Texas Capital Bancshares, Inc. TCBI has shown consistent revenue growth, driven by a steady increase in loans and deposits. However, operating expenses have increased in recent years, which has somewhat hurt its results. High debt levels and deteriorating credit quality remain a concern.
Over the past five years, TCBI’s revenue has grown at a compound annual growth rate (CAGR) of 2.1% (2017-2021). Expanding product offerings and improving coverage of potential markets, which are part of the company’s strategic plan (announced in September 2021), will further drive revenue growth.
The company’s total loans held for investment (LHI) and deposits are well positioned to grow. Over the past five years, LHI has grown at a CAGR of 10.4%, while deposits have grown at a CAGR of 10.1%. TCBI’s strong capital position will encourage it to undertake proactive expansion in the near future.
As a result of the Federal Reserve’s accommodative monetary policy, the company’s net interest margin (NIM) fell from 2019 to 2021. While recent interest rate hikes have led to an improvement in the NIM in first quarter of 2022, the same will be under pressure as the overall interest rate environment remains relatively low.
TCBI’s expenses have grown at a CAGR of 6.4% over the past five years. This increase is mainly attributable to the hiring of experienced bankers, the upgrading of technology and the expansion of operations. While these benefit the business in the long run, the same is expected to hurt the bottom line in the coming quarters.
The company has a high level of debt, which has been volatile in recent quarters. Its cash balance is low relative to debt. Thus, TCBI’s debt position looks unmanageable, and this will hurt financials if economic conditions deteriorate.
Currently, TCBI carries a Zacks Rank #3 (Hold). Over the past six months, the company’s shares have fallen 14.3% compared to an industry decline of 9.8%. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Actions worth a look
A few higher ranked stocks in the banking sector are Bank of California, Inc. BENCH and Premier Horizon Company FHN. Currently, BANC and FHN have a Zacks rank of 1 and 2 (buy), respectively.
Bank of California, Inc.’ Zacks consensus estimates for current-year earnings have been revised up 1.6% in the past month. First Horizon Corporation has posted an earnings estimate up 2% for 2022 over the past 30 days.
Shares of BANC and FHN are down 8.3% and 4.8%, respectively, over the past month.
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