Texas Capital's ROA plan underwhelms some analysts

Texas Capital Bancshares in Dallas unveiled a plan to improve returns that will require investors to be patient.

The $35.2 billion-asset company disclosed late Wednesday that it is targeting a 1.1% return on assets and 12.5% return on tangible common equity, though management said it might not hit those marks until 2025.

Texas Capital said it would have some negative operating leverage next year as it makes internal investments. The plan is to double the number of client-facing employees across Texas, while also forming an investment bank.

Several analysts expressed some disappointment in the lengthy turnaround time.

The path forward is “longer than anticipated,” Brad Milsaps, an analyst at Piper Sandler, wrote in a note to clients. “We too are disappointed that it may be 2025 before Texas Capital can even earn a peer-like return. ,,, That said, we are not walking away completely discouraged.”

Milsaps noted that the plan should “be able to drive outsized” loan and core deposit growth, adding that the investment bank would give the company a chance to offer products that many other Texas banks lack. 

"Hanging our head a little,” Brett Rabatin, an analyst at Hovde Group, wrote in his client note. 

"The bottom line is we get under-promising and over-delivering on guidance,” Rabatin added. “We had thought a bank that had … very low expectations, profitability, and valuation combined with a new CEO and overly liquid balance sheet should be an opportunity for out-performance over the next year.” 

The company hopes to get approval for the broker/dealer business by the end of this year. The business would be run by Daniel Hoverman, who joined Texas Capital in August from Regions Financial.

“The strategic plan … represents the culmination of more than seven months of work, including detailed reviews of each business line, our operating model, investment spend and our overall strategy,” Rob Holmes, Texas Capital’s president and CEO, said in a press release. 

“We are already making clear progress executing on our enterprise-wide transformation — from the bank we are today into a true financial services firm, fully equipped to partner with our clients to meaningfully contribute to their success,” he added.