Texas Capital Bancshares has recently laid off some of its workforce and restructured its balance sheet as part of a push to meet profitability targets it set for itself three years ago.
The Dallas company, which
Some of the details were announced Friday in a "strategic business update," the firm's first such disclosure since it rolled out a massive overhaul plan three years ago this week. The update also said that Texas Capital has launched an energy-sector research and equity sales team, and stated that the firm expects to be a top-five Small Business Administration lender by 2025.
The layoffs took place this month, affecting back-office and middle-office jobs that have changed as a result of technology-enabled improvements made over the past three years, CEO Rob Holmes said in an interview. The company, which did not say how many positions were eliminated, expects the layoffs to reduce its non-interest expenses next year by roughly $30 million, or nearly flat with adjusted 2024 expenses.
"We did [layoffs] before in the first quarter of last year," Holmes said Friday. "We've done it again, and I think this is probably the last of the transformational journey efficiencies that we'll realize."
To restructure its balance sheet, the $30 billion-asset company sold $1.24 billion of lower-yielding securities and used the cash proceeds to buy $1.06 billion of higher-yielding ones, it said Friday. The sale resulted in a $139 million after-tax loss, which will lead to a net loss for the third quarter, the company warned.
Texas Capital has been scrutinized by analysts and investors alike since Holmes unveiled a four-year turnaround plan. When the CEO arrived in 2021, the bank was dealing with myriad challenges, including bad loans, high expenses and the fallout from
From the get-go, outside observers have been skeptical about the bank's 2025 profitability targets — namely, its goals of achieving a 1.1% return on assets and a 12.5% return on tangible common equity.
For the first six months of this year, those metrics were 0.46% and 4.1%, respectively.
On Friday, Holmes said the
Some analysts are still wary. In a research note Friday, Anthony Elian of JPMorgan Securities said that Texas Capital would "still appear to fall short" of meeting the 12.5% return on tangible common equity goal, though the bank's actions will move it closer to its targets
"Skepticism seems to be the consensus view," Scouten said in an interview.
He said the moves announced Friday could fuel questions about "how bad off the bank was before."
"Either it was far worse than anybody realized, or the path has been overly complex and less fruitful," Scouten said. "Maybe it was just so bad, that's why all these changes had to be made and took longer than hoped."
Still, equity investors, who have been increasingly bearish on Texas Capital over
The purchase of the $400 million loan portfolio in particular should help Texas Capital reach its return on average assets goal, said Peter Winter of D.A. Davidson. The acquisition marks Texas Capital's latest effort to expand its corporate banking health care vertical and to provide a full suite of services to those clients.
"Before this deal was announced, I didn't think the [return on assets] and [return on tangible common equity] would be hit," Winter said in an interview. "After this announcement, I feel better that they can get closer to the 1.1% target, but I think the ROTCE target will be harder to reach because they'll probably operate with higher levels of capital than they thought three years ago."
Winter said that 2025, which is the last year of the company's turnaround plan, will be crucial.
"I think 2025 will be important because they've brought in new bankers and they've built the infrastructure," he said. "They've hired the talent, they've got the products and services, and now it's a matter of execution."
