Texas Capital Bancshares, Inc.

Good day and welcome to the Texas Capital Bank Shares second quarter 2021 earnings conference call. All participants will be in a listen-only mode during this presentation. Please note that this event is being recorded. If you need assistance, please signal conference specialists by pressing the star key followed by zero. I would now like to turn the conference over to Mr. Jamie Britton, the Director of Investor Relations and Corporate Finance. Please go ahead, sir.

Good afternoon, and thank you for joining us for TCBI's second quarter 2021 earnings conference call. I'm Jamie Britton, Director of Investor Relations. Before we begin, please be aware 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 these statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them. 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 TexasCapitalBank.com. Our speakers for the call today are Rob Holmes, President and CEO, and Julie Anderson, CFO. At the conclusion of our prepared remarks, our operator will facilitate a Q&A session. And now, I'll turn the call over to Rob for opening remarks. Rob?

Thank you, Jamie, and thanks, everyone, for joining us today to discuss what we believe was another solid quarter. Following my remarks, Julie will walk us through the quarter's detailed financial performance But first, I'd like to talk about the current state of the bank, the journey we are on, and our continued areas of focus. We are working intently to build something special in the best market with a team we strongly believe in. Last quarter, we communicated several commitments to you, and I am happy to report that we delivered on all of them. Number one, we announced we would begin transitioning correspondent lending activities to PHH. and divest our MSR portfolio. As you can see, both actions have been taken, and those processes are nearing completion. We said, based on our go-forward conservative approach, we would continue to strengthen our capital position. Our sub-debt transactions this quarter, coupled with our first quarter transactions, result in the strongest capital position in the history of the bank. Number three, we promised to slowly and smartly make progress on our excess liquidity, and resume our investment portfolio build, which, as you can see from the balance sheet, we executed. Number four, with communicated credit, we remain benign in the short term. All the metrics continue to improve, and we continue to have confidence in the portfolio's performance overall. Number five, when announcing the mortgage warehouse credit risk transfer transaction, We said we had multiple levers we could utilize in mortgage to better support our current clients and introduce our best-in-class platform to new ones. We executed a number of those as material declines and refinance volume came to fruition, and we are now better positioned going into the third quarter. In fact, we gained market share in the back half of the second quarter. And lastly, we said we'd begin reinvesting in talent. I could not be more excited with the team that we have and the team we are building. Just last week, we onboarded the largest number of new employees ever. We are establishing a culture of clear communication, transparency, and accountability. We plan to continue to be very clear and transparent with you as well, and we have no doubt that you will hold us accountable. As you can tell, we are focused on enhancing a strong foundation from which we will move forward. Now I'd like to provide more color and go deeper on the details of actions taken. First and foremost, our team is paramount. Our success depends entirely on our talent. In the past six months, we have brought on additional talent all levels of the organization. In April, I described how excited I was to welcome Tim Storms, Nancy McDonald, and Shannon Urechka. Since then, we have made key additions. Julia Harmon and Rick Rodman joined us this quarter and will lead corporate banking and business banking respectively. Both segments are critically important and demonstrated our renewed commitment to C&I. We see great opportunity to profitably invest in our primary markets, and with discernment, we will continue to do so. Don Gowen has recently joined as our new Chief Information Officer with responsibility for all technology and related functions. Don has led digital and IT transformations at institutions much larger and much more complex than ours and is experienced in delivering leading client experiences in banking and financial services, which is a focal point for us moving forward. We were happy to promote Madison Sim, who at one time was actually a client of Texas Capital and then joined as head of strategic initiatives for our mortgage businesses. He will become president of Mortgage Finance upon Jack Nutter's retirement in June. I told you how impressed I am with our national businesses, especially Mortgage Finance, and I could not be more excited that a respected industry veteran like Madison agreed to assume this role. The third quarter is off to a very strong start as well. John Larson has been appointed head of Home Builder and Community Finance, previously known as Specialized Residential Real Estate. With John joining us, we have a more talented and knowledgeable leadership team for the homebuilder industry, which will allow us to execute on the many opportunities we see for improvement in this business. We are fully committed to the homebuilder segment. We are also excited to see the partnership between John and our very well-known Director of Community Development, Effie Dennison, expand and provide value in the communities in which we work and live. We are making tremendous progress and we will have more significant talent announcements soon. As you can clearly see, we have a highly accomplished leadership team that now transcends several levels of the organization. I compare them favorably to any team in the industry. Importantly, our accelerated approach to attracting and adding key talent will allow us to pull our strategy forward. This is the type of experience we need to truly build a flagship financial services firm. one that allows us to engage, support, and strengthen the communities we serve. Over the past quarter, I've been lucky to spend significant amounts of time in our markets, and I can tell you what we are building is resonating. Our clients believe in our brand and are rooting for us to deliver. Our current teams are fully invested, and prospective bankers are telling us this is an opportunity in a company they want to be a part of. Also, this quarter, we have added more client-facing professionals than at any point in our history. But the numbers do not matter. The quality of the person and the talent does, and we are not compromising on either. One of the reasons our story is resonating is, though we are making significant changes, we are taking the time needed to ensure the investments and structure we are adding will enable our bankers to serve clients efficiently. We are acutely aware that building trusted relationships in our core markets and industries requires not only an investment of time, but also higher touch service, and we are empowering our teams to provide it. To that end, we are ensuring each new banker has the support staff and technology they need to deliver the value of the entire bank to all clients. We are building a balance sheet and a business model that enables Texas Capital to support its clients through all cycles, full stop. Which brings me to the actions we have taken to further strengthen our balance sheet. By now it's clear that we are managing to a more, some may say conservative, I say appropriate, capital position. And one supported by more consistent, high quality earnings, which will earn us the right to be as opportunistic as we want to be in the future. The first quarter's preferred raise and credit risk transfer were a much-needed start. Both materially improved capital and enhanced our ability to support our clients. The latter even helped diversify our funding, which is prudent and value-added. Though we were the first regional bank to execute a CRT successfully, you may have noticed that others in the market are recognizing the value of the structure. And we expect this to continue as an important tool in the capital and liquidity management playbook going forward. Early in the second quarter, we made a decision to transition our correspondent lending business and sell our MSR portfolio. We have been executing against those objectives since the announcement. And while the second quarter's financials continue to reflect the business's inherent volatility, We expect this to be immaterial by third quarter and completely removed in the fourth. As expected, revenue declined ahead of expenses. The associated expenses will quickly follow in the third quarter. The decision to exit these efforts is completely consistent with our goal to simplify the business and reinvest in higher quality, less volatile earnings going forward while being mindful of capital. And importantly, we did it in a responsible way, decisively, efficiently, and with the majority of our correspondent lending team and the majority of our clients smoothly transferring to the PHH platform. Later in the second quarter, we further supplemented capital with a $375 million sub-debt issuance. And we have a capital stack that puts our risk-based capital ratios in line with desired levels and right in line with or better than where our peers want to be. While others may be returning capital, we are accelerating out of the downturn, excited to be reinvesting in the many opportunities we see for sustainability and growth. Julie will discuss this in detail, but as I briefly mentioned, it's important to note the success we have had in trimming our excess liquidity position. We deliberately pause upon my arrival to assess market conditions and go-forward strategies. But now we are managing towards a more efficient balance sheet. I hope, by my considerable actions to date to repair and improve all aspects of our balance sheet, that it is apparent we will always take a conservative approach as it relates to all aspects of balance sheet management. As such, we recognize the importance in maintaining appropriate levels of liquidity. But we believe we can do it more efficient, thus more profitable, and we will. The team we are building shares the view that unquestionable financial resiliency is foundational to our success. This core financial tenet, coupled with the best-in-class risk management practices Tim and his teams are implementing and reinforcing, will ensure Texas Capital will be here for its clients when they need us most through all market cycles. We do have a long way to go, but I am proud of our people for their dedication and effort over the past six months. The operating committee continues to meet routinely to both drive consistent and thoughtful execution against our strategic objectives and determine the need for future investment to enhance client-focused value. The balance sheet committee is hitting its stride and convening regularly to ensure capital is managed wisely through diligent client selection and appropriate allocation to only the right opportunities with only the right clients. And we just completed our third round of quarterly business reviews which are already delivering on the goal of appropriately aligning capital and other resources against our businesses and client solutions while focusing on delivering a high-touch client experience. We look forward to sharing additional details with you on these topics as well as unveiling our vision and our goals in a few weeks when we host our strategic update call. With that, I'll turn it over to Julie to comment on the quarter. Julie?