Texas Capital Bancshares: A Sound Long-Term Transformation Plan, But Vulnerable In The Near Term

Writing about Texas Capital Bancshares (NASDAQ:TCBI) in February, I said that while I was bullish on the long-term strategic transformation plan put in place by the new CEO, I saw a “better than average” chance that the bank would underperform in the near term given the bank’s high deposit beta and willingness to invest opex into the transformation of the business. That’s largely played out this year as I expected, though I’m honestly a little surprised that the shares are only down a bit more than regional banking peers given the steeper pace of deposit cost growth.

I still see Texas Capital as a short-term/long-term puzzle I do like the CEO’s vision for what the bank should be – focused on commercial lending, with stronger investment banking, trading, and treasury options to drive fee income and stickier relationships – but it will take time to get there. In the meantime, I see elevated operating risk on higher deposit costs and weaker operating leverage. Investors unsure of their ability to time a turn in sentiment for banks may want to consider buying or holding the shares now, but there could be better entry points over the next year.

 

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Texas Capital Bancshares: A Sound Long-Term Transformation Plan, But Vulnerable In The Near Term