Texas Capital Bancshares, Inc. (NASDAQ:TCBI) is a financial holding company and the parent of Texas Capital Bank, a Texas-based bank headquartered in Dallas. With a rich history spanning over 25 years, TCBI has established itself as a resilient force in the financial industry, navigating through various economic landscapes and emerging as a leading provider of customized solutions to its diverse clientele.
Company Background and History
Founded in 1998, TCBI commenced banking operations with the vision of delivering tailored financial services to businesses, entrepreneurs, and individual customers. Headquartered in Dallas, the company has strategically expanded its footprint, with primary banking offices in Austin, Dallas, Fort Worth, Houston, and San Antonio, and has built a nationwide network of clients.
TCBI's journey has been marked by significant milestones and challenges. The company was initially incorporated in 1996, two years before it began its banking operations. In 2009, TCBI demonstrated its resilience by successfully navigating the financial crisis, maintaining capital levels and continuing operations during this tumultuous period. This experience likely contributed to the company's strong risk management practices and financial stability.
A pivotal moment in TCBI's history came in 2014 when the company announced a multi-year strategic plan aimed at transforming the organization and positioning it for long-term success. This plan included substantial investments in technology, talent, and new product and service offerings. The company focused on building out its platform and capabilities to better serve its target client base, which has been instrumental in its growth and success in subsequent years.
Following the implementation of its strategic plan, TCBI made steady progress on its initiatives. The company expanded its presence in key Texas markets and grew its customer relationships across various segments, including commercial banking, treasury management, wealth management, and investment banking. This period also saw TCBI working to rationalize its balance sheet and optimize its operations, further strengthening its financial position.
By the end of 2023, TCBI's efforts had paid off significantly, with the company reporting total assets of $28.4 billion. The company had successfully established itself as a leading regional bank in Texas and a trusted partner to its clients, serving customers through an extensive network and a broad suite of financial products and services.
Financials
TCBI's financial performance has been impressive, with the company consistently delivering strong results. For the fiscal year ended December 31, 2023, the company reported net income of $189.14 million, with a diluted earnings per share of $3.54. The company's revenue for the same period stood at $1.08 billion, showcasing its ability to generate sustainable growth.
In the most recent quarter, TCBI reported revenue of $452.533 million, representing a 6.3% increase compared to the same quarter in the prior year. However, the company experienced a net loss of $61.319 million, which marked a 199.5% decrease in net income compared to the same period. The company's operating cash flow for the quarter was $333.251 million, with free cash flow standing at $318.062 million.
One of the key strengths of TCBI lies in its diversified revenue streams. The company has made strategic investments in various business segments, including commercial banking, mortgage finance, wealth management, and investment banking, allowing it to capitalize on opportunities across different economic conditions. This diversification has proven to be a crucial factor in the company's resilience, as it has enabled TCBI to weather various market cycles and maintain its competitive edge.
TCBI's operations are organized into four reportable segments:
1. Commercial Segment: This segment provides a range of commercial banking products and services, including commercial loans and lines of credit, treasury management services, and deposit products to businesses and entrepreneurs. It focuses on serving companies headquartered or operating in Texas, as well as borrowers outside of Texas through its national business lines.
2. Mortgage Finance Segment: This segment offers mortgage warehouse lending, which involves the purchase of mortgage loan ownership interests that are typically sold within 10-20 days. It plays a crucial role in providing liquidity to the mortgage market.
3. Commercial Real Estate Segment: This segment provides commercial real estate loans, including construction, acquisition, and term loans, as well as deposit products to real estate investors, developers, and owners, primarily located in Texas.
4. Consumer Segment: This segment offers deposit products and personal loans to individual customers, including small personal loans, home equity loans, and other consumer-oriented financial services.
As of September 30, 2024, TCBI had total assets of $31.63 billion and total deposits of $25.87 billion. The company's net interest income for the nine months ended September 30, 2024, was $671.69 million, and its net income was $6.49 million.
TCBI has continued to grow its loan portfolio, with total loans held for investment reaching $22.29 billion as of September 30, 2024, up from $20.34 billion as of December 31, 2023. The company experienced growth across all of its loan segments, except for commercial real estate.
The company's net interest margin was 3.07% for the nine months ended September 30, 2024, down from 3.25% in the same period of 2023, primarily due to the effect of rising interest rates on the cost of interest-bearing deposits.
TCBI's provision for credit losses was $49.00 million for the nine months ended September 30, 2024, compared to $53.00 million in the same period of 2023. The allowance for credit losses on loans was 1.23% of total loans held for investment as of September 30, 2024.
In terms of geographic performance, TCBI primarily operates in Texas, with over 50% of its loans and deposits derived from the state. However, the company has expanded its geographic footprint in recent years, with more than 50% of its loan exposure and deposits now outside of Texas.
Liquidity
TCBI's commitment to financial resilience is further evidenced by its strong balance sheet and prudent risk management practices. As of September 30, 2024, the company reported a CET1 ratio of 11.19%, well above the regulatory minimum, indicating its ability to withstand potential economic headwinds. Additionally, the company's total regulatory capital remained exceptionally strong relative to its peer group and its internally assessed risk profile.
The company's liquidity position remains robust, with a debt-to-equity ratio of 0.74. As of the most recent quarter, TCBI had $1.03 billion in short-term borrowings, primarily from Federal Home Loan Bank advances, and $660.17 million in long-term debt, including subordinated notes and trust preferred securities.
TCBI's liquidity is further strengthened by $3.89 billion in cash and cash equivalents. The company also has access to $4.54 billion in unused FHLB borrowing capacity and $1.20 billion in unused federal funds lines. The current ratio and quick ratio both stand at 1.24, indicating the company's ability to meet its short-term obligations.
Strategic Initiatives and Growth
The company's strategic initiatives have also played a pivotal role in its success. In recent years, TCBI has been actively investing in technology and infrastructure to enhance its client experience and operational efficiency. The implementation of the Initio platform, for instance, has enabled the company to streamline its client onboarding process, reducing the time and resources required, while also enhancing its data analytics capabilities.
Furthermore, TCBI has been proactive in expanding its product and service offerings to better serve its clients. The company's investment banking division, for example, has experienced remarkable growth, with the third quarter of 2024 marking a record quarter for its investment banking and advisory fees. This growth has been driven by the company's ability to leverage its deep industry expertise and provide comprehensive financial solutions to its clients.
TCBI has achieved record performance across several key financial metrics in the most recent quarter, including a quarterly return on average assets of 1%, return on common equity of 10%, pre-provision net revenue of $115 million, fee income of $64.8 million, and earnings per share of $1.59. These metrics have all reached record levels since the beginning of TCBI's transformation.
Future Outlook
Looking ahead, TCBI remains well-positioned to continue its trajectory of success. The company's strong balance sheet, diversified revenue streams, and strategic investments in technology and talent position it to navigate the evolving financial landscape effectively. Additionally, the company's focus on client-centric solutions and its commitment to financial resilience are expected to be key drivers of its long-term growth.
For the full year 2024, TCBI has modestly reduced its revenue guidance to low single-digit growth due to the significant change in the near-term rate outlook. The company is maintaining its non-interest expense guidance of approximately $765 million for the year and reducing its annual provision expense guidance to 40 basis points of average loans, excluding mortgage finance, from 50 basis points previously.
Looking further ahead to 2025, based on the economic and rate outlook as of October 4th, TCBI estimates non-interest expense of approximately $765 million to $770 million. The company is targeting full-year 2025 total non-interest revenue of $240 million and sees potential for high single to low double-digit full-year average loan growth. The near-term provision outlook has potential to move towards 30 to 35 basis points of average loans excluding mortgage finance in 2025. This outlook suggests achievement of a 1.1% return on average assets in the back half of 2025.
In conclusion, Texas Capital Bancshares (TCBI) is a resilient financial powerhouse that has navigated the industry with a steady hand and a clear vision. The company's impressive financial performance, diversified business model, and strategic initiatives have positioned it as a trusted partner for its clients, and a compelling investment opportunity for shareholders. Despite challenges in the current economic environment, TCBI's strong fundamentals and forward-looking strategies suggest a promising outlook for the company's continued growth and success in the coming years.