Texas Capital Bancshares (NASDAQ:TCBI) recently held its third quarter 2023 earnings call, where it presented an 18% increase in adjusted PPNR and a 15% rise in net income to common compared to the previous year. The bank also reported a strong liquidity and capital position, ranking fourth among the country's largest banks in CET1 and first in TCE. Fee income from focus areas more than doubled year-over-year, contributing to a slight increase in total revenue to $278.9 million, which aligns with InvestingPro's data showing a revenue growth of 40.34% for the last twelve months (LTM2023.Q3). The bank's current market cap, according to InvestingPro, is $2.7 billion.
Key takeaways from the call include:
- Strong growth in treasury business and client base, with notable success in investment banking.
- A robust balance sheet with cash balances growing $1.3 billion and deposit balances increasing by 2%.
- A 15% increase in net income to common, reaching $57.4 million. This is in line with InvestingPro Tips' prediction that the company would be profitable this year, despite the expectation that net income will drop.
- The execution of a $164 million sale of non-strategic C&I loans.
- An increase in the percentage of commercial relationships in which TCBI is the lead bank.
The company also reported a modest increase in net interest income, despite pressure from rising deposit costs and slowing credit demand. Total non-interest expenses declined, leading to an 18% increase in quarterly adjusted pre-provision net revenue (PPNR) to $99.1 million.
The provision expense was $18 million, primarily due to resolving legacy problem credits. Commercial loan balances declined slightly, but new relationships onboarded increased by nearly 10% compared to the previous year. The loan-to-deposit ratio decreased to 86%.
Despite a contraction in mortgage finance industry originations, the bank reported a 7% increase in mortgage finance loans. The deposit mix shifted to interest-bearing deposits, and non-interest-bearing deposits decreased. The company's net interest margin decreased by 16 basis points.
The company's capital levels remained strong, with a CET1 ratio of 12.7% and intangible common equity to tangible assets ratio of 9.4%. Despite net interest income pressure, the company's outlook for low double-digit percent full-year revenue growth remains unchanged. The bank aims to maintain strong liquidity and capital positions, with a CET1 ratio greater than 12% by the end of the year.
During the call, the company also discussed its self-funding ratio, which is projected to increase to about 150% in the near term. This could have a negative impact on net interest income (NII) and margin. The company emphasized its commitment to delivering on 2025 targets through aggressive capital recycling and reducing capital committed to relationships where they don't see a path to being relevant.
Texas Capital Bancshares' investment banking business has been strong, with back-to-back quarters of successful transactions. The company is considering share buybacks, but currently prioritizes investing in organic growth. This aligns with the InvestingPro Tip that TCBI does not pay a dividend to shareholders. The call concluded with the company expressing gratitude for the participants' interest and indicating they look forward to the next quarter's call. For more insights, investors can explore additional InvestingPro Tips available on the InvestingPro platform.
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