Texas Capital Bancshares is forecasting a slowdown in expense growth this year now that the
The Dallas-based parent of Texas Capital Bank is projecting full-year noninterest expenses to grow by low double digits compared with 2022, when such expenses jumped 21.45% from 2021.
Part of the reason for the deceleration in spending: Texas Capital's recent hiring spree is largely over, CEO Rob Holmes told analysts during the company's Jan. 19 fourth-quarter earnings call.
"We do have different opportunities to add select talent on a select basis as we move forward," Holmes said. "But we feel really, really good where we are."
Holmes
Holmes and his team wasted no time on the hiring front. As of June 2022 — or about 18 months into Holmes' tenure — about 1,000 of the company's 2,100 employees had been hired.
Today the number of client-facing employees has increased by about 1.9 times, Holmes said.
For the fourth quarter, salaries and benefits were $101.5 million, or about 48% of Texas Capital's noninterest expenses, which totaled $213.1 million for the three-month period, the company said. More than $30 million, or about 14%, of the total, came from nonrecurring items including $13 million in legal and professional services related to the sale of BankDirect Capital Finance, a nationwide premium finance firm, to Truist Financial in Charlotte, North Carolina.
Truist's insurance subsidiary, Truist Insurance Holdings,
Other nonrecurring expenses during the quarter were $9.8 million in restructuring-related reserves, primarily related to occupancy expenses, and $8 million in charitable contributions to the Texas Capital Bank Foundation, the company said. The foundation launched in December.
Overall, expenses in 2022 totaled $727.5 million, up from $500 million the prior year.
Net income for the quarter totaled $212.9 million, up from $60.8 million during the year-ago period. The year-over-year boost included a $248.5 million gain on the sale of BankDirect.
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Meanwhile, the company set aside $34 million in provisions, mostly as a result of an increase in net charge-offs, which rose from $1 million during the fourth quarter of 2021 to $15 million by the end of the most recent quarter.
The uptick wasn't a surprise, according to Chief Financial Officer Matt Scurlock. He said "expected losses on certain legacy credits" are moving closer to being resolved and told one analyst that the portfolio of such legacy loans has dwindled to roughly $130 million.
"Those are loans and clients that we would like to work off the balance sheet over time, but it's down to a very manageable number," Scurlock said.
For 2023, executives expect total revenues to increase in the mid-teens percentage range as a result of balance sheet changes and more income coming in from new and realigned businesses.
In a research note, analyst David Chiaverini of Wedbush Securities maintained a neutral rating on Texas Capital's stock, noting "below-average growth in loans and deposits" and "execution risk relating to the significant changes occurring under" Holmes that could keep expenses high during the overhaul. An economic downturn could also affect the bank's earnings, Chiaverini said.
"We fear a potential recession could be an additional headwind to growth," he wrote.
