TEXAS CAPITAL BANCSHARES INC/TX Q4 FY2024 earnings call

• The firm made material progress in transformation in 2024 with nearly 40% more new significant clients. Fee revenue grew 30%, EPS grew 15%, and tangible book value grew 8%.
• Investment banking, Treasury Solutions, and Private Wealth fees grew 36% to $178 million. Investment banking and trading income increased 47% led by syndications, capital markets, etc.
• Treasury Solutions platform evolved with client adoption, gross payment revenues up over 10% for two consecutive years, treasury product fees up 18%, and total deposits up $2.9 billion or 13%.
• Wealth platform rebuild complete, providing foundation for growth in 2025. Balance sheet remains strong with cash and securities at 25% and tangible common equity to tangible assets at 10%.

For the full year, adjusted revenue increased $36 million or 3% with fee revenue growth of 30% and pre-provision net revenue (PPNR) growth of 9% to $369 million, a record since the transformation began. Fees from investment banking, Treasury Solutions, and Private Wealth grew 36% to $178 million. Quarterly revenue was $283.7 million, up 15% year-over-year. Full year adjusted net income to common was $208 million, an 11% increase. Period-end cash and securities were 25% of total assets, and tangible common equity to tangible assets was 10%.

• Total revenue growth expected to be high single to low double-digit percent in 2025, with 2025 total noninterest revenue targeted at $270 million.
• Noninterest expense growth anticipated to be high single digits, accounting for increased salaries and benefits related to improved fee income outlook.
• Provision outlook for 2025 is 30 to 35 basis points of average LHI, excluding mortgage finance, while maintaining industry-leading coverage levels.
• Anticipated 1:1 return on average assets (ROAA) in the second half of 2025.

• Forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially.
• Credit risk management across macroeconomic and portfolio-specific scenarios, including impact of recent interest rate backup.
• Interest rate volatility and its potential impact on earnings and balance sheet positioning.

Q: Could you unpack the expense guidance, especially related to investment banking and fee income?

A: The midpoint of high single-digit expense guide is around $800 million, $30 million higher than third quarter, driven by additional frontline talent in investment banking and treasury solutions. Fees are expected to ramp over the year with 1:1 ROAA in the back half of 2025.

Q: With rates not coming in as much as expected, does the transition in fee income still take place?

A: The firm is confident in generating fee income with significant momentum in investment banking, over 30 capital markets transactions, and record new client growth expected, leading to continued upward trajectory in noninterest income.

Q: About the guidance, why the increase in total revenue growth and what changed in NII guide?

A: Total revenue growth is due to industry-leading client adoption and fee income growth. NII guide is affected by higher for longer rate outlook, but mid-to-high single-digit loan growth from client products and services can drive higher revenue guide.

Q: Sensitivity of fee income guide to rate cuts?

A: The firm is confident in $270 million fee income regardless of rate outlook, with core operating deposits and treasury product fees expected to continue growing.

Q: About frontline talent addition, are there new products or services?

A: Talent addition is to further skill sets across industry verticals and segments in investment bank and treasury services, with no new major products or services introduced other than recent ones like public finance.