TEXAS CAPITAL BANCSHARES INC/TX (TCBI) stock intrinsic value fair value estimate & owner earnings analysis

Texas Capital Bancshares is a Dallas-based commercial bank that lends to and holds deposits for mid-sized businesses, entrepreneurs, real-estate investors and wealthy individuals across Texas, and runs a nationwide mortgage finance business that funds home loans for independent mortgage companies for the 10 to 20 days before those loans are sold (about 25% of its $24.0 billion loan book at the end of 2025). Since 2021 new management has exited the old mortgage-aggregation business, sold the BankDirect insurance premium finance unit (2022), repositioned the securities portfolio at a $179.6 million pre-tax loss (2024), and built out investment banking, treasury and advisory services. The results arrived in 2025: net interest margin rose to 3.35% from 3.03% as funding costs fell, net income to common shareholders was $313 million ($6.79 a diluted share), and the first half of 2026 ran ahead of that ($150 million, $3.39 a share, versus $2.49 a year earlier). How we measure earnings. We start from the cash the bank generates from operations, strip out short-term swings in accrued items and in loans held for sale, and subtract stock compensation, spending on premises and equipment, and the $17.25 million a year owed on the $300 million of 5.75% preferred stock that ranks ahead of the common. New in this analysis: we also subtract the bank's actual loan losses (net charge-offs). The cash-flow statement adds back the provision for credit losses, and the money actually lost on bad loans shows up elsewhere, so without this step loan losses never reduce the figure. That is a real, recurring cost of lending, so we now charge it every year. On this basis owner earnings per share were $4.02 in 2023, $4.95 in 2024 and $8.09 in 2025. We treat the 2024 securities loss as a one-time cost that has already been paid for. About $39 million a year of the bank's reported depreciation and amortization is more than the depreciation on its buildings and equipment ($13.5 million in 2025), and the filings do not say what the rest is. We keep it in the base and bull cases, as the cash-flow method requires, and leave it out of the bear case. Starting level. The 2023-2025 median would be $4.95, but it describes a bank that no longer exists: one still carrying the low-yield securities it sold in 2024, and before the drop in funding costs. The 2025 level is backed up by two more quarters (first-half 2026 operating cash flow of $191 million against $63 million a year earlier). So we start from 2025 owner earnings of $373 million and take off two things. The first is $16 million of deferred-tax timing. The second is $18 million after tax to lift 2025's unusually low loan losses (about 0.2% of loans) toward the ten-year average of about 0.3%, a period that includes 2020's $199 million of charge-offs. That leaves about $339 million, or $7.69 on today's 44.1 million diluted shares. Owner earnings per share grew 63% in 2025, and the base case assumes only 2% growth in year one. How debt is handled. For a bank, deposits and borrowings are the raw material of the business and interest is an operating cost, so we value the earnings after interest and do not subtract deposits, the roughly $500 million of subordinated and other long-term debt, or other borrowings. Subtracting them would count the same interest twice. The preferred stock is charged through its dividend every year, which at our 6% rate is equivalent to about $288 million today. Leverage shows up instead in the bear case. Customers could pull their money: an estimated 42% of deposits are uninsured, and mortgage finance deposits and loans swing sharply. Credit losses could spike, as they did in 2020. Capital is strong: common equity tier 1 was 12.13% of risk-weighted assets at the end of 2025, against a 7.0% minimum including the buffer. Growth and capital. A bank cannot grow its loans without keeping some earnings as capital, so every case that credits growth also deducts the capital needed to fund it (at today's roughly 10% return on common equity, about a tenth of earnings for each percentage point of growth). We credit only the growth the bank has actually shown. Loans outside mortgage finance grew by $1.3 billion, $0.9 billion and $0.8 billion in 2023-2025, and the bank has grown its balance sheet from its own earnings for more than two decades without paying a common dividend. But per-share earnings in 2025 were only about 10% above 2019, so we credit growth modestly. We credit nothing for new product lines, market expansion or further efficiency gains beyond what 2025 already delivered. Bear case ($73.63 a share): the 2025 improvement partly reverses as rates and deposit competition squeeze the margin back toward 2023-2024 levels. Earnings settle near $200 million a year ($4.54 a share, slightly below the 2023-2024 average of $214 million, with part of the unexplained amortization excluded). One 2020-style credit year hits in 2028, costing an extra $100 million after tax. No growth after that. The bank is worth about $3.24 billion to common shareholders. Nothing further is owed ahead of them beyond the deposits, borrowings and preferred already charged, so that is $73.63 a share. Base case ($136.57 a share): earnings of about $339 million grow 2% a year for ten years, with about $67-80 million a year kept back to fund that growth. After year ten earnings hold flat at about $413 million, supported by a Texas commercial banking franchise that has kept operating since 1998 and a deposit base of $28.9 billion. Value is about $6.02 billion, or $136.57 a share, with nothing further subtracted. Bull case ($163.67 a share): the bank holds its 2025 level of $373 million, as the first-half 2026 results suggest. Commercial loan growth continues at 4% a year, below the 2023-2025 pace, for ten years, funded by kept earnings, and then earnings hold flat. Value is about $7.21 billion, or $163.67 a share. We did not add any value for returning surplus capital above regulatory needs, which could add a few dollars a share. What changed since our previous estimate: we previously put the shares at about $75 (bear), $154 (base) and $244 (bull), with a margin-of-safety price near $100. Three things moved the numbers down. We now charge actual loan losses of roughly $40-50 million a year. We charge the capital the bank must keep to fund loan growth. And we cut the growth assumptions, because per-share earnings have barely grown since 2019 and nothing in the filings makes faster growth certain. One thing moved them up: a higher starting level, reflecting 2025 and the first half of 2026. The previous analysis also valued the bank after interest without subtracting deposits or borrowings, which remains the right treatment for a bank. What would make this wrong: a sharp downturn in Texas commercial real estate or in the mortgage finance business (25% of loans), a flight of uninsured deposits like the one that hit regional banks in 2023, or the investment-banking build-out adding costs faster than fees. On the upside, sustained loan growth well above 4% at today's returns would be worth more than we assume. Margin-of-safety price: this is a leveraged, credit-sensitive business whose improved results are less than two years old, so the estimate calls for a wide margin of safety of about 40% below the base case. At $80 the margin-of-safety price sits just above our bear-case value, and if the shares reached the base-case value within about three years, the base case implies roughly 20% a year from that price.