Texas Capital shares strategic business update

Texas Capital Bancshares announced a series of actions that materially progresses the firm towards realization of the performance targets outlined in its strategic plan, communicated on September 1, 2021. “Three years after announcing our strategic plan, we are pleased with the tremendous progress made building a balance sheet and a business model worthy of serving the best clients in our markets,” said Rob C. Holmes. “Actions announced today represent another deliberate step in translating observed strategic success into targeted financial performance associated with long-term value creation. We remain focused on delivering exceptional results for clients and shareholders by leveraging our differentiated platform.” Following the multi-year coverage and capability build in its corporate banking healthcare vertical, Texas Capital has entered into an agreement to acquire a portfolio of approximately $400 million in committed exposure to companies in the healthcare sector. Many of the companies in the portfolio are supported by sector-focused sponsors with notable track records of value creation and with whom Texas Capital has significant institutional knowledge. The firm expects these clients to benefit from an extensive solutions-focused platform, with revenue cycle management, healthcare asset-based lending and other sector-specific products integrated with differentiated cash management, commercial banking and investment banking capabilities. The transaction is expected to close this month, subject to customary closing conditions. In addition to deliberate investments to expand the portfolio and enhance client-facing services, in August of 2024 the firm continued its multi-year process of effectively rationalizing its legacy balance sheet, selling approximately $1.24 billion of available-for-sale securities with an average book yield of 1.23%, purchased prior to 2021. Cash proceeds from the sale were used to purchase $1.06 billion of securities at a yield of 5.26%, which is expected to contribute an incremental $35 to $40 million in net interest income on an annualized basis based on the federal funds futures curve. The $139 million after tax loss generated by the repositioning, which had no impact on GAAP equity or on Texas Capital’s industry leading tangible common equity to tangible assets ratio, is expected to result in a net loss for the third quarter of 2024 before notably improving forward profitability metrics in the fourth quarter of 2024 and subsequent reporting periods. The firm continues to leverage proven capabilities to deliver tech-enabled process improvements that enhance client journeys, reduce risk and deliver structural efficiencies. Action taken in the quarter is expected to reduce anticipated 2025 non-interest expense by approximately $30 million, keeping total non-interest expense nearly flat from adjusted full year 2024. This reduction in non-interest expense is the direct result of material investments made over the previous three years that continue to realign the expense base to support near-term financial performance while also enabling sustained investment to drive long-term strategic objectives.