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Texas Capital's (TCBI) Strategic Plan to Aid Despite Cost Woes
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Texas Capital Bancshares, Inc. (TCBI - Free Report) continues to execute its strategy to enhance top-line growth, going forward. Solid balance sheet and decent liquidity support its share repurchase program. However, escalating expenses on technological advancements are worrisome for the bank. Also, deteriorating credit quality on the back of the economic slowdown keeps us apprehensive.
The company’s revenues witnessed a compound annual growth rate (CAGR) of almost 1% over the last three years (2020-2023). Progress on its strategic plan (announced in September 2021), efforts to expand banking capabilities and focus on client satisfaction are expected to support revenue growth in the quarters ahead.
In line with the strategic plan, the company has expanded its product offerings and improved coverage in the potential markets. Management expects 2024 adjusted revenues to grow in the mid-single-digit range.
Balance sheet strength remains a key positive for Texas Capital. It continues to demonstrate resilience on a variety of metrics despite a tough operating backdrop. In 2023, net loans held for investments (LHI) improved 5.6% year over year to $20.09 billion. The company’s relationship-based business model is likely to increase its market share and support loan and recovery in deposit growth in the upcoming period.
As of Dec 31, 2023, Texas Capital had a total debt (comprising long-term debt and short-term borrowings) of $2.36 billion. The company’s liquid assets (including its cash and due from banks, and interest-bearing cash and cash equivalents) as of the same date were $3.24 billion. Given the decent liquidity position, its debt seems manageable.
Supported by decent balance sheet strength and liquidity position, the company’s share repurchase program seems sustainable. In January, the company authorized a share buyback program worth $150 million. The plan will expire on Jan 31, 2025.
However, Texas Capital continues to see a persistent rise in non-interest expenses over the past few years. Though expenses declined in 2021, it witnessed a CAGR of 2.4% over the last three years (2020-2023). Management expects expenses to grow in a low-single-digit range in 2024. This is due to the company’s efforts to make technological investments, leading to structural improvements and a focus on increasing efficiency. These moves might boost Texas Capital’s growth in the long term but the rising expense level is limiting the near-term bottom-line expansion.
Deterioration in credit quality remains a headwind to Texas Capital. Although the company recorded a declining trend in non-performing assets and net charge-offs in 2021, both metrics increased during 2016. With some moderation in 2017 and 2018, it again saw elevations in 2019, 2020, 2022 and 2023 with quarterly volatility.
Further, the company recorded provisions for credit losses of $66 million and $72 million in 2022 and 2023, respectively. Despite the macroeconomic environment favoring a potential soft landing, management expects further “downside stress” and, hence, expects annual provision expenses (excluding mortgage finance) to be 50 basis points of loans held for investments.
Shares of this Zacks Rank #3 (Hold) company have lost 8.9% compared with the industry’s 21.3% decline over the past year.
Image: Bigstock
Texas Capital's (TCBI) Strategic Plan to Aid Despite Cost Woes
Texas Capital Bancshares, Inc. (TCBI - Free Report) continues to execute its strategy to enhance top-line growth, going forward. Solid balance sheet and decent liquidity support its share repurchase program. However, escalating expenses on technological advancements are worrisome for the bank. Also, deteriorating credit quality on the back of the economic slowdown keeps us apprehensive.
The company’s revenues witnessed a compound annual growth rate (CAGR) of almost 1% over the last three years (2020-2023). Progress on its strategic plan (announced in September 2021), efforts to expand banking capabilities and focus on client satisfaction are expected to support revenue growth in the quarters ahead.
In line with the strategic plan, the company has expanded its product offerings and improved coverage in the potential markets. Management expects 2024 adjusted revenues to grow in the mid-single-digit range.
Balance sheet strength remains a key positive for Texas Capital. It continues to demonstrate resilience on a variety of metrics despite a tough operating backdrop. In 2023, net loans held for investments (LHI) improved 5.6% year over year to $20.09 billion. The company’s relationship-based business model is likely to increase its market share and support loan and recovery in deposit growth in the upcoming period.
As of Dec 31, 2023, Texas Capital had a total debt (comprising long-term debt and short-term borrowings) of $2.36 billion. The company’s liquid assets (including its cash and due from banks, and interest-bearing cash and cash equivalents) as of the same date were $3.24 billion. Given the decent liquidity position, its debt seems manageable.
Supported by decent balance sheet strength and liquidity position, the company’s share repurchase program seems sustainable. In January, the company authorized a share buyback program worth $150 million. The plan will expire on Jan 31, 2025.
However, Texas Capital continues to see a persistent rise in non-interest expenses over the past few years. Though expenses declined in 2021, it witnessed a CAGR of 2.4% over the last three years (2020-2023). Management expects expenses to grow in a low-single-digit range in 2024. This is due to the company’s efforts to make technological investments, leading to structural improvements and a focus on increasing efficiency. These moves might boost Texas Capital’s growth in the long term but the rising expense level is limiting the near-term bottom-line expansion.
Deterioration in credit quality remains a headwind to Texas Capital. Although the company recorded a declining trend in non-performing assets and net charge-offs in 2021, both metrics increased during 2016. With some moderation in 2017 and 2018, it again saw elevations in 2019, 2020, 2022 and 2023 with quarterly volatility.
Further, the company recorded provisions for credit losses of $66 million and $72 million in 2022 and 2023, respectively. Despite the macroeconomic environment favoring a potential soft landing, management expects further “downside stress” and, hence, expects annual provision expenses (excluding mortgage finance) to be 50 basis points of loans held for investments.
Shares of this Zacks Rank #3 (Hold) company have lost 8.9% compared with the industry’s 21.3% decline over the past year.
Image Source: Zacks Investment Research
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. (JPM - Free Report) and Park National Corporation (PRK - Free Report) . JPM currently carries a Zacks Rank #2 (Buy) and PRK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
JPM’s earnings estimates for 2024 have moved marginally upward over the past 30 days. In the past year, its shares have risen 29.7%.
The Zacks Consensus Estimate for PRK’s current-year earnings has moved north 4.9% over the past 30 days. Its shares have risen 1.5% in the past year.