This news is developing. Please check back here for updates.
Texas Capital Bancshares took its first quarterly loss since the bank overhauled its management and set out on a massive strategic turnaround three years ago, but the Dallas-based company says all is going to plan.
The $61.3 million loss in the third quarter came as no surprise, following a recent announcement that
"We achieved significant financial milestones this quarter as our multi-year transformation is increasingly delivering financial outcomes consistent with realized success delivering our proven and differentiated strategy," Holmes said in the Thursday morning earnings release.
The bank's bottom-line blow was driven by its sale of $1.24 billion of lower-yielding securities and subsequent purchase of $1.06 billion in higher-yielding ones, which led to a $139 million after-tax loss.
Core operations, excluding one-time costs like the balance sheet restructuring and expenses from layoffs, beat analyst expectations as net interest income and revenues from fees grew. Texas Capital's adjusted net income rose year-over-year from $61.7 million to $78.7 million. Adjusted earnings per share of $1.59 beat the consensus analyst estimate of 95 cents per share, per S&P.
The bank also expects the long-term payoff to be worth the hits it took. Texas Capital projects the costly balance sheet repositioning to begin "notably improving forward profitability metrics" in the fourth quarter and contributing an incremental $35 million to $40 million in net interest income on an annualized basis.
Net interest income of $240.1 million last quarter showed a mild rise from $232.1 million in the same period last year. The bank also grew loans about 6% year-over-year, primarily due to its previously announced purchase of a $332 million health care loan portfolio at the end of last quarter.
Layoffs that the bank disclosed last month also cost some $6 million in expenses for the quarter, but Holmes said at the time that the cuts were "probably the last of the transformational journey efficiencies that we'll realize." Texas Capital estimated that its actions would help curb non-interest expenses by $30 million.
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.
"Our current business momentum coupled with our sustained leading capital and liquidity levels positions us well to effectively drive execution through 2025," Holmes said in the earnings release.
Still, the bank reduced its guidance for annual revenue from low- to mid-single-digit percent growth, now projecting low-single-digit growth. Analysts don't have overwhelming confidence in the bank's ability to meet next year's goals — a 1.1% return on assets and 12.5% return on tangible common equity. So far this year, those numbers were .46% and 4.1%, respectively.
Since the bank's strategic update last month, Texas Capital's stock price has run up some 27%, closing at $78.46 Wednesday.
Ben Gerlinger, an analyst at Citi, held the bank at a sell rating in a Thursday morning note.
"With the known guidance of roughly flat expense in 2025 (off of 2024 base), a stronger [net interest margin] predicated on continued strength in mortgage warehouse, and variability in investment banking revenue – we think shares likely take a breather at current levels," Gerlinger said.
