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Revenue Growth Aids Texas Capital (TCBI) Despite Higher Costs
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Texas Capital Bancshares, Inc. (TCBI - Free Report) has been displaying impressive revenue growth, supported by a steady rise in loans and deposits. However, operating expenses have been increasing over the past few years, which hurt its bottom line to some extent. High debt levels and deteriorating credit quality are woes.
TCBI’s improving revenue trend is likely to get further support in the upcoming quarters from its efforts to expand product offerings and improve coverage in the potential markets. Moreover, the company's initiative to evolve the mortgage finance business from a warehouse-only platform into a differentiated industry vertical with multiple new products and services is expected to enhance fee income. This aside, high interest rates and a rise in average earning assets will drive net interest income and net interest margin.
The company’s capital ratios remain above the levels required to be considered well-capitalized and have been enhanced with the additional capital raised since 2008. As of Mar 31, 2023, the ratio of tangible common equity to total tangible assets was 9.7% compared with 8.9% in the year-ago quarter.
Supported by decent capital levels, the company’s share repurchase authorization of up to $150 million worth of shares seems sustainable. Also, we believe Texas Capital’s strong capital position will help it undertake opportunistic expansions in the foreseeable future.
However, a persistent rise in non-interest expenses over the past few years is concerning. Expenses increased in first-quarter 2023. The metric is expected to be elevated in the near term due to efforts to hire experienced bankers, upgrade technology and expand footprints. These moves may boost Texas Capital’s growth in the long term but the rising expense level is limiting the near-term bottom-line expansion.
As of Mar 31, 2023, Texas Capital had a long-term debt of $932.1 million, which witnessed a volatile trend over the last few quarters. The company’s cash and due from banks as of the same date were $264.2 million. Given the unsound liquidity position, its debt seems unmanageable.
Deterioration in credit quality remains a headwind to Texas Capital. The company’s non-performing assets and net charge-offs (NCOs) saw elevations in 2019, 2020 and 2022 and first-quarter 2023. 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 concerning, with the expectations of a slowdown or recession, the company’s asset quality is likely to be under pressure in the near term.
Currently, TCBI carries a Zacks Rank #3 (Hold). Shares of the company have declined 8.9% over the past six months compared with the 34.7% fall recorded by the industry.
Image Source: Zacks Investment Research
Bank Stocks Worth Considering
A couple of better-ranked bank stocks are Pathward Financial, Inc. (CASH - Free Report) and JPMorgan (JPM - Free Report) .
Earnings estimates of Pathward Financial have been revised 1.8% upward over the past 30 days. In the past six months, CASH’s shares have gained 10.9%. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for JPMorgan have been revised 6.6% upward for 2023 over the past 30 days. Shares of JPM have gained 3.4% over the past six months. Currently, the company carries a Zacks Rank #2.
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Revenue Growth Aids Texas Capital (TCBI) Despite Higher Costs
Texas Capital Bancshares, Inc. (TCBI - Free Report) has been displaying impressive revenue growth, supported by a steady rise in loans and deposits. However, operating expenses have been increasing over the past few years, which hurt its bottom line to some extent. High debt levels and deteriorating credit quality are woes.
TCBI’s improving revenue trend is likely to get further support in the upcoming quarters from its efforts to expand product offerings and improve coverage in the potential markets. Moreover, the company's initiative to evolve the mortgage finance business from a warehouse-only platform into a differentiated industry vertical with multiple new products and services is expected to enhance fee income. This aside, high interest rates and a rise in average earning assets will drive net interest income and net interest margin.
The company’s capital ratios remain above the levels required to be considered well-capitalized and have been enhanced with the additional capital raised since 2008. As of Mar 31, 2023, the ratio of tangible common equity to total tangible assets was 9.7% compared with 8.9% in the year-ago quarter.
Supported by decent capital levels, the company’s share repurchase authorization of up to $150 million worth of shares seems sustainable. Also, we believe Texas Capital’s strong capital position will help it undertake opportunistic expansions in the foreseeable future.
However, a persistent rise in non-interest expenses over the past few years is concerning. Expenses increased in first-quarter 2023. The metric is expected to be elevated in the near term due to efforts to hire experienced bankers, upgrade technology and expand footprints. These moves may boost Texas Capital’s growth in the long term but the rising expense level is limiting the near-term bottom-line expansion.
As of Mar 31, 2023, Texas Capital had a long-term debt of $932.1 million, which witnessed a volatile trend over the last few quarters. The company’s cash and due from banks as of the same date were $264.2 million. Given the unsound liquidity position, its debt seems unmanageable.
Deterioration in credit quality remains a headwind to Texas Capital. The company’s non-performing assets and net charge-offs (NCOs) saw elevations in 2019, 2020 and 2022 and first-quarter 2023. 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 concerning, with the expectations of a slowdown or recession, the company’s asset quality is likely to be under pressure in the near term.
Currently, TCBI carries a Zacks Rank #3 (Hold). Shares of the company have declined 8.9% over the past six months compared with the 34.7% fall recorded by the industry.
Image Source: Zacks Investment Research
Bank Stocks Worth Considering
A couple of better-ranked bank stocks are Pathward Financial, Inc. (CASH - Free Report) and JPMorgan (JPM - Free Report) .
Earnings estimates of Pathward Financial have been revised 1.8% upward over the past 30 days. In the past six months, CASH’s shares have gained 10.9%. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for JPMorgan have been revised 6.6% upward for 2023 over the past 30 days. Shares of JPM have gained 3.4% over the past six months. Currently, the company carries a Zacks Rank #2.