Participants
Jocelyn Kukulka; Investor Relations; Texas Capital Bancshares Inc
Rob Holmes; President, Chief Executive Officer, Director; Texas Capital Bancshares Inc
John Scurlock; Chief Financial Officer, Managing Director; Texas Capital Bancshares Inc
Woody Lay; Analyst; Keefe, Bruyette & Woods, Inc.
Ben Gerlinger; Analyst; Citi
Matt Olney; Analyst; Stephens Inc.
Michael Rose; Analyst; Raymond James Financial, Inc.
Presentation
Operator
Thank you all for standing by for the Texas Capital Bancshares. Third quarter, 2024 earnings conference call. We’ll be starting today’s call in a few moments. We are just allowing all attendees to get connected before we begin today’s conference. Thank you all for standing by.
Good morning, all and thank you all for attending the Texas Capital Bancshares Third Quarter 2024 Earnings Conference Call. My name is Brika and I will be your moderator for today.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Thank you. I would now like to pass the conference over to your host, Jocelyn Kukulka, head of Investor Relations. Thank you. You may proceed Jocelyn.
Jocelyn Kukulka
Good morning and thank you for joining us for TCBI’S third quarter, 2024 earnings conference call. I’m Jocelyn Kukulka, head of Investor Relations. Before we begin, please be aware that this call will include forward-looking statements that are based on our current expectations of future results or events.
Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those statements. Our forward-looking statements are as of the date of this call and we do not assume any obligation to update or revise the.
Statements made on this call should be considered together with the cautionary statements and other information contained in today’s earnings release, our most recent annual report on form 10-K and subsequent filings with the SEC.
We will refer to slides during today’s presentation which can be found along with the press release in the investor relations section of our website at texascapitalbanc.com. Our speakers for the call today are Rob Holmes, President and CEO; and Matt Scurlock, CFO.
At the conclusion of our prepared remarks, our operator will open up the call for Q&A. Now I’ll turn the call over to Rob for opening remarks.
Rob Holmes
Thank you for joining us today. This quarter marks three years since the announcement of our strategic plan in September of 2021.
Our collective and deliberate actions over the last several years including those announced last month, continue to establish our firm as worthy of serving the best clients in our markets with superior product breadth and banker execution, increasingly resulting in high quality financial outcomes which we believe the model would ultimately be capable of producing.
On an adjusted basis, this quarter featured record performance across a variety of important financial metrics. Quarterly return on average assets of 1%, return on common equity of 10%, preprovision net revenue of $115 million, fee income of $64.8 million and earnings per share of $1.59 all reached record levels since the beginning of the transformation. While investment banking trading, income and tangible book value per share reached the highest levels in firm history.
With unquestioned market momentum and increasingly complete and differentiated platform and robust capital liquidity, we are well positioned to execute throughout 2025. Sustained multiyear growth in our fee income areas of focus continued again this quarter as treasury product fees, wealth management fees, and investment making and trading income delivered $54 million in noninterest revenue, up 25% late quarter and 32% year over year.
This is the second consecutive record quarter since the beginning of the transformation. As year-to-date adjusted total noninterest income is 19% of adjusted total revenue firmly within our target range for fee income contribution for full year 2025.
This fee income realization is simply a market facing indicator of the increased frequency and quality of client solutions being delivered across our platform. Investment banking and trading income increased 32% quarter of a quarter to a record of $40.5 million led by syndications capital markets and sales and trading.
Our syndication business executed a record number of transactions in the quarter. Placing us eighth in the middle market league tables nationwide, as our distinct capabilities enable clients to access bank funding in what was still a tight market.
We also continue to differentiate by facilitating client access to non-bank financing with capital markets delivering records this quarter in both fees and transaction volumes. The investment banking platform while still maturing in both product offerings and execution capabilities is building a base of consistent and repeatable revenues that will be both a differentiator in the marketplace and a meaningful contributor to future earnings.
The Treasury Solutions platform which provides both payment products and services in parity with the major money center banks with a differentiated client journey, which is faster and more efficient, is increasingly realizing growth and stable and reoccurring revenue resulting from three years of significant investment.
Client and product onboarding continues to be on pace with expectations. As year over year treasury product fees increase 16% led by a 10% increase in gross payment revenues here today.
This is now six consecutive quarters of year over year growth exceeding three times that experienced by the industry, the full build of the private wealth business, which will be completed by year end includes an entirely new operating platform along with significantly enhanced products and services and is providing early signs of increased client adoption with wealth and related fees increasing 9% this quarter.
The materially enhanced client journey should enable improved connectivity to the rest of our platform, allowing for accelerated client adoption, moving into 2025 and significant future scale. As discussed for multiple quarters, while our platform breadth is enabling new client acquisition at a pace consistent with internal expectations with year-to-date new relationships onboarded, now, over 110% of new relationships for full year 2023 lower systemwide client demand for bank credit has limited immediate earning asset expansion.
We were however able to again leverage our disciplined capital allocation process this quarter to support continued build out of our industry focused corporate banking platform by acquiring a portfolio of approximately $400 million in committed exposure to companies in the health care sector.
Texas capital has significant institutional knowledge of many of the companies in the portfolio which importantly are supported by sector focused sponsors with notable track records of value creation. These clients will benefit from an extensive solutions focused platform with revenue cycle management, health care, asset based lending and other sector specific products integrated with differentiated cash management, commercial banking and investment banking capabilities.
The multiyear trend of clients increasingly leveraging our distinct cash management capabilities continue this quarter with non brokered interest bearing deposits. Now up 24% or $3.1 billion year over year. Importantly, noninterest bearing deposits excluding mortgage finance increased 4% to $3.4 billion this quarter as our sustained focus on earning the right to become our client’s primary operating bank is having the anticipated balance sheet impact.
In addition to another financial performance, we remain focused on our consistently stated objective of financial resilience.
The firm finished the quarter with tangible common equity to tangible assets of 9.65% ranked first amongst the largest banks in the country. A reserve ratio of 1.87% excluding mortgage finance loans, which is top decile amongst our peer group and liquid assets of 27% above pure medians.
Our commitment to achieving improved financial performance is unwavering and our position of unprecedented strength is enabling us to serve clients in our markets to seek a financial partner to support them through all stages of their business or personal life cycle.
We will drive attractive through cycles, shareholder returns with both higher quality earnings and a lower cost of capital as we rent high value businesses through increased client adoption, improved client journeys in real life, operational efficiencies, all objectives that we made significant headway on year-to-date with road maps to accelerate scale in 2025.
Finally, I want to acknowledge the dedication of our employees who execute the strategy every single day and are the unquestioned driving force behind the continued success of our firm.
Now I’ll turn it over to Matt for the financial results.
John Scurlock
Thanks Rob. Good morning. Starting on slide 5, total adjusted revenue increased $38 million or 14% for the quarter to $305 million million as a $23.5 million increase in net interest income was augmented by a $14.4 million or 29% lean quarter increase in noninterest revenue.
The $64.8 million of fee income delivered this quarter is the high watermark since we began the transformation in January of 2021. Our year-to-date adjusted non interest revenue of $157 million is more than double the amount delivered in full year 2020.
We’re normalizing warehouse related fees and adjusting for businesses we’ve sold or wound down quarterly total adjusted noninterest expense increased 1% in the quarter. As expected growth in occupancy and communications and technology expense was partially offset by a reduction in salary and benefits costs taken together link quarter adjusted PPNR increased 45% to $115 million million. This marks the resumption of quarterly operating leverage against the comparable quarter in the prior year. Achieved a quarter earlier than indicated during the July earnings call.
The modest reduction in this quarter’s provision expense to $10 million resulted from slowing charge offs and moderate loan growth partially offset by a sustained conservative posture related to our economic outlook.
Year-to-date provision expense as a percentage of average LHI excluding mortgage finance is within our through cycle range at 39 basis points annualized. Net income to common when including the realization of losses associated with the AFS bond portfolio repositioning and certain non-recurring items was negative $65.6 million while adjusted net income to common was $74.3 million million, up $36.6 million or 97% late quarter. The tax rate for the quarter decreased to 23.3% and we expect the full year tax rate to be around 34%.
Our balance sheet position remains exceptionally strong with period and cash balances of 13 percent of total assets and cash insecurities of 27%, both higher this quarter and in line with year end targeted ratios. Ending period gross LHI balances increased approximately $522 million or 2% in quarter, driven primarily by slightly higher than anticipated seasonal growth in the mortgage finance business and the acquisition of [CNI] health care loan portfolio which closed at quarter end with funded balances of approximately $330 million.
Total deposits increased by $2 billion or 9% during the quarter with gains in both commercial noninterest bearing and interest bearing accounts. This core client growth should support continued proactive reductions of our highest cost deposits where we have limited additional product touch points elsewhere on the platform, while also supporting a multi quarter low loan to deposit ratio of 86%.
AOCI improved by $240 million in the quarter or 65% related to both the bond repositioning and the 80 basis points decline in five year treasury rates during the period.
Total gross LHI excluding mortgage finance was relatively flat linked quarter, increasing a modest $71 million as limited credit and experienced over the last 12 months and now increasing commercial real estate payoffs suppress loan volumes across the industry.
Commercial loans grew $434 million in this quarter inclusive of the $330 million loan portfolio acquisition that rob detailed and are up $602 million or 6% year over year.
Our expectation that the sustained pace of new client acquisition would result in modest balance sheet and loan growth this year is occurring, although at a slower pace than contemplated in our original 2024 guidance.
Commercial real estate period, imbalances decreased $374 million or 7% in the quarter as payoff rates continue to be elevated and current and trailing 18 month origination limited given the market backdrop, $80 million of decline resulted from payoffs in the office portfolio which now comprises just 2% of total loans.
Overall, the real estate portfolio remains weighted to multifamily which is $2.3 billion or 44% of outstanding balances reflecting both our deep experience in the space and observed performance through credit and interest rate cycles.
Anticipated seasonal growth in mortgage finance was augmented by the reduction in 30-year mortgage rates experienced from early August through mid-September, resulting in a link quarter increase in average mortgage finance loans of $795 million or 18% to $5.2 billion given ongoing rate volatility.
We remain cautious on the outlook with now four year expectations for year over year increase in average warehouse volumes of 10% to $4.5 billion supported by mortgage rates near $640 million during the fourth quarter.
In period, deposit balances increased 9% quarter over quarter and $1.1 billion or 6% when excluding the seasonally elevated contribution of mortgage finance. Sustained success in attracting quality funding associated with our core offerings enable growth and commercial client nontrained deposits of 4% quarter. While broker deposits remain at a 10 year low comprising approximately 2% of total deposits.
This positive trend will continue to support over the coming quarters, select a reduction of the highest cost deposits we are unable to earn additional business necessary to generate an appropriate return on capital.
Average mortgage finance deposits were 116% of average mortgage finance loans, a slight decline quarter over quarter and consistent with our guidance. We expect the ratio of average mortgage finance deposits to average mortgage finance loans to decline to 110% in the fourth quarter. As predictable changes in client deposits should match anticipated warehouse fundings.
As a reminder, there is seasonality in these deposits as annual tax payments begin remittance out of escrow accounts in the second half of the fourth quarter, which continues through January.
As detailed in previous calls, select mortgage finance deposits feature relationship pricing credits which are applied to both clients, mortgage finance and commercial loans based on each loan types, contribution to interest income during the quarter.
Attribution of interest credits are expected to follow a similar distribution for the duration of the year with approximately 60% associated with mortgage finance and 40% aligned to commercial loans to mortgage finance client. Ending period, no bearing deposits excluding mortgage finance remain 13% of total deposits and our expectation is that this percentage remains relatively stable in the near term.
Our model of earnings at risk increased slightly in the quarter as adjustments to the balance sheet composition resulted in marginally less forward, downside rate protection, but potentially higher levels of absolute net interest income.
The full impact of the 49 basis point decline in so for during the quarter resulted from our largely variable rate loan portfolio repricing down in advance of the fed’s move in late September. The timing of deposit repricing activities are more closely aligned to actual changes in fed funds rates. And we expect our initial repricing efforts to be realized by Mid-October and are therefore only partially reflected in the net interest income sensitivity disclosures.
In August, the firm continued the multiyear process of effectively rationalizing the legacy balance sheet selling approximately $1.24 billion of available for sale securities with an average book yield of 1.23% purchased prior to 202.
Cash proceeds from the sale were used to purchase $1.06 billion of securities for a yield of 5.26% which is expected to contribute an incremental $35 million to $40 million in net interest income on an annualized basis.
We do expect continued reinvestment over the duration of the year which will improve security yield while maintaining rate positioning. Net interest margin expanded by $15 basis points in the quarter and net interest income increased to $240.1 million.
Quarterly net interest income benefited from the impacts of balance sheet repositioning and higher earning assets associated with our long term strategy and quarterly improvements in both mortgage volumes and yields were supported by the lower self funding ratio.
As industry wide asset quality normalization continues so does our multiyear posture of prudently building the reserve to effectively address communicated legacy credits and buffer against the potential impact of an uncertain economic outlook.
The total allowance for credit loss including off balance sheet reserves increased $6.5 million on a quarter basis to $319 million million, up $28 million a year over year, which when excluding mortgage finance is 1.87% of total LHI, a high since the adoption of [Cecil] in 2020.
Criticized loans increased slightly to 4% of total LHI and a decrease in special mention was offset by modest migration of a diversified set of credits within both the commercial real estate and commercial loan portfolios into substandard.
The period in composition of criticized loans remains weighted toward commercial clients with dependencies on consumer discretionary income as well as a well structured commercial real estate loans supported by strong sponsors. Net charge offs of $6.1 million or 11% of average LHI were comprised of a small number of commercial credits.
Our identified legacy problem credits have now been reduced through resolution workouts and payoffs to approximately $16 million down from $200 million at the end of 2020.
Consistent with prior quarters, capital levels remain at or near the top of the industry. Total regulatory capital remains exceptionally strong relative to both the peer group and our internally assessed risk profile. CET1 finished the quarter at 11.19%, a 43 basis point decrease from prior quarter related to the security positioning and increased risk related assets from quarterly loan growth.
Tangible common equity to tangible assets finished at 9.65% which continues to be ranked first amongst the largest banks in the country. While tangible book value per share increased 14.3% year over year to $66.06 a record level for the firm.
Our guidance accounts for the market based forward rate curve which as of October fourth implied 50 basis points of additional reduction to the fed funds rate in November followed by a 25 basis point cut in December to finish the year at 4.25% which is a 100 basis point decline since our last earnings call in July.
Given a significant change in near term rate outlook we are modestly reducing our revenue guidance to low single digit growth for the full year non interest expense guidance of approximately $765 million for the year. Contemplates the actions taken in September.
As shown again this quarter, we continue to effectively deploy capital in excess of our 11% CET 1 minimum in support of published strategic objectives. Near term capital, priorities remain focused on growing the core business, improving future earnings generation and increasing tangible book value per share, all areas where we continue to show material progress.
Quarterly increases in year over year, PPNR growth should continue in Q4 2024 and then for the duration of 2025.
Finally, while we maintain our conservative outlook, we are reducing our annual provision expense guidance to 40 basis points from 50 basis points of average LHI excluding mortgage finance given both recent balance sheet and credit migration trends.
Moving to 2025, based on the economic and rate outlook as of October 4, multiyear investments and infrastructure data and process improvements should continue yielding expected operating and financial efficiencies enabling targeted additional investment and talent and capabilities.
Our current outlook with planned initiatives and expected revenue for full year 2025 suggests noninterest expense of approximately $765 million to $770 million million.
Internal estimates against that economic backdrop also contemplate continued industry leading client adoption and associated growth in our fee income areas of focus, with full year targeted 2025 total noninterest revenue reaching $240 million million.
Given our focus on leveraging the firm’s broad platform to serve clients based on their unique needs, balance sheet expansion mix and associated net interest income generation remain the most difficult to estimate due to the dynamic macroeconomic and political backdrop.
The market rate outlook as of early October Incorporated rapid decreases in short term rates over the next nine months, with fed funds actually the year at 425 and ultimately reaching 350 in June. In this outlook as short term rates come down, the curve flattens significantly with the 10 year declining to 392 in December, then troughing at 380 in June of next year.
Internal estimates in that rate environment suggest the potential for high single to low double digit full year average loan growth with depository pricing accelerating by the second half of the year, enabling high single digit net interest income growth. Given 80% of our current loan portfolio is tied to the short end of the curve with a slower pace reduction and or higher terminal value should improve 2025 net interest income generation.
After three years of aggressively building the reserve to reflect our consistently conservative posture. The near term provision outlook has potential to move towards 30 basis points to 35 basis points of average LHI excluding mortgage finance in 2025, more closely resembling trailing charge off rates while preserving industry leading coverage levels.
Taken together this outlook suggests achievement of 1.1% ROA a in the back half of next year with potential for higher levels should the pace and magnitude of anticipated cuts moderate.
Operator, we would now like to open up the call for questions. Thank you.
Question and Answer Session
Operator
Thank you, Matt. We will now begin the question-and-answer session. (Operator Instructions)
Woody Lay, KBW.
Woody Lay
Hey, good morning guys. Wanted to start on the loan growth strategy and more specifically loan purchases. The healthcare purchase help sort of stabilize growth in the quarter. Do you think we could see additional loan purchases from here? Just trying to get a gauge on the strategy there.
Rob Holmes
Hey, Woody. Rob, I’ll take that. So I wouldn’t consider this, a loan purchase if you will. We had onboarded a number of bankers from a financial firm that had relationships tied to those loans and we’re able to acquire the loans and the relationships that come with those, some immediate in some of our time and, and we have a much more robust platform so that we can do many more things with those same clients and sponsors thus being more relevant to them and driving a much greater return.
So the loan purchase was a result of the, the strategic efforts if you will. I mean to give you an example, I have personally already flown and met with the owners of over 80% of the companies that make up those loans.
So we are not buying loan portfolios for loan growth or stabilization of loans whatsoever. We’ve onboarded this year, 110% of the same number of clients that we, that we onboard at the same time last year. At some point, those clients will need to borrow and they can either borrow from our balance sheet or we can raise third party capital like we’re, we’re very good at doing now with record number of transactions and volume this year.
We’re agnostic, to how we solve our clients’ needs and we advise them to solve those needs based on the best outcome for them. But loan growth will certainly come and it has to do with the amount of market share that we’re taking and the amount of primary relationships that we’re onboarding, like you don’t grow [P times V] in mid to high 10s for three years without becoming the primary operating bank for those clients.
So you’re the primary operating bank, you’re talking to them more regularly on a regular basis that you’re talking to them about capital needs on a more frequent basis. And so we’re not really concerned about loan growth as a relative matter to the industry whatsoever.
John Scurlock
The only thing I had on that, Woody is that, the reason why we generally give ct one guidance as opposed to loan growth guidance or buy back specific guidance is that the way we’re going to deploy capital is somewhat dynamic depending on opportunities we have to either fulfill the strategy and or improve tangible book value. So this is simply an action consistent with the capital menu that we’ve been pretty disciplined and leveraging across the last three years.
Woody Lay
Yes. It’s good to hear the optimism on the on the loan growth front. You know, growth in the industry has been weaker this quarter. Does it, does it feel like there’s sort of a clearing event to get loan growth to ramp back up? Is it, you know, if you talk to clients, are they kind of wading through the election or just any color on, on when you expect it to ramp up?
Rob Holmes
Look what I the only thing I would say is we cover from business banking, which will, with our pipelines, I bet we’re a top five SBA lender to business banking. You know, in the very near term that business is coming out of the ground, middle market, banking, corporate banking.
As you know, we have different segments in corporate banking, TMT, healthcare, fig, diversified energy, et cetera. We do see more demand and loan growth in certain segments of that than others. And, and the great thing is we cover the entirety with expertise and different products and services for each.
I’m not going to predict loan growth whatsoever, but I would just say what I said before. We’re agnostic to whether they borrow from us or we place private credit or raise institutional debt. But we certainly anticipate with our market share games that when low growth does come back in the economy, we certainly benefit from that.
Woody Lay
Got it. And then maybe just shifting over to the investment banking side, it was a really strong quarter for you all. Just any additional granularity you could provide on, on sort of what drove the investment banking income in the third quarter.
Rob Holmes
No, I I’ll start then maybe Matt can, you know, do the number thing. I would just say what’s exciting to see the investment bank. Remember, we didn’t build the investment bank for a different set of clients than the commercial bank or corporate bank or private bank, the same group of clients.
It’s one way to provide solutions to, to their very specific needs. The thing — so my point is that it’s a group effort from the entirety of the firm to have record earnings in the investment bank. Having said that the thing that’s most rewarding if you will on the investment banking side is it came from syndications, which were a top eight ranger of middle market bank debt in the entirety of the US.
It came from record volumes and fees in capital markets. It, you know, it came from sales and trading and, and you know, all all different pockets of sales and trading, not just mortgage. So it is a it’s, it’s a universally increasing source of repeatable and recurring revenues at a much more granular level.
Now we did do a big deal, but that’s, that’s not the entirety of why we had a record quarter. So we’re, we’re really excited about the investment bank and what it is today, but also what it can be. Remember, there’s still a lot of pockets in investment banking where we have the entirety of the expense base consumed into the platform.
For example, public finance, we built sales and trading on the back of mortgage warehouse, I mean mortgage trading, excuse me, which we built on the back of go well. So mortgage trading. So risk compliance controls, process procedures, the people to run it, et cetera technology.
All those investments were already within the platform. And then we also had a government not for profit business covering schools, towns, municipalities and the like that are that are consumers of public finance. So we all you do is you add the sales and traders for, for underwriting this debt with very little expense.
And then on the G&I side, you’ve got more things you can offer to the clients you’re already covering. So it’s a revenue synergy and it’s an expense synergy and we have that across the entire platform with a lot of potential to move forward. So I don’t see the investment bank going backwards.
It’s not going to be straight linear up, but the strategy is proven the clients hire us in. I think we’re going to invest some banking fees at a faster rate than any firm. Certainly over the same period that we’ve been doing this.
John Scurlock
Yes, I think the record fee quarter would even just isolated the investment bank. So the $54 million that we delivered in the fee income areas of focus, which are treasury, private wealth and investment banking, that’s 13% more this quarter than we delivered for full year 2020.
It’s a really strong performance across the board in all those areas that we’ve invested in heavily since Rob’s arrival. We we do call out in the slides and worth noting here that after two consecutive record quarters in the investment bank, you are likely to see a modest pull back in the fourth quarter as pipelines rebuild in pursuit of the non interest income levels that we gave you for full year 2025.
So I look for the fourth quarter and ID to be around $20 million to $25 million, which should pull fees somewhere into the $45 million to $50 million range for the fourth quarter.
Woody Lay
Got it. All right. That’s helpful color. Thanks for taking my question.
Operator
Ben Gerlinger, Citi.
Ben Gerlinger
Hey, good morning guys. It seems like you’ve made a bit of progress.I get it’s a bit of a coiled spring here. But when you guys look at ’25 what just kind of, what assumption are you guys using on mortgage warehouse or the NIM, I get that every quarter can be different based on the seasonality. I just kind of look at just going forward. It seems like you clean that up quite a bit behind the scenes. Just any sort of numbers would be helpful.
John Scurlock
Yeah. Feel free to title your research. Note the Coiled Spring. I’m not sure that’s been used yet. I liked it. Then we, we gave a ton of, insight into our view for 2025. So I don’t know that we’re going to get a lot more detail on individual yields that are potentially 12 months in front of us.
I will talk to a bit just about the, the rate curve because to your point, it does have a pretty significant impact both on balance sheet volumes and on yield as you move into 2025. So the curve that we use, which we’re incredibly specific on the date given how much it’s been moving was as of early October.
So October fourth to be specific, so it exits the year with fed funds at 425 fed funds move down to about 350 in June and then the 10 year which is going to be most closely correlated with more finance exits this year at about 39 and then sits at about 38, mid year.
So I mentioned in the prepared to marks that the curve starts to flatten in that environment. We think net interest income picks up high single digits.
So that coupled with $240 million of fee based revenue and $765 million to $770 million of non interest expense is what our internal views suggest drives a ’11 sometime back in the next year.
Ben Gerlinger
Got you. Okay. So you, you’re looking at a quarterly ’11 kind of a run rate by the end of ’25 is that also, I mean to get more of the rosy number, how do you presume live or I mean capital deployment obviously is better for loan growth or, or usage for revenue production?
I get that it’s a strong strategy. But does this mean you’re going to completely stop buying back stock or just kind of how you approach capital deployment? Assuming there’s not a lot of activity kind of in the fourth quarter here, it seems like things might slow down a little bit temporarily.
John Scurlock
Yes. Our capital priorities then haven’t really changed. I mean, I think the actions this quarter we pulled about every single lever that a management team can pull over the last 12 months. I think we’re, we’re pretty pleased that the stock price makes buybacks marginally less appealing at this point than at the levels where we repurchased over the previous few years.
But we’ll, you know, we’ll evaluate for buybacks the same way we have since Rob’s arrival. If we think about prioritization of different performance metrics. ROA has been one that’s increasing in relevance for us since we made the determination that we were unwilling to push the CET 1 levels down to the 9% to 10% that was incorporated in the original September first strategic plan.
Our view is that financial resilience, which was the foundation of the company has only increased in importance post the events of last spring. So we’re likely to keep CET 1 around that 11% number. So we’re really focused on generating the right level of PPNR to average asset in the 11 ROA the rate environment I just described, I think is one that’s fairly punitive. Should we not experience as many rate cuts and or those rate cuts occur at a slower pace? That’s not accretive to 2025 ROM.
So our commitment to you guys as we get to this quarter and start to play out in detail, our internal view of 2025 financials and we hope that we’ve done that for you.
Ben Gerlinger
Got it all. Thanks guys,
Operator
(Operator Instructions)
Matt Olney, Stephens.
Matt Olney
Hey, thanks, good morning guys. Appreciate all the forward outlooks here. Most of my stuff has been, has been addressed, but I also just want to ask about the impact of the hedges. I think you disclosed the hedge impact this quarter was $18 million drag just trying to appreciate the impact of the hedge. As the notional balance has come down as the as the fed starts to put overnight and kind of what, what you’re assuming within that ’25 guidance. Thanks.
John Scurlock
Yeah, great question, Matt. So we hope that we improve the disclosure for you in the earnings presentation. The Sligo, we generally talk about ni I sensitivity, the bottom left. We’ve now depicted both the maturities and the associated receive rates.
The majority of those are tied to Soper, there are some prime swaps but majority are tied to Soper. So you can follow the spot surfer curve of your choosing to make the determination of the pick up in terms of where you see six, moving back to float.
The first big slug of maturity is in the second quarter. Current spot so far is around 340 in that period with the receive rate of three. So we pick up about 40 basis points as those swaps ultimately expire and then the balance sheet positioning in general, the curve is not particularly conducive to adding any additional downside rate protection at this point.
So you will likely not see us reinvest cash flows in the bond portfolio. Recent purchases have been around 450 basis points or so. We’d expect about $120 million a quarter given current rates.
Matt Olney
Okay, great color. And I’ll go back and look at that updated disclosure. Thanks for, thanks for including that. And then just lastly on, on expenses, you’ve given us a good kind of outlook here for the fourth quarter and for next year and it sounds like for the most part, the infrastructure is then built out, but you also talk about technology and how that’s really should improve the operating leverage for the company any more color on kind of technology you’re using and how you’re able to kind of effectively keep expense levels flat next year. Thanks.
Rob Holmes
Yes. So there, there’s a, that’s a really long answer, but in short, we have a persistent funding model and technology where we’re investing a prescribed amount of money every year and change the bank while we try to be more efficient with how we run the bank.
As you know, with our expense reductions and efficiencies that we’ve taken in the third quarter of this year, first quarter of last year and at other points in time, we are — we do have a proficiency in — we imagining our our operations and eliminating or digitizing certain actions so that we take out the expense. But more importantly, or just as importantly, we reduce operating risk.
And we have over 30% of our tech spend on our own engineers, we’re really focused on client journeys. So take an issue, there’s no way in the world we could have grown p times v the 14% to 17% quarter of a quarter year, every quarter for a long time.
Now, without an issue, which is an improved client journey with which reduces the time and the amount of money that our clients spend to onboard and they can do it in a day instead of five weeks. As we talked about this quarter, we will complete the installation of a new platform for our wealth business.
Our advisors and and private bankers have been working, doing a great job in and hitting a record of 15% increase in fees, but they’ve done it really without the help of the institution. Well, now technology is catching up and our clients will have a better digital experience and better client journey.
And so whether loan optimization, we now have work workflow for credit, we didn’t have workflow before. As, as you all well know that helps in a lot of ways gain efficiencies, mine data have creates the ability to measure what we’re doing.
Well, what we’re not doing that will that will flow straight into our loan system, which which through the investment of technology, which also reduce operating risk and gains efficiency. So it it’s happening all over the firm.
And then, and investment in technology is something that I know, I remember when we started, there was a real question on whether we could, there were concerns about us spending the money and making those investments.
And I think with the reductions, we’ve proven that we’re actually pretty, really good at it. And also you got to remember our tech stack is we’ve, we’ve written off most of the, of the tech debt and we have one stack. And so we’re not a combination of ’23 or four banks spending money on technology for one system to talk to another.
We’re, we’re one clean tech stack that we’re investing in and improving. Which I think is another, I can make another point which by definition, if we rebuilt the entirety of our tech stack and with a payment platform, merchant lockbox card, et cetera over the past three years, by definition, we have the most tech, the newest tech stock.
And so we’re able to, we have the most recent version of of the best corporate card in market. We have the most recent version of a lot of these things. So we’re really, really excited and pleased that we can realize efficiencies from [tech spend] and you should look for more of it.
Matt Olney
Well, thanks for the commentary and congrats on the results.
Rob Holmes
Thank you.
Operator
(Operator Instructions)
Michael Rose, Raymond James.
Michael Rose
Hey, good morning, everyone. Thanks for taking my questions. Just trying to better appreciate the the loan growth expectations for for next year. Can you just kind of break it down? I I assume some of it’s a pickup in utilization, I assume some of it’s a migration of customers from lenders that you’ve hired, over the past couple of years, maybe some some some re acceleration of growth in commercial real estate.
But if you can just help us better appreciate the the complexion of the growth. And as it relates specifically to the lenders that have been brought on over the past few years. Is that is the way you see that kind of a multiyear kind of tailwind to growth, kind of regardless of what the broader economy does? Thanks.
Rob Holmes
Look. I do think there’s tail wounds. I — sorry, I thought I touched on this a little bit before the the our advantage is when we’re more relevant to our clients and we cover the entirety of the market through business, banking, middle market, banking, corporate banking, and different vertical expertise in corporate banking from TMTL healthcare fig diversified energy, government not for profit, whichever part of the economy expands, we will capture.
We will capture that because we’re also capturing more clients on the platform year over year than ever before. So ’22 is a record year, ’23 is a record year. This year, year-to-date, we’ve gained 110% more clients than last year. And so when loan demand picks up in the economy as the economy grows, we will be the beneficiary of that we’re really excited about that.
If they don’t need bank debt, we can also, we could also provide third party capital as well. So as companies expand, whether it’s in the bank market, private capital, private credit market or institutional market, we’ll be there to advise our clients on what is best for their cost of capital.
Michael Rose
Thanks. I’m sorry if I made you repeat some of that got on a little bit late.
John Scurlock
No, you didn’t. We like repeating that?
Michael Rose
Okay. All right. Maybe just, this is kind of one follow up, I guess the way I kind of think about you, you guys, a lot of work done over the past, a couple of years that chassis built. I think you have the product set that you, you want in any additions would be, I would say kind of around the edges, is that a fair character characterization?
And then, just kind of continuing to drive the positive operating leverage every quarter and just plan out as from here but no real major kind of additions to the platform at this point.
Rob Holmes
That Michael that’s I can speak on behalf of every employee here. Saying we are grateful that that is where we are. We, it’s been a long transformation as you know, and we will have incremental products and services that we had. I’m sure. And but they are, I would say we are wholly complete with the platform. We could run this platform and be perfectly happy with it as is for a long period of time, but we will continue to be opportunistic If you will.
Michael Rose
All right, thanks for taking my questions.
Operator
Thank you. I would now like to hand it back to Rob Holmes for some final remarks.
Rob Holmes
Look, we’re really excited about where we are on the three year anniversary of where we announced our strategic plan. We’re more convinced than ever was the right strategic plan. The, the financial results would support that as our strategic actions are turning into financial outcomes and we’re grateful to our clients, our employees and thank you for listening.
Operator
Thank you all for joining the Texas Capital Bancshares Third Quarter 2024 Earnings Conference Call. I can confirm today’s call has now concluded. You may now disconnect from the call and please enjoy the rest of your day.
