TEXAS CAPITAL BANCSHARES INC/TX Q3 FY2024 earnings call

• Three years since the strategic plan announcement in 2021, with collective actions leading to high-quality financial outcomes.
• Record adjusted performance metrics including ROAA, ROCE, pre-provision net revenue, fee income, and EPS.
• Fee income areas like treasury, wealth, and investment banking continued growth. Investment banking and trading income hit a record, driven by syndications, capital markets, and sales and trading.
• Acquired a $400 million healthcare loan portfolio, leveraging institutional knowledge and sector-focused sponsors.
• Strong balance sheet positioning with high cash and securities balances, and core client growth supporting deposit increases.
• Tangible common equity to tangible assets ranked first among large banks, and tangible book value per share reached a record.

For the third quarter of 2024, on an adjusted basis, Texas Capital Bancshares achieved record performance across various metrics. Quarterly return on average assets was 1%, return on common equity was 10%, pre-provision net revenue was $115 million, fee income was $64.8 million, and earnings per share was $1.59. Fee income areas saw sustained growth: treasury product fees were up 16% year-over-year, wealth management fees increased 9% this quarter, and investment banking and trading income jumped 32% quarter-over-quarter to a record $40.5 million. The treasury solutions platform had year-over-year treasury product fees up 16%, with gross payment revenues up 10% year-to-date. The investment banking platform continued to build a base of consistent revenues, and the private wealth business, nearly complete by year-end, showed early signs of increased client adoption.

• Modestly reducing revenue guidance to low single-digit growth for the full year.
• Non-interest expense guidance of approximately $765 million for the year, considering actions taken in September.
• Expecting 1.1% ROAA in the back half of 2025, with potential for higher levels depending on rate cuts.
• Reducing annual provision expense guidance to 40 basis points from 50 basis points of average LHI, excluding mortgage finance.
• Anticipating high single to low double-digit full-year average loan growth in 2025 with deposit repricing accelerating in the second half.

• Macro-economic uncertainties impacting loan growth and net interest income.
• Interest rate volatility affecting balance sheet volumes and yields.
• Potential impact of an uncertain economic outlook on credit quality and provision expenses.

Q: Woody Lay with KBW asked about loan growth strategy and additional loan purchases.

A: Rob Holmes stated they onboarded 110% of the same number of clients as last year, and loan growth will come as clients become primary operating banks, and they're agnostic to how they solve clients' needs. Matt Scurlock added capital deployment is dynamic based on opportunities.

Q: Ben Gerlinger with Citi inquired about mortgage warehouse yield and capital deployment.

A: Rob Holmes discussed the rate curve outlook with fed funds and 10-year rates, and Matt Scurlock mentioned capital priorities focus on generating PPNR to average assets and keeping CET1 around 11%.

Q: Matt Olney with Stephens asked about hedge impact and technology expenses.

A: Matt Scurlock explained hedge maturity and receive rates, and Rob Holmes talked about technology investments improving client journey, reducing operating risk, and driving efficiencies through initiatives like Initio and wealth platform upgrades.

Q: Michael Rose with Raymond James asked about loan growth expectations.

A: Rob Holmes said there are tailwinds from client onboarding and relevance, and the platform is complete but opportunistic for incremental products.