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Texas Capital's (TCBI) Strategic Plan Aids Amid Cost Woes
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Texas Capital Bancshares, Inc. (TCBI - Free Report) remains committed to boosting revenues through its strategic initiatives. Its strong balance sheet and decent liquidity help to sustain its share repurchase program. However, elevated operating expenses and deteriorating credit quality remain near-term headwinds.
Texas Capital’s strength lies in its organic growth, which is evident in its revenue-led growth. Over the past three years, the company witnessed a compounded annual growth rate (CAGR) of nearly 1% in its revenues, attributed to increased investment banking and trading income, and higher net interest income.
TCBI continues to execute its strategic plan (announced in September 2021), which has been enhancing its banking capabilities. This, in turn, will further bolster revenue growth. In alignment with its strategic plan, the company expanded its product offerings and enhanced its presence in promising markets. Management expects adjusted revenues to grow in the mid-single-digit range for 2024.
As of Dec 31, 2023, Texas Capital had a total debt (comprising long-term debt and short-term borrowings) of $2.36 billion. Its liquid assets (including cash and due from banks and interest-bearing cash and cash equivalents) as of the same date were $3.24 billion. Despite a year-over-year decrease in its times interest earned ratio to 2.9 at the end of 2023, the company’s debt seems manageable, driven by its solid liquidity position.
Its robust balance sheet remains a significant advantage for Texas Capital. The company continues to demonstrate resilience on varied metrics despite a challenging operating environment. The company’s capital ratios also remain strong as compared with its peers and are well above regulatory requirements.
In 2023, it repurchased 1.8 million shares of its common stock for $105 million. This January, a new share repurchase program, authorizing the buyback of up to $150 million worth of shares, was announced. Decent capital levels and liquidity position are likely to help TCBI continue its share buyback plan.
The Zacks Consensus Estimate for 2024 and 2025 earnings has been revised 3.1% and 5.9% upward over the past 30 days, respectively.
Shares of this Zacks Rank #3 (Hold) company have lost 8.9% compared with the industry’s downside of 21.3% over the past year.
Image Source: Zacks Investment Research
However, TCBI continues to witness a persistent increase in non-interest expenses over the past few years. Though expenses were reduced in 2021, it demonstrated a CAGR of 2.4% over the last three years (2020-2023). Management expects expenses to increase in a low single-digit range in 2024 due to its technological investments to pursue structural enhancement and improve operating efficiency. Though these initiatives might boost Texas Capital’s growth in the long term, they are likely to dampen bottom-line growth in the near term.
The deterioration in credit quality remains a headwind for Texas Capital. Though it recorded a declining trend in non-performing assets and net charge-offs (NCOs) in 2021, both metrics increased in 2019, 2020, 2022 and 2023 with quarterly volatility. Furthermore, it recorded a provision for credit losses of $66 million and $72 million in 2022 and 2023, respectively. Though the macroeconomic environment is indicating a soft landing, management anticipates further “downside stress” and, hence, expects annual provision expenses (excluding mortgage finance) to be 50 basis points of loans held for investments (LHI).
The Zacks Consensus Estimate for FFIN’s 2024 earnings has been revised 7.4% upward over the past 30 days. Shares of First Financial Bancshares have rallied 14.8% over the past year.
The Zacks Consensus Estimate for GNTY’s 2024 earnings has been revised 5.3% upward over the past 30 days. Shares Guaranty Bancshares have lost 3.3% over the past year.
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Texas Capital's (TCBI) Strategic Plan Aids Amid Cost Woes
Texas Capital Bancshares, Inc. (TCBI - Free Report) remains committed to boosting revenues through its strategic initiatives. Its strong balance sheet and decent liquidity help to sustain its share repurchase program. However, elevated operating expenses and deteriorating credit quality remain near-term headwinds.
Texas Capital’s strength lies in its organic growth, which is evident in its revenue-led growth. Over the past three years, the company witnessed a compounded annual growth rate (CAGR) of nearly 1% in its revenues, attributed to increased investment banking and trading income, and higher net interest income.
TCBI continues to execute its strategic plan (announced in September 2021), which has been enhancing its banking capabilities. This, in turn, will further bolster revenue growth. In alignment with its strategic plan, the company expanded its product offerings and enhanced its presence in promising markets. Management expects adjusted revenues to grow in the mid-single-digit range for 2024.
As of Dec 31, 2023, Texas Capital had a total debt (comprising long-term debt and short-term borrowings) of $2.36 billion. Its liquid assets (including cash and due from banks and interest-bearing cash and cash equivalents) as of the same date were $3.24 billion. Despite a year-over-year decrease in its times interest earned ratio to 2.9 at the end of 2023, the company’s debt seems manageable, driven by its solid liquidity position.
Its robust balance sheet remains a significant advantage for Texas Capital. The company continues to demonstrate resilience on varied metrics despite a challenging operating environment. The company’s capital ratios also remain strong as compared with its peers and are well above regulatory requirements.
In 2023, it repurchased 1.8 million shares of its common stock for $105 million. This January, a new share repurchase program, authorizing the buyback of up to $150 million worth of shares, was announced. Decent capital levels and liquidity position are likely to help TCBI continue its share buyback plan.
The Zacks Consensus Estimate for 2024 and 2025 earnings has been revised 3.1% and 5.9% upward over the past 30 days, respectively.
Shares of this Zacks Rank #3 (Hold) company have lost 8.9% compared with the industry’s downside of 21.3% over the past year.
Image Source: Zacks Investment Research
However, TCBI continues to witness a persistent increase in non-interest expenses over the past few years. Though expenses were reduced in 2021, it demonstrated a CAGR of 2.4% over the last three years (2020-2023). Management expects expenses to increase in a low single-digit range in 2024 due to its technological investments to pursue structural enhancement and improve operating efficiency. Though these initiatives might boost Texas Capital’s growth in the long term, they are likely to dampen bottom-line growth in the near term.
The deterioration in credit quality remains a headwind for Texas Capital. Though it recorded a declining trend in non-performing assets and net charge-offs (NCOs) in 2021, both metrics increased in 2019, 2020, 2022 and 2023 with quarterly volatility. Furthermore, it recorded a provision for credit losses of $66 million and $72 million in 2022 and 2023, respectively. Though the macroeconomic environment is indicating a soft landing, management anticipates further “downside stress” and, hence, expects annual provision expenses (excluding mortgage finance) to be 50 basis points of loans held for investments (LHI).
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are First Financial Bancshares, Inc. (FFIN - Free Report) and Guaranty Bancshares, Inc. (GNTY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for FFIN’s 2024 earnings has been revised 7.4% upward over the past 30 days. Shares of First Financial Bancshares have rallied 14.8% over the past year.
The Zacks Consensus Estimate for GNTY’s 2024 earnings has been revised 5.3% upward over the past 30 days. Shares Guaranty Bancshares have lost 3.3% over the past year.