Texas Capital Bancshares, Inc. Q2 FY2025 earnings call

• Continued execution on multiyear road map delivering structurally higher and more sustainable earnings. Year-over-year quarterly earnings growth accelerated, with adjusted total revenue up 16%, adjusted net income to common up 100%, etc. - Commercial loans grew 5% quarter-over-quarter and 13% year-over-year with targeted balance sheet expansion. - Treasury product fees increased 37% year-over-year to a record high, with 8 of the last 12 quarters showing growth. - Net interest margin increased 16 basis points quarter-over-quarter. - Investment banking and trading income increased 43% quarter-over-quarter and 4% year-over-year, with equities build-out and research coverage expansion.

Second quarter adjusted total revenue increased $42.3 million or 16% relative to Q2 of last year, supported by 17% growth in net interest income and 11% growth in adjusted fee-based revenue. Linked quarter adjusted total revenue grew by $28.9 million or 10% for the quarter, with a $17.4 million increase in net interest income and an $11.5 million improvement in adjusted noninterest revenue. Commercial loans grew 5% quarter-over-quarter and are up 13% year-over-year. Treasury product fees increased 37% year-over-year to a record high. Investment banking and trading income increased 43% quarter-over-quarter and 4% year-over-year.

• Reaffirming revenue guidance of low double-digit percent growth. - Decreasing noninterest expense outlook to mid- to high single-digit percent growth from high single-digit percent growth previously. - Full year provision expense outlook remains 30 to 35 basis points of loans held for investment, excluding mortgage finance. - Anticipating achievement of quarterly 1.1% ROAA in the second half of the year.

• Uncertain macroeconomic environment remains decidedly more conservative than consensus expectations. - Provision expense of $15 million resulted from continued growth in gross LHI, net charge-offs against problem credits and conservative view of macroeconomic environment.

Q: Michael Rose inquired about the pipeline for investment banking and trading and related investments.

A: Matt Scurlock said investment banking and trading income was up 43% quarter-over-quarter despite market closures, and expenses would change with capability build-out; Robert Holmes added the platform including investment banking positively affects NIM.

Q: Michael Rose asked about ROA expectations.

A: Robert Holmes said the strategy works, client acceptance is high, and ROA is a milestone in transformation.

Q: Woody Lay inquired about expense guidance.

A: Matt Scurlock said continued efforts to reposition expense base.

Q: Stephen Scouten inquired about factors to raise revenue guidance.

A: Matt Scurlock said net interest income momentum and deposit repricing could support higher end of revenue guidance.

Q: Stephen Scouten inquired about mortgage finance business yields.

A: Matt Scurlock said guidance incorporates September cut expectation.

Q: Matt Olney inquired about commercial customer behavior.

A: Matt Scurlock said commercial loan growth continued with client acquisition trends intact; Robert Holmes added new clients' demand for bank debt.

Q: Matt Olney inquired about mortgage finance business growth guidance.

A: Matt Scurlock said based on $1.9 trillion origination market expectation of 10% growth.

Q: Jon Arfstrom inquired about credit-related NPL.

A: Matt Scurlock said NPL had slight increase but criticized loans decreased; Robert Holmes added good client selection helps credit performance.

Q: Jon Arfstrom inquired about wealth management build-out progress.

A: Robert Holmes said wealth management is the last leg, platform updated, and future growth expected.