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10 Community Bank M&A Targets, Revisited

4. Texas Capital Bancshares

Texas Capital Bancshares (TCBI - Get Report) of Dallas has seen its stock rise 15% year-to-date, closing at $24.50 Wednesday.

The company had $6.7 billion in total assets as of June 30.

Matt Olney told TheStreet in January that TCBI's "franchise is very good and it is in a fantastic position to be acquired by any out of state bank looking to get into the state."

Texas Capital reported second-quarter net income of $16.7 million, or 43 cents a share, increasing from $8.1 million, or 22 cents a share, in the second quarter of 2010. The company's second-quarter ROA was 1.08%, second-best among this group of 10 banks.

The year-over-year earnings improvement reflected a 23% increase in net interest income to $71.1 million, reflecting a 15% increase in total loans and an improvement in the company's net interest margin to 4.86% in the second quarter from 4.32% a year earlier. Earnings were also boosted by a 45% decline in the provision for loan losses to $8 million.

Nonperforming assets totaled $105.2 million, or 1.57% of total assets as of June 30, improving from 3.02% a year earlier. The second-quarter net charge-off ratio was 0.86% and reserves covered 1.31% of loans held for investment, as of June 30.

After meeting with the company's management team, Brett Rabatin of Sterne Agee on Sept. 2 reiterated his neutral rating for the shares, saying the shares appeared "TCBI should continue to take market share in its lending businesses, and the outlook is for higher profitability despite the environment given expected credit quality improvement."

The shares trade for 11.6 times the consensus 2012 EPS estimate of $2.02, and 1.7 times tangible book value, according to SNL.

The 12 analysts covering Texas Capital are evenly split between buy ratings and neutral ratings.
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