Solid Balance Sheet Aids Texas Capital (TCBI) Despite High Costs
Texas Capital Bancshares, Inc. TCBI continues to execute its strategy to enhance top-line growth in the long term. Its solid balance sheet, decent liquidity and robust capital position support share repurchases.Escalating operating expenses on technological advancements are major near-term headwinds. Also, deteriorating credit quality keeps us apprehensive.
Revenues witnessed a compound annual growth rate (CAGR) of 4.6% over the last four years (2019-2022), with the rising trend continuing in the first nine months of 2023. The company’s progress on its strategy announced in September 2021, efforts to expand banking capabilities and focus on client satisfaction are expected to support revenue growth in the quarters ahead. Management expects 2023 adjusted revenue (excluding 2022 non-recurring items) growth to be in the low-double-digit range.
Balance sheet strength remains a key positive for Texas Capital. In the first nine months of 2023, net loans held for investments improved to $20.37 billion from $19.03 billion at 2022 end. Also, total deposits increased to $23.88 billion from $22.86 billion during the same period. The bank’s relationship-based business model is likely to increase its market share, and support loan and deposit growth in the upcoming period.
As of Sep 30, 2023, Texas Capital had a total debt (comprising long-term debt and short-term borrowings) of $2.26 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 $4.19 billion.
Supported by decent capital levels and liquidity position, the company’s share repurchase activity seems sustainable, with the authorization of up to $150 million. In the nine months ended Sep 30, 2023, the company repurchased 1,011,909 shares of its common stock for $59.7 million. Also, we believe that Texas Capital’s strong capital position will help it undertake opportunistic expansions in the foreseeable future.
However, TCBI continues to see a persistent rise in non-interest expenses over the past few years. Expenses witnessed a CAGR of 6.6% over the last four years (2019-2022), with the rising trend continuing in the first nine months of 2023. The expense base is expected to remain elevated in the near term due to the company’s efforts to make technological investments for increasing efficiency.
Deterioration in credit quality remains a headwind for Texas Capital. Although the company recorded a declining trend in non-performing assets and net charge-offs (NCOs) in 2021, both metrics increased during 2016. Both metrics also increased in the first nine months of 2023. The company recorded a provision for credit losses of $66 million and $53 million in 2022 and the first nine months of 2023, respectively. As the macroeconomic environment continues to be concerning, with the expectations of a slowdown or recession, the company’s asset quality is likely to remain under pressure in the near term.
his Zacks Rank #3 (Hold) stock has gained 27.1% in the past six months compared with the industry’s growth of 11.4%.
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Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are WSFS Financial Corporation WSFS and Hilltop Holdings HTH
Earnings estimates for WSFS have been unchanged for 2023 over the past 30 days at $4.47. The company’s shares have gained 29.9% over the past six months. WSFS Financial currently carries a Zacks Rank #2 (Buy).
Hilltop Holdings’ earnings estimates have moved 1.8% north for the current year at $1.65 over the past 30 days. In six months’ time, HTH’s shares have gained 14.1%. The company sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Texas Capital Bancshares, Inc. (TCBI) : Free Stock Analysis Report
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WSFS Financial Corporation (WSFS) : Free Stock Analysis Report
