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Texas Capital (TCBI) Updates Strategic Plan to Boost Profits
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Texas Capital Bancshares, Inc. (TCBI - Free Report) has updated its strategic plans on expanding its product offerings and coverage in the firm’s potential markets.
The president and CEO Rob C. Holmes said, “When I joined as CEO in January, I committed to formulating a detailed go-forward strategy for Texas Capital. The strategic plan we are announcing today represents the culmination of more than seven months of work, including detailed reviews of each business line, our operating model, investment spend and our overall strategy to ensure Texas Capital is best positioned to serve clients, remain a meaningful partner in our communities and capitalize on the significant opportunities ahead.”
Ever since Texas Capital first announced its plans to render an enterprise-wide analysis of its business, it has taken decisive actions to enhance its strategic goals, augment its client relationships and boost its capital flexibility.
Plan Details
Texas Capital plans to digitalize its operations by strategically designating in-house and third-party platforms to build scale as well as shore up its client experience, which sifts the bank from its rivals. It intends to achieve simplified interactions and client enablement by focusing on infrastructure modernization through cloud native platforms, APIs to support scale, refining digital tooling and process automation across the workforce, realigning technology and operations resources across major spectrums of the business, enabling faster response times and client-centric development as well as continual boost of cybersecurity and governance.
The proposal includes aggressive hiring plans to more than double the number of client-facing professionals across Texas by 2025.
In addition, the bank plans to expand its products and services, especially in Treasury Solutions by driving new operating-account relationships to improve fee income as well as evaluating and resolving gaps in legacy client offering. With this, the treasury non-interest income is expected to account for 5% of the total revenues in 2025, reflecting an increase from 2% recorded in 2021.
Texas Capital’s mid-term focus lies on augmenting its distribution channels, creating foundation for next-generation payment products, providing sound receivables and payables offerings as well as improving revenues from the payment rails.
The company intends to consolidate current syndications, equipment finance, asset-based loan and related businesses into a new Investment Banking Division and expand its scope of products and services by securing a broker-dealer approval by the end of 2021. It also prioritizes reorganizing internal teams to aid the Investment Bank Staged approach to introduce new offerings to internal partners and external clients.
The bank expects to achieve 10% of total revenues from this division by 2025, indicating growth from the 4% witnessed in 2021. Expected growth will likely be driven by corporate advisory, underwriting, and sales & trading.
More than 20 new Treasury Solutions and Investment Banking products are targeted by 2025. Client-facing talent is expected to grow at least 2.3X by 2025.
The firm is also focused on bolstering its Private Wealth business via additional full-service offerings and leveraging on the selective in-market acquisition of Texas-based Registered Investment Advisers (RIAs). It is also eyeing organic growth via advisor positioning and increased recruitment across all markets.
By partnering with local bankers, the bank intends to widen its specialized industry coverage, thereby catering to 40% of the Texas market under its purview. This apart, it plans to expand its segments to serve nearly 85% of the Texas-based companies’ banking opportunity in the midterm.
Medium-Term Targets
The implementation of these strategic efforts will assist Texas Capital in achieving a greater than 1.10%return on assets, more than 12.5% return on total capital employed and a Common Equity Tier 1 ratio in the 9-10% range by 2025. The bank expects low double-digit expense growth and low-to-mid-single digit revenue growth for 2022 from the 2021 reported levels.
With its strategic efforts to fortify its treasury, investment banking and private wealth divisions, the company aims to increase the contribution of its non-interest income to its total revenues from 11% in 2020 to 15-20% by 2025.
Our Take
Texas Capital’s initiatives are expected to support profitability and help counter the pandemic-led challenges. However, rising expenses on technology are likely to impede its bottom-line growth in the near term.
Shares of Texas Capital have lost 16.5% in the past six months this year, wider than the industry’s fall of 3.4%.
Banks have been fortifying their digital capabilities as demand for the same has been shooting up amid the pandemic so far. Global banks such as JPMorgan (JPM - Free Report) , Citigroup Inc. (C - Free Report) and Bank of America (BAC - Free Report) are investing heavily in technological upgrades to enhance the digital experience of their customers.
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Texas Capital (TCBI) Updates Strategic Plan to Boost Profits
Texas Capital Bancshares, Inc. (TCBI - Free Report) has updated its strategic plans on expanding its product offerings and coverage in the firm’s potential markets.
The president and CEO Rob C. Holmes said, “When I joined as CEO in January, I committed to formulating a detailed go-forward strategy for Texas Capital. The strategic plan we are announcing today represents the culmination of more than seven months of work, including detailed reviews of each business line, our operating model, investment spend and our overall strategy to ensure Texas Capital is best positioned to serve clients, remain a meaningful partner in our communities and capitalize on the significant opportunities ahead.”
Ever since Texas Capital first announced its plans to render an enterprise-wide analysis of its business, it has taken decisive actions to enhance its strategic goals, augment its client relationships and boost its capital flexibility.
Plan Details
Texas Capital plans to digitalize its operations by strategically designating in-house and third-party platforms to build scale as well as shore up its client experience, which sifts the bank from its rivals. It intends to achieve simplified interactions and client enablement by focusing on infrastructure modernization through cloud native platforms, APIs to support scale, refining digital tooling and process automation across the workforce, realigning technology and operations resources across major spectrums of the business, enabling faster response times and client-centric development as well as continual boost of cybersecurity and governance.
The proposal includes aggressive hiring plans to more than double the number of client-facing professionals across Texas by 2025.
In addition, the bank plans to expand its products and services, especially in Treasury Solutions by driving new operating-account relationships to improve fee income as well as evaluating and resolving gaps in legacy client offering. With this, the treasury non-interest income is expected to account for 5% of the total revenues in 2025, reflecting an increase from 2% recorded in 2021.
Texas Capital’s mid-term focus lies on augmenting its distribution channels, creating foundation for next-generation payment products, providing sound receivables and payables offerings as well as improving revenues from the payment rails.
The company intends to consolidate current syndications, equipment finance, asset-based loan and related businesses into a new Investment Banking Division and expand its scope of products and services by securing a broker-dealer approval by the end of 2021. It also prioritizes reorganizing internal teams to aid the Investment Bank Staged approach to introduce new offerings to internal partners and external clients.
The bank expects to achieve 10% of total revenues from this division by 2025, indicating growth from the 4% witnessed in 2021. Expected growth will likely be driven by corporate advisory, underwriting, and sales & trading.
More than 20 new Treasury Solutions and Investment Banking products are targeted by 2025. Client-facing talent is expected to grow at least 2.3X by 2025.
The firm is also focused on bolstering its Private Wealth business via additional full-service offerings and leveraging on the selective in-market acquisition of Texas-based Registered Investment Advisers (RIAs). It is also eyeing organic growth via advisor positioning and increased recruitment across all markets.
By partnering with local bankers, the bank intends to widen its specialized industry coverage, thereby catering to 40% of the Texas market under its purview. This apart, it plans to expand its segments to serve nearly 85% of the Texas-based companies’ banking opportunity in the midterm.
Medium-Term Targets
The implementation of these strategic efforts will assist Texas Capital in achieving a greater than 1.10%return on assets, more than 12.5% return on total capital employed and a Common Equity Tier 1 ratio in the 9-10% range by 2025. The bank expects low double-digit expense growth and low-to-mid-single digit revenue growth for 2022 from the 2021 reported levels.
With its strategic efforts to fortify its treasury, investment banking and private wealth divisions, the company aims to increase the contribution of its non-interest income to its total revenues from 11% in 2020 to 15-20% by 2025.
Our Take
Texas Capital’s initiatives are expected to support profitability and help counter the pandemic-led challenges. However, rising expenses on technology are likely to impede its bottom-line growth in the near term.
Shares of Texas Capital have lost 16.5% in the past six months this year, wider than the industry’s fall of 3.4%.
Image Source: Zacks Investment Research
Currently, it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Banks have been fortifying their digital capabilities as demand for the same has been shooting up amid the pandemic so far. Global banks such as JPMorgan (JPM - Free Report) , Citigroup Inc. (C - Free Report) and Bank of America (BAC - Free Report) are investing heavily in technological upgrades to enhance the digital experience of their customers.