Texas Capital (TCBI) Rides on Revenues Amid High Debt Concerns
Texas Capital Bancshares, Inc. TCBI has been witnessing continuous revenue growth over the last few years. Balance-sheet strength has been a key positive for the company. However, operating expenses have been increasing over the last few years, which hurt its bottom line to some extent. Additionally, high debt levels and deteriorating credit quality also possess threat.
Texas Capital’s revenues witnessed a compound annual growth rate (CAGR) of 4.6% over the last three years (2019-2022), with the uptrend continued in the first quarter of 2023. Additionally, the company’s strategic plan (announced in September 2021) will further boost revenue growth in the quarters ahead.
Balance-sheet strength remains a key positive for Texas Capital and it continues to perform well on a variety of metrics. As of Mar 31, 2023, total loans improved 4.1% on a sequential basis. Also, the bank’s relationship-based business model is expected to increase its market share, thereby driving loan and deposit growth in the upcoming period.
Additionally, with the Federal Reserve expected to keep interest rates high in the near-term, Texas Capital is likely to witness an increase in net interest margin (NIM). In fact, the metric has been witnessing an uptrend since the third quarter of 2021.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 11.4% against the industry’s fall of 6.4%.
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However, Texas Capital continues to see a persistent rise in non-interest expenses over the past few years. The metric witnessed a CAGR of 6.6% over the last three years (2019-2022), primarily due to efforts to hire experienced bankers, upgrade technology and expand footprints. While these moves will support the company in the long term, 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 (NCOs) in 2021, both metrics saw an elevation in 2019, 2020 and 2022 with quarterly volatility. Also, the company recorded a provision for credit losses of $66 million and $28 million in 2022 and first-quarter 2023, respectively. As the macroeconomic environment continues to be a concern with the expectations of slowdown or recession, the company’s asset quality is likely to remain under pressure in the near-term.
Also, Texas Capital has a high debt level, which has been volatile over the last few quarters. It has witnessed low cash and due from banks as compared to its debt. Thus, its debt position appears unmanageable, and this will likely hurt financials if the economic conditions worsen.
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Texas Capital Bancshares, Inc. (TCBI) : Free Stock Analysis Report
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