Texas Capital Rating Assigned


Texas Capital Bancshares Inc.’s (TCBI) issuer credit rating has been assigned at 'BBB-' by Standard & Poor's Ratings Services. Moreover, the company’s main banking subsidiary, Texas Capital Bank National Association’s issuer credit rating has been assigned at 'BBB.' The rating agency has assigned a Stable outlook on the long term ratings.

According to the rating agency, Texas Capital’s business position, capital, earnings as well as risk position are “adequate” compared to the other banks in the U.S. Based on this view, stand-alone credit profile of Texas Capital is ‘bbb.’

Despite countering a difficult competitive environment from a number of the major U.S. banks, Texas Capital efficiently contended against them by leveraging on its business strategy and with focus on serving commercial and corporate borrowers.

The company can boast of a strong growth in the region and in the recent years, it has been able to post a solid performance in loans. Also, nonperforming assets and net charge-offs are low at Texas Capital.

But Texas Capital has a significant concentration of loans in terms of type and geography that poses a risk for the company. Moreover, there are operational risks related to its mortgage warehousing business. With a modest market share, the company has little presence in the U.S. economy and is therefore not systemically important.

Nevertheless, the Stable outlook is based on certain expectations of the rating agency. These include a modest improvement in loan performance, healthy profit level and an increase in capital ratios in the next two years leveraging on an improving economy.

Our Viewpoint

Ratings are important for Texas Capital; they play a major role in preserving investor confidence in the stock and help boost its creditworthiness in the market.

We are encouraged by Texas Capital’s business model, which remains a chief growth driver. Gain in market share from its competitors and organic growth is impressive. Its efforts to hire experienced bankers and expand its presence are encouraging. Though the resultant expenses that continue to grow remain 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 currently retains its Zacks #2 Rank, which translates into a short-term Buy rating. Considering its fundamentals, we have a long term Outperform recommendation on the stock. One of its closest peers, First Financial Bankshares Inc. (FFIN) also has a Zacks #2 Rank.

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