Texas Capital's (TCBI) Strategic Actions Aid Amid High Costs

Texas Capital Bancshares, Inc.’s TCBI increase in net interest income (NII) and steady loan growth will continue to support its financials. Given the company's strong liquidity position, its capital distribution activities seem sustainable. However, an elevated expense base and deteriorating asset quality are a major concern.

Texas Capital is focused on growing organically.  An elevated level of investment banking, trading income and higher NII drove revenues to witness a compound annual growth rate (CAGR) of almost 2% over the last five years (2018-2023). Although the revenues declined in first-quarter 2024, TCBI’s progress on its strategic plan (announced in September 2021), efforts to expand banking capabilities and expansion of customer portfolio are expected to support revenue growth in the quarters ahead. Management expects 2024 adjusted revenues to rise in the mid-single-digit range.

In 2023, net loans held for investments (LHI) improved 5.6% year over year to $20.09 billion and the upswing followed in the first quarter of 2024 as well. Although total deposits fell 2.1% to $22.37 billion during the same period, it increased in the first quarter of 2024. Texas Capital’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 Mar 31, 2024, Texas Capital had a total debt of $1.61 billion and liquid assets worth $3.32 billion. Given the decent liquidity position, its debt seems manageable.  

In January 2023, the company authorized a new share buyback program worth $150 million of shares. The plan will expire on Jan 31, 2025. In the first quarter of 2024, the company bought back $32 million worth of common stock. In April 2024, the bank repurchased another $20 million worth of its common shares. Supported by a decent liquidity position, the company’s share repurchase program seems sustainable.

Shares of this Zacks Rank #3 (Hold) company have gained 9.5% compared with the industry’s growth of 12.3% in the past six months.

  Zacks Investment Research
Image Source: Zacks Investment Research

However, the company’s non-interest expenses witnessed a CAGR of 2.4% over the last three years (2020-2023), with the uptrend continuing in first-quarter 2024. 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 focus on increasing efficiency.

The company’s non-performing assets and net charge-offs (NCOs) have increased in 2019, 2020, 2022 and 2023. NCOs witnessed a decline in the first quarter of 2024, while non-performing assets remained high. The company recorded a provision for credit losses of $66 million and $72 million in 2022 and 2023, respectively. Although provisions declined in first-quarter 2024, the increase in criticized assets within the real estate sector, mainly due to multifamily and office loans, will keep the metric high in the upcoming term. Also, management expects 2024 provision expenses (excluding mortgage finance) to be 50 basis points of LHI.

Finance Stocks Worth Considering

Some better-ranked finance stocks worth mentioning are BancFirst Corporation BANF and First Horizon Corporation FHN.

BancFirst’s 2024 earnings estimates have moved 2.5% north in the past 30 days. The stock has gained 3.9% in the past six months. Currently, BANF sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

First Horizon’s earnings estimates for the current year have remained unchanged in the past seven days. The company’s shares have gained 31.7% in the past six months. FHN carries a Zacks Rank #2 (Buy).

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Free: See Our Top Stock And 4 Runners Up

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Texas Capital Bancshares, Inc. (TCBI) : Free Stock Analysis Report

First Horizon Corporation (FHN) : Free Stock Analysis Report

BancFirst Corporation (BANF) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.