- Tangible Common Equity to Tangible Assets: 9.6%
- Reserve Ratio (excluding mortgage finance loans): 1.84%
- Liquid Assets: 24%
- Fee Income: Increased 21% quarter-over-quarter and 11% year-over-year
- Non-Interest Income: 19% of total revenue
- Investment Banking and Trading Income: Increased 33% quarter-over-quarter to $30.7 million
- Treasury Product Fees: Increased 14% year-over-year
- Non-Interest-Bearing Deposit Accounts (excluding mortgage finance): Flat at $3.3 billion
- Non-Brokered Interest-Bearing Deposits: Up 23% year-over-year
- Tangible Book Value: $62.23 per share, up over 7% year-over-year
- Share Repurchases: $50 million or 1.8% of total shares outstanding
- Total Revenue: Increased $11 million or 4% to $267 million
- Net Interest Income: Increased $1.6 million
- Non-Interest Revenue: Increased $9 million or 22% quarter-over-quarter
- Fee Income: $50.4 million, a high watermark since January 2021
- Adjusted Non-Interest Expense: Decreased 2% quarter-over-quarter
- Provision Expense: $20 million
- Net Income to Common: $37.4 million, up 71% quarter-over-quarter
- Adjusted Net Income to Common: $37.7 million, up 27% quarter-over-quarter
- Tax Rate: Increased 3.7%
- Gross LHI Balances: Increased approximately $950 million or 5% quarter-over-quarter
- Total Deposits: Declined 1% quarter-over-quarter
- Commercial Real Estate Balances: Decreased $133 million or 2% quarter-over-quarter
- Average Mortgage Finance Loans: Increased $840 million or 24% quarter-over-quarter
- Broker Deposits: Declined $78 million quarter-over-quarter
- Net Interest Margin: Declined 2 basis points
- Net Interest Income: Increased to $216.6 million
- Allowance for Credit Loss: Increased $8 million quarter-over-quarter to $313 million
- Criticized Loans: Stayed flat at $860 million
- Net Charge-Offs: $12 million or 0.23% of average LHI
- CET1 Ratio: 11.62%
Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Texas Capital Bancshares Inc (TCBI, Financial) reported a 4% increase in total revenue for Q2 2024, reaching $267 million.
- Non-interest income grew by 22% quarter-over-quarter, with fee income hitting a high watermark since the transformation began in January 2021.
- Investment banking and trading income increased by 33% quarter-over-quarter to a record $30.7 million.
- The treasury solutions platform saw a 14% year-over-year increase in treasury product fees, driven by an 11% increase in gross payment revenue year-to-date.
- Tangible common equity to tangible assets ratio stood at 9.6%, ranking first among the largest banks in the country.
Negative Points
- Total deposits declined by 1% during the quarter, with reductions in mortgage finance and brokered deposits.
- Net interest margin declined by 2 basis points this quarter.
- Provision expense for the quarter was $20 million, driven by charge-offs associated with previously identified problem credits.
- Commercial real estate period-end balances decreased by $133 million or 2% in the quarter.
- The firm experienced a 71% increase in net income to common, but this was partly offset by a 3.7% increase in the tax rate, resulting in a $2.2 million reduction in net income.
Q & A Highlights
Q: Can you discuss the potential impact on the balance sheet if the market sees rate cuts in the near future?
A: John Scurlock, CFO: We've positioned ourselves to be relatively neutral in shock scenarios as rates flatten. If rate cuts accelerate, our hedge profile could add about $7.5 million of NII for every 25 basis points of cuts. This hedge will wind down over the next year, with significant portions coming off in the first half and third and fourth quarters of next year.
Q: With shares above tangible book value, will share repurchases be limited?
A: John Scurlock, CFO: Given the current stock price, share repurchases are less appealing. We will focus on other capital deployment options, such as improving earnings and tangible capital generation. We aim to maintain capital for future loan growth and client needs.
Q: How should we think about the investment banking contribution moving forward?
A: John Scurlock, CFO: Investment banking had another record quarter, with broad and granular fee contributions. While the pipeline is strong, we suggest modeling next quarter's fees using a trailing four-quarter average, given the business is still new and evolving.
Q: What are the levers for achieving the 2025 ROA target?
A: John Scurlock, CFO: The key elements are gaining client relevance, leveraging tech investments for efficiency, and maintaining a differentiated platform. While client appetite for bank credit has been lower than expected, we anticipate balance sheet growth and improved returns as interest rates decrease and client demand picks up.
Q: What drove the updated outlook for operating expenses?
A: John Scurlock, CFO: The slight increase in guidance is due to higher salary and benefits expenses from onboarded talent and anticipated revenue from fee-based sources. Legal expenses related to legacy credits are also higher than expected.
Q: Why did you exit higher-cost deposits late in the quarter?
A: John Scurlock, CFO: We reduced high-cost deposits in mortgage finance where we couldn't gain sufficient relevancy or return. This aligns with our strategy of attracting quality funding and managing down broker deposits.
Q: Can you elaborate on the momentum in new client onboarding?
A: Rob Holmes, CEO: We are on pace for a third record year of client onboarding, with growth across all segments. This momentum is reflected in investment banking fees, treasury management performance, and overall client receptivity to our platform.
Q: What are the sticking points for potential borrowers, and could rate cuts spur loan demand?
A: Rob Holmes, CEO: It's more about sentiment than rates. Economic uncertainty and an election year contribute to cautiousness. As the economy recovers, we expect loan demand to pick up.
Q: Is there a new lower band for capital markets revenues?
A: John Scurlock, CFO: Given the rapid growth and newness of the business, we recommend using a trailing four-quarter average for now to model capital markets revenues.
Q: Were there any material inflows and outflows in criticized loans?
A: John Scurlock, CFO: We observed stability in downgrades and upgrades, with some payoffs and sales of non-accrual loans. Our conservative approach to risk ratings and reserve calculations remains unchanged.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
