Texas Capital Bancshares: Beat Up Regional Bank With 8% Yielding Preferred (NASDAQ:TCBI)

Texas Capital Bancshares (NASDAQ:TCBI) has seen its shares rocked together with its regional banking friends. The financial institution’s most popular shares (NASDAQ:TCBIO) noticed two rounds of promoting, dropping as little as practically 60% of its 2026 name worth. Even with the current rally, most popular shares are nonetheless buying and selling with a dividend yield of better than 8%. Whereas dangers stay with the financial institution, the popular shares characterize a fantastic revenue alternative for traders.

Going into the 12 months, Texas Capital had over $5 billion in money and money equivalents. The money was greater than sufficient to deal with the $700 million decline in deposits throughout the first quarter. The financial institution was additionally in a position to improve its lending by 4% throughout the first quarter. Shareholder fairness inched up by $25 million throughout the quarter. The financial institution additionally did like many in its sector and elevated its short-term borrowings by $900 million, doubtless out of an abundance of warning following the runs on Silicon Valley and Signature Financial institution.

Texas Capital’s internet curiosity revenue grew within the first quarter in comparison with final 12 months. Curiosity revenue practically doubled to $385 million, whereas curiosity bills grew by $125 million led by the elevated price of deposits. Finally, internet curiosity revenue rose by $22 million in comparison with a 12 months in the past. The rise in internet curiosity revenue got here regardless of a $30 million improve within the provision for mortgage losses. After taking overhead prices into consideration, the financial institution’s internet revenue was practically similar to a 12 months in the past, led by elevated prices in salaries and advantages.

Drilling down into the small print, the financial institution’s yields on its loans and interest-bearing property elevated by practically 300 foundation factors 12 months over 12 months. The price to take care of the financial institution’s deposits and interest-bearing liabilities elevated by between 320 and 330 foundation factors. Due to this fact, regardless of the elevated efficiency of the financial institution’s property, the curiosity unfold declined suggesting that increased charges will finally erode the financial institution’s earnings.

Texas Capital additionally has a lot much less publicity to industrial actual property than different regional banks I’ve coated. The financial institution’s greatest prospects are industrial and mortgage financing, adopted by industrial actual property. On the finish of the primary quarter, the financial institution’s loans have been performing nicely with 0.5% of loans both late or in non-accrual standing.

Evaluating Texas Capital’s monetary ratios with the industrial banking sector highlights the financial institution’s strengths and dangers. The financial institution’s mortgage to deposit ratio is elevated in comparison with all industrial banks, however regional banks general are part of this pattern. At 8.28 to 1, Texas Capital’s leverage is noticeably higher than the general sector. The financial institution has not been immune from the sector’s deposit decline and regardless of placing an excellent amount of money to work within the first quarter, the financial institution stays liquid with a money to deposit ratio of over 16%.

Whereas the financial institution has many issues going for it, traders ought to pay attention to a notable menace. 45% of the financial institution’s deposits are uninsured, representing roughly $10 billion of the financial institution’s deposits. Whereas the financial institution has a number of billion accessible in liquidity between the FHLB, Fed low cost window, and the Federal Reserve Time period Mortgage Facility, there isn’t fairly sufficient to cowl a run.

General, Texas Capital Bancshares is a well-capitalized financial institution with good performing loans. I am anticipating the financial institution to take measures all year long to curb its uninsured deposit danger. As information concerning the regional banks will proceed to create volatility within the widespread shares, traders can look to the popular shares for discounted worth and good revenue.