UPDATE: This story includes information from Texas Capital's call with analysts, as well as from interviews with Texas Capital Chief Financial Officer Matt Scurlock and Piper Sandler analyst Stephen Scouten.
Texas Capital Bancshares took its first quarterly loss since overhauling its management team and setting out on a massive strategic turnaround three years ago. But the Dallas-based company says all is going according to plan.
The $61.3 million loss in the third quarter came as no surprise following the bank's recent announcement that its
Now, the bank has to prove that the investments will pay off.
In the third quarter, Texas Capital's bottom line took a blow when the bank restructured its balance sheet, took charges in connection with layoffs and bought a loan portfolio. But CEO Rob Holmes said Thursday morning that the shifts will be a boon to long-term performance as the bank's core operations deliver.
"Our collective and deliberate actions over the last several years, including those announced last month, continue to establish our firm as worthy of serving the best clients in our markets," Holmes said on a call with analysts.
He added that "superior product breadth and banker execution" are steadily proving the bank's updated business model.
Texas Capital logged a 38% year-over-year jump in adjusted fee revenue in the third quarter, to $64.8 million, most of which came from the businesses it's built in the last three years — investment bank services, treasury products and wealth management. The boost from noninterest income is
"It's incredibly gratifying to see what we've long observed as real strategic success, and adoption by the clients that we want to bank in the market, continuing to turn into the financial outcomes that we know the place is capable of producing," Scurlock said.
During the third quarter, stronger fee income padded
Texas Capital's net income from core operations, excluding one-time costs like those from the balance sheet restructuring and expenses from layoffs, beat analysts' expectations. The bank brought in $78.7 million, up from $61.7 million a year prior, and adjusted earnings per share of $1.59, slamming past the consensus estimate of 95 cents, per S&P.
Next year, though, will be "an important year of execution," Scurlock said.
The Dallas company, which has been in transformation mode for three years, recently took a series of actions to try to meet the profitability targets it set for itself.
When Texas Capital
Piper Sandler analyst Stephen Scouten said Thursday that management teams are often given "low-hanging fruit" when arriving to fix a beleaguered bank.
"You can cut people, you can restructure the balance sheet, and nobody's going to hold you accountable for that," Scouten said. "But really creating sustainable profitability is hard. That execution and that ability to turn what has clearly been customer growth and a turnover in personnel, turning them into actual balance sheet growth, is what remains to be seen."
On Thursday, Texas Capital began to imply it is somewhat backing off of its timeline, Scouten said.
Scurlock said in an interview that the bank now expects to hit a return on assets of 1.1% in the back end of next year. Texas Capital also reduced its guidance for 2024 annual revenue, which had previously projected low- to mid-single-digit percent growth. The new estimate of low-single-digit growth is based on the company's updated interest rate models, which assume a 75-basis-point drop in rates this fall.
Scouten said the bank has performed well on the rebuilding stage of its overhaul strategy, and has built credibility, but must prove it can consistently generate profits. Texas Capital's stock price is up about 25% year to date, and it rose 2.73% Thursday to trade at $80.60 per share.
