Texas Capital Bancshares Hits Profitability Goal, Exceeds Earnings Forecast
Texas Capital Bancshares, a regional bank based in Dallas, Texas, has achieved a significant milestone in its multiyear turnaround strategy. The bank has accomplished a key profitability target set four years ago and exceeded analysts’ expectations for its third-quarter earnings. This achievement marks a momentous step forward in the bank’s journey to transform its financial performance and establish itself as a leading financial institution in Texas.
Achievement of a Key Profitability Target
The bank’s return on average assets for the third quarter, ending September 30, was reported at 1.3%, firmly surpassing the 1.1% target set back in 2021. This is a critical measure of how effectively the bank has been utilizing its assets to generate revenue. Furthermore, Texas Capital Bancshares also announced a record quarterly net income of $105.2 million and its highest-ever earnings per share at $2.18, beating Wall Street’s forecast of $1.77 per share.
CEO’s Vision and Strategy
In an interview with American Banker, Chairman and CEO Rob Holmes said, “When we started, I knew that one of the things the brand lacked was credibility, based on past performance. So we’ve been really, really focused on … doing every single thing we said we’d do.” Holmes’ strategic overhaul has involved the creation of a steady, reliable fee income stream, including the buildout of a full-scale investment bank and a treasury management business.
Bank Transformation and Profitability Goals
Under Holmes’ leadership, Texas Capital Bancshares has undergone a significant transformation aimed at turning around the bank’s past struggles with bad loans, high expenses, and the aftermath of a failed merger. The transformation strategy has centered around financial resilience, dependability, proactivity, market presence, and client focus.
Two of the bank’s three key profitability targets have been achieved, including the return on average assets and the bank’s common equity tier 1 ratio, which now stands at 12.1%, above the original goal of 9-10%. However, the bank is yet to realize its third profitability goal set in 2021, the return on average common equity, which was 12.04% during the third quarter, just shy of the stated 12.5% target.
Future Plans and Aspirations
Despite reaching the return on average assets marker, Holmes stated that the third-quarter results are “not where we want to be,” adding, “We have much greater aspirations.” The bank is planning to release new guidance, including future profitability targets, in January. For the 2025 guidance, Texas Capital maintained its full-year adjusted revenue outlook, which calls for percentage growth in the low double-digits.
Analysts’ Reactions and Expectations
Initial reactions from analysts seem largely positive. Jon Arfstrom, an analyst at RBC Capital Markets, called the bank’s return on average assets achievement “notable” and several other analysts congratulated the bank. In a research note, Ben Gerlinger from Citi Research stated that Texas Capital has “seen one of the strongest [earnings per share] revision trends in the regional bank space.”
While the bank’s transformation journey is far from over, this milestone serves as a testament to the bank’s resilience and commitment to achieving its long-term strategic goals. The bank’s journey will undoubtedly be watched closely by industry observers and investors alike.
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