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Texas Capital Bancshares talks 2017 guidance, ROE run rate strategy

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Texas Capital Bancshares talks 2017 guidance, ROE run rate strategy

Texas Capital Bancshares Inc. is focusing on improving the run rate of its return on equity in 2017, and expects several aspects of its business operations to have a positive impact on the move.

Among these include its private wealth business, which the Dallas-based company expects to begin to contribute to its fee income mix and total income over the next several years, owing to the completion of its staffing build out, which took place in 2015 and 2016. Texas Capital also plans to launch initiatives to improve efficiency in existing businesses — such as diminishing the pace of its hiring — support functions, noninterest income from new and existing lines of business, and growth in its highest risk-adjusted return businesses. The company also stated that the equity it raised in the fourth quarter of 2016 now gives it the capability to support additional growth after risk-weighted loan growth in 2016 exceeded return on equity for the year.

According to a transcript of the company's Jan. 25 earnings call, management also said it expects strong growth in mortgage correspondent aggregation (particularly, year-over-year average balances for total mortgage finance, low-double-digit growth, and seasonal weaknesses in the warehouse for the first quarter), which would be an especially capital efficient contribution to earnings, but noted that it would require risk-based capital in the 40% to 50% range. With regard to traditional held-for-investment growth, management estimates high-single, low-double-digit figures for 2017 — similar to the trend in 2016 — before the possible impact of strength in the economy.

Deposits-wise, management expects to see low- to mid-teens growth with continued improvement in the composition of demand deposit accounts as rates continue to rise; average balances for liquidity assets are estimated to display modest growth in the coming year.

The company also increased its net interest margin outlook, lifting it by 10 basis points to 3.70% to 3.80% — before the impact of liquidity — with reported net interest margin now also expected to come in at around 3.20% to 3.30%. Fourth-quarter 2016 net interest margin for Texas Capital was 3.11%, compared to 3.14% for the linked period.

Finally, the company also reported that it managed to cut its energy loans to below $1 billion from the third quarter to the fourth quarter of 2016, with energy loans now representing only 5% of Texas Capital's total loans. Management also expressed confidence that it had more than enough energy loan loss reserves — $57 million — after realizing $36 million in charge-offs in 2016. The company is not completely laying off energy though as executives also stated that the company is initiating new energy loans with both new and existing clients, but not enough for the related advances to offset the pace of continued pay downs.

President and CEO C. Keith Cargill also stated in the call that there is a possibility for energy-related provision to hit the low end of the spectrum should the energy cycle "play out with stable prices or slightly up prices."

The company reported fourth-quarter 2016 net income available to common stockholders of $45.9 million, or 96 cents per share, compared to $40.3 million, or 87 cents per share for the previous period, and $32.3 million, or 70 cents per share, for the fourth quarter of 2015. Full-year 2016 net income available to shareholders was $145.4 million, or $3.11 per share, compared to the prior year's $135.1 million, or $2.91 per share.