Texas Capital Bancshares, a financial services firm based in Dallas, has reported a significant increase in fee income for the second quarter. The company saw a whopping 75% rise in fee income compared to the same period last year, driven by its investment banking and trading operations. This surge in revenue is part of Texas Capital’s ambitious plan to establish itself as the leading financial services firm in the state.
The company obtained its broker-dealer license in December 2021, allowing it to offer investment banking services in capital markets, sales and trading, and M&A advisory. In addition, it recently launched an exchange-traded fund focused on public companies based in Texas. Texas Capital has plans to introduce two more services within its investment banking and trading platform later this quarter, although details about these services have not been disclosed yet.
Texas Capital’s CEO, Rob Holmes, expressed his enthusiasm for the new platform during the company’s second-quarter earnings call, stating, We’re really excited about the platform that we built. The flywheel is just starting to take hold. He emphasized that the company’s fee income growth exceeded expectations, particularly considering that the investment banking and trading platform is still relatively new.
It is worth noting that the substantial increase in noninterest income at Texas Capital is partly due to its low starting point. In the second quarter, the company’s noninterest income reached $46 million, compared to $26.2 million during the same period last year. Investment banking and trading fees accounted for approximately 60% of the total fee income, followed by wealth management and deposit service fees.
According to research conducted by Raymond James, among publicly-traded banks with assets exceeding $750 million that have reported second-quarter results, the median fee income grew by 6.3% year over year. Large banks experienced a modest 0.6% growth, while midsize banks like Texas Capital saw fee income rise by 7.2%.
Other banks also reported increases in noninterest income during the second quarter. U.S. Bancorp, one of the largest banks in the country, witnessed a nearly 7% rise, driven by payment services fees, trust and investment management fees, commercial products revenue, and other noninterest income. Synovus Financial in Columbus, Georgia, reported a 15% increase compared to the same quarter last year, attributed to additional wealth management revenue from various sources and the resolution of a tech investment write-down.
The impressive growth in fee income is crucial for Texas Capital as it seeks to transform its business model and mitigate the impact of fluctuating earnings driven by interest rate changes. Diversifying revenue sources through increased fee income provides the company with greater stability. Texas Capital has also implemented other strategic initiatives, such as launching a new payments system and a digital-onboarding system for commercial clients. Additionally, the company plans to introduce a treasury management platform by the end of the third quarter.
As for the sustainability of Texas Capital’s fee-income growth, it remains uncertain. Raymond James’ Michael Rose acknowledged the unpredictable nature of the business, stating, My view is that they’re going to continue to need to grow and gain market share in this line of business in order to meet their return targets, which they’ve reiterated. But it’s very, very hard to forecast.
In conclusion, Texas Capital Bancshares’ impressive 75% increase in fee income during the second quarter highlights the success of its investment banking and trading platform. The company’s focus on diversifying revenue sources and reducing reliance on interest rate fluctuations aligns with its long-term transformation plan. While the sustainability of this growth remains uncertain, Texas Capital remains committed to expanding its market share and delighting its clients through its newly developed platform.
