of 14 analysts covering Texas Capital Bancshares, seven rate the stock a buy while the remaining analysts all recommend investors hold the shares.

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