Noninterest income among banks was a little better than expected during the second quarter.
That's important in an environment where banks are trying to do what they can to offset spread income pressure in a higher-for-longer interest rate environment. Capital equity markets, insurance and deposit service charges could each be sources of fee-income strength over the next several quarters, according to Michael Rose, an analyst at Raymond James.
"Those are all things that would help make fee income higher than second-quarter levels," he said.
One of the more eye-catching jumps in noninterest revenue during the second quarter happened at Texas Capital Bancshares, where fee income rose 75% year over year. The primary driver: revenue derived from Texas Capital's nine-month-old investment banking and trading platform, a major factor in the company's
Since receiving its broker-dealer license in December 2021, Texas Capital has built investment banking services in capital markets, sales and trading and M&A advisory. Under a newly created funds management team, it recently rolled out an exchange-traded fund focused on public companies headquartered in Texas. Later this quarter, it will add two more services to the unit, but the company has not elaborated on what they will be.
"We're really excited about the platform that we built," CEO Rob Holmes said this month during the company's second-quarter earnings call. "The flywheel is just starting to take hold."
To be sure, the Dallas-based company's increase is so large because it started from such a low base. For the second quarter, noninterest income at Texas Capital was $46 million compared with $26.2 million during the same quarter last year, the company said.
Investment banking and trading fees accounted for about 60% of the total, followed by wealth management and deposit service fees. As part of Texas Capital's
"I think it exceeded mine and everyone else's expectations," Rose said. "This is a business that started up just a couple quarters ago from scratch."
According to Raymond James' research, among 324 publicly traded banks with assets greater than $750 million that have reported second-quarter results through July 28, median fee income grew 6.3% year over year. Median fee income at large banks grew 0.6% year over year, while among midsize banks such as Texas Capital, median fee income rose 7.2%, the data shows.
Dallas-based Texas Capital Bank believes virtual credit cards, offered through a new fintech partnership, can help small-business customers make their payment processes more efficient.
At U.S. Bancorp, one of the largest banks in the country with $681 billion of assets, noninterest income rose nearly 7% year over year, the Minneapolis-based company said in a press release. The increase reflects an uptick in payment services fees, trust and investment management fees, commercial products revenue and other noninterest income, the company said.
Synovus Financial in Columbus, Georgia, reported a 15% increase in noninterest revenue compared with the same quarter last year. The $61 billion-asset company, which is also
At Texas Capital, generating more noninterest income is critical to the success of the business model transformation, which is focused on reducing rate-driven fluctuations in earnings. More fee income, and various sources of fee income, means greater revenue stability, executives say.
In addition to expanding investment banking capabilities, the company has launched a new payments system and introduced a new digital-onboarding system that allows commercial clients to open an account online and use it the next day, CEO Rob Holmes said in an interview.
A new treasury management platform is set to launch by the end of the third quarter, he said.
The company has hired hundreds of employees over the past two years to help build and rebuild the entire enterprise. With the pieces of the fee-income strategy largely in place, it's time to not only perform consistently as a team but also "make delighting clients a habit," Holmes said.
"We have great expertise [working] on the platform that have done this before, but they did it with other jerseys on, and now they have Texas Capital jerseys," Holmes said of employees that have joined his bank from other companies. "And we've done our first everything, so now we need to do it hundreds of times as a firm."
As to whether Texas Capital's fee-income growth is sustainable, it's hard to say, Raymond James' Rose said. The business will be "lumpy" because the mere nature of it is hard to predict, he said.
"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," Rose said. "But it's very, very hard to forecast."
