We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Texas Capital's Stock Rises 4% With Progress in Strategic Plan
Read MoreHide Full Article
Texas Capital Bancshares (TCBI - Free Report) — the parent company of Texas Capital — rose 4% on Friday. The upside followed after TCBI announced major strides in its strategic plan that will advance the company toward achieving performance goals specified in its Sept. 1, 2021, strategic plan.
These actions include an acquisition, balance sheet restructuring, and operational enhancements and are expected to generate long-term value.
Texas Capital 2021 Strategic Plan at a Glance
Before discussing TCBI's progress under its strategic plan, let’s take a look at a few details of its 2021 plan.
Under the 2021 strategic plan, Texas Capital plans to digitalize its operations by utilizing in-house and third-party platforms to enhance client experience and scale. The bank aims to streamline interactions, streamline processes and improve cybersecurity and governance. The proposal includes hiring aggressively to double client-facing professionals by 2025.
TCBI plans to expand its products and services, particularly in Treasury Solutions, to account for 5% of total revenues by 2025.
It also aims to generate 10% of total revenues from investment banking and trading income by 2025, driven by corporate advisory, underwriting and sales & trading.
With its strategic efforts to fortify its treasury, investment banking and private wealth divisions, the company aims to raise the contribution of its non-interest income to its total revenues from 11% in 2020 to 15-20% by 2025.
TCBI expects the deposit mix to shift toward a more stable base with indexed deposits to decline 50% to 15% of deposits by 2025.
It also anticipates shifting liquid assets into higher-yielding assets over time to maintain these liquid assets at over 20% of average total assets in the medium term. Net-charge offs ratio of 25-50 bps is expected.
Texas Capital's Progress with Its Strategic Plan
Strategic Buyout: Following the multi-year expansion of its corporate banking healthcare vertical, Texas Capital agreed to purchase a portfolio of about $400 million in committed exposure to healthcare companies. This acquisition is part of Texas Capital's multi-year attempt to expand its corporate banking and healthcare vertical. It is projected to conclude in September 2024, subject to customary closing conditions.
Of late, many banks are actively pursuing mergers and acquisitions. Two of the biggest deals (in terms of value) announced so far in 2024 are SouthState’s (SSB - Free Report) acquisition of Independent Bank Group Corporation and UMB Financial’s (UMBF - Free Report) acquisition of Heartland Financial.
In May, SSB agreed to buy McKinney, TX-based Independent Bank Group in an all-stock transaction valued at nearly $2.02 billion. With this deal (expected to close by the end of first quarter 2025), SSB expects earnings accretion of 27.3% by 2025.
In April, UMBF announced it plans to acquire Heartland Financial, USA Inc. in an all-stock deal valued at around $2 billion. The deal will mark UMBF’s largest acquisition in its 111-year history, increasing total assets by more than 40% to $64.5 billion. It is likely to close in first-quarter 2025.
Repositioning of Balance Sheet: Apart from strategic investments aimed at broadening the portfolio and improving client-facing services, Texas Capital sold $1.24 billion of available-for-sale securities in August 2024 for an average book yield of 1.23% and reinvested the funds in securities earning 5.26%. This balance sheet repositioning is predicted to increase net interest income by $35-$40 million a year and result in a net loss in the third quarter of 2024, with profitability metrics improving in the fourth quarter and beyond.
Operatiional Enhancements: The company is also implementing technology-enabled process innovations that improve customer experiences, reduce risk and deliver structural efficiencies. These actions are likely to reduce predicted 2025 non-interest expenses by about $30 million, keeping overall non-interest expenses nearly flat from adjusted full-year 2024.
Expanded Products and Capabilities: TCBI is broadening its offerings with the establishment of Texas Capital Securities Energy Equity Research, directed by Derrick Whitfield and Thomas McGarrity and the debut of Texas Capital Direct Lending in August 2024. Additionally, Texas Capital Securities Public Finance was founded in May 2024 to provide municipal underwriting services to be a top-five small business administration (SBA) lender in Texas by 2025.
The table below depicts the company’s progress toward its financial goals till the end of second-quarter 2024.
Image Source: TCBI Financials
Our Take on Texas Capital Business Transformation
With total assets of $29.9 billion as of June 30, 2024, Texas Capital has undergone an enterprise-wide transformation to become the preeminent full-service financial services organization over the last three years, with a robust balance sheet and a wide range of products and services.
In line with the strategic plan, the company expanded its product offerings and improved coverage in the potential markets. The company continues to progress with investment banking offerings every quarter. It is building a base of consistent and repeatable revenues that will be a differentiator in the marketplace and a meaningful contributor to future earnings.
The company’s balance sheet repositioning throughout the transformation resulted in a 357 bps rise in total regulatory capital since year-end 2020.
Texas Capital Securities, established in 2021, currently enhances TCBI's commercial banking capability by providing a comprehensive range of solutions to clients within Texas Capital's defined geographic and industry coverage zones. Texas Capital anticipates achieving its announced target of 10% of total revenue in full-year 2024, a year sooner than the aim originally established in 2021.
As TCBI undertakes strategic actions announced in 2021 to enhance its financial performance and operational capabilities, we believe the company is well-positioned for long-term value creation and improved financial performance.
Image: Shutterstock
Texas Capital's Stock Rises 4% With Progress in Strategic Plan
Texas Capital Bancshares (TCBI - Free Report) — the parent company of Texas Capital — rose 4% on Friday. The upside followed after TCBI announced major strides in its strategic plan that will advance the company toward achieving performance goals specified in its Sept. 1, 2021, strategic plan.
These actions include an acquisition, balance sheet restructuring, and operational enhancements and are expected to generate long-term value.
Texas Capital 2021 Strategic Plan at a Glance
Before discussing TCBI's progress under its strategic plan, let’s take a look at a few details of its 2021 plan.
Under the 2021 strategic plan, Texas Capital plans to digitalize its operations by utilizing in-house and third-party platforms to enhance client experience and scale. The bank aims to streamline interactions, streamline processes and improve cybersecurity and governance. The proposal includes hiring aggressively to double client-facing professionals by 2025.
TCBI plans to expand its products and services, particularly in Treasury Solutions, to account for 5% of total revenues by 2025.
It also aims to generate 10% of total revenues from investment banking and trading income by 2025, driven by corporate advisory, underwriting and sales & trading.
With its strategic efforts to fortify its treasury, investment banking and private wealth divisions, the company aims to raise the contribution of its non-interest income to its total revenues from 11% in 2020 to 15-20% by 2025.
TCBI expects the deposit mix to shift toward a more stable base with indexed deposits to decline 50% to 15% of deposits by 2025.
It also anticipates shifting liquid assets into higher-yielding assets over time to maintain these liquid assets at over 20% of average total assets in the medium term. Net-charge offs ratio of 25-50 bps is expected.
Texas Capital's Progress with Its Strategic Plan
Strategic Buyout: Following the multi-year expansion of its corporate banking healthcare vertical, Texas Capital agreed to purchase a portfolio of about $400 million in committed exposure to healthcare companies. This acquisition is part of Texas Capital's multi-year attempt to expand its corporate banking and healthcare vertical. It is projected to conclude in September 2024, subject to customary closing conditions.
Of late, many banks are actively pursuing mergers and acquisitions. Two of the biggest deals (in terms of value) announced so far in 2024 are SouthState’s (SSB - Free Report) acquisition of Independent Bank Group Corporation and UMB Financial’s (UMBF - Free Report) acquisition of Heartland Financial.
In May, SSB agreed to buy McKinney, TX-based Independent Bank Group in an all-stock transaction valued at nearly $2.02 billion. With this deal (expected to close by the end of first quarter 2025), SSB expects earnings accretion of 27.3% by 2025.
In April, UMBF announced it plans to acquire Heartland Financial, USA Inc. in an all-stock deal valued at around $2 billion. The deal will mark UMBF’s largest acquisition in its 111-year history, increasing total assets by more than 40% to $64.5 billion. It is likely to close in first-quarter 2025.
Repositioning of Balance Sheet: Apart from strategic investments aimed at broadening the portfolio and improving client-facing services, Texas Capital sold $1.24 billion of available-for-sale securities in August 2024 for an average book yield of 1.23% and reinvested the funds in securities earning 5.26%. This balance sheet repositioning is predicted to increase net interest income by $35-$40 million a year and result in a net loss in the third quarter of 2024, with profitability metrics improving in the fourth quarter and beyond.
Operatiional Enhancements: The company is also implementing technology-enabled process innovations that improve customer experiences, reduce risk and deliver structural efficiencies. These actions are likely to reduce predicted 2025 non-interest expenses by about $30 million, keeping overall non-interest expenses nearly flat from adjusted full-year 2024.
Expanded Products and Capabilities: TCBI is broadening its offerings with the establishment of Texas Capital Securities Energy Equity Research, directed by Derrick Whitfield and Thomas McGarrity and the debut of Texas Capital Direct Lending in August 2024. Additionally, Texas Capital Securities Public Finance was founded in May 2024 to provide municipal underwriting services to be a top-five small business administration (SBA) lender in Texas by 2025.
The table below depicts the company’s progress toward its financial goals till the end of second-quarter 2024.
Our Take on Texas Capital Business Transformation
With total assets of $29.9 billion as of June 30, 2024, Texas Capital has undergone an enterprise-wide transformation to become the preeminent full-service financial services organization over the last three years, with a robust balance sheet and a wide range of products and services.
In line with the strategic plan, the company expanded its product offerings and improved coverage in the potential markets. The company continues to progress with investment banking offerings every quarter. It is building a base of consistent and repeatable revenues that will be a differentiator in the marketplace and a meaningful contributor to future earnings.
The company’s balance sheet repositioning throughout the transformation resulted in a 357 bps rise in total regulatory capital since year-end 2020.
Texas Capital Securities, established in 2021, currently enhances TCBI's commercial banking capability by providing a comprehensive range of solutions to clients within Texas Capital's defined geographic and industry coverage zones. Texas Capital anticipates achieving its announced target of 10% of total revenue in full-year 2024, a year sooner than the aim originally established in 2021.
As TCBI undertakes strategic actions announced in 2021 to enhance its financial performance and operational capabilities, we believe the company is well-positioned for long-term value creation and improved financial performance.
Currently, TCBI carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, shares of TCBI have gained 12.3% compared with the industry’s 9.7% growth.