Texas Capital Bancshares, Inc.

For all and a warm welcome to TCBI's fourth quarter 2021 earnings conference call. My name is Lydia and I'm your operator today. If you'd like to ask a question at the end of the presentation, you may do so by pressing star followed by one on your telephone keypad. It's my pleasure to now hand you over to our host, Jamie Britton. Please go ahead when you're ready, Jamie.

Good afternoon and thank you for joining us for TCBI's fourth 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 day 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 Matt Scurlock, 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?

Good afternoon. This is Rob Holmes. Thank you for joining us today to discuss the final quarter of what has been a pivotal year for our firm. We are convinced that we have a distinct opportunity to serve best-in-class clients in a strong Texas market with a differentiated offering. We are building something of value which takes time, talent, investment, and fortitude. We are fully committed to achieving our vision and making tangible progress, executing on the strategic plan I presented in September. Before we begin, I would like to introduce our new Chief Financial Officer, Matt Scurlock, and to thank Julie Anderson one last time for more than two decades of service and steadfast commitment to Texas Capital Bank. I am very excited to have Matt step into his new role. I fully understand the importance of the appointment of the new Chief Financial Officer, as he will be a critical component in the success of our transformation. In my long history of working with hundreds of CFOs as an advisor, I have found most to be highly competent in at least one of three categories, operations, accounting, or strategy. During the course of the past year, I have indeed challenged Matt in each, and he has proven highly competent in all three. There are many great candidates to choose from for this attractive role, at this time in our company and in the market in which we serve. I am convinced that Matt is the best person to be our CFO. I am highly confident that you will find Matt to be credible and that you'll be pleased with his competency and proactive outreach to each of our constituents moving forward. I would also like to thank the entire team at Texas Capital. Many are new to the firm and are already delivering great value. But there are also hundreds of talented people who were here before I arrived that have embraced our new expectations and strategy and have contributed greatly this past year. Together, we are building Texas Capital Bank the right way. Regardless of tenure, each of you has a lot to be proud of. On behalf of the entire operating committee, I would like to express our great appreciation for your efforts and dedication during a year with a profound amount of change and compliment you on your accomplishments. As we formally move from discovery and planning to executing and delivering, it is important to note that we benefit from good momentum and a strong foundation created over the past 12 months. We ended the year with a total capital ratio above 15%, up from 12% a year ago, and ample liquidity to support responsible growth. Due to the much-improved partnership between the businesses and risk, our credit quality has improved. As we proactively work through our legacy credit issues, it is important to note that we have realized much more than simply minimizing potential loan losses. We will also benefit from the reinvesting of that dead capital, which was not generating a return, into new relationships that are profitable and with target market clients. We are still recovering from legacy historical strategy of buying levered assets out of market, but the portfolio of legacy trapped, poorly returning capital will mature and be reinvested consistent with our go forward strategy. It is very important to us to provide visibility into our progress versus our goals. To do that at the level we expect of ourselves, we need to enhance our internal reporting And I'm happy to say that Matt and his team have already made significant changes, which will allow us to improve our ability to report progress. To that end, we are taking a first step of providing more clarity to you this quarter and are committed to refining our detail over time. I hope you saw the press release announcing John Cummings as our Chief Administrative Officer. John brings a wealth of broad, deep experience across all functions and many of our lines of business. John began his career at Merrill Lynch as an entry-level branch trainee and advanced to leadership positions across finance, technology, banking, operations, digital platforms, and sales segments for 27 years, culminating with a position on the executive committee reporting to the CEO. He left to re-engineer Citigroup's U.S. personal wealth management, international personal bank, and U.S. Citigold high net worth client banking businesses. Most recently, John served as Citigroup's Managing Director of Wealth Advisory. With John's appointment, we now have our complete senior team in place, which was one of my stated primary goals to achieve by the end of my first year, which concludes January 24th. As we communicated in our Go Forward strategy on September 1st, 2021, we consider 2022 the true launch point. However, we made material progress against our priorities and strategic performance drivers as we close the year. We entered this year encouraged by the progress we are already making, which will improve client relevance and result in structurally higher balanced earnings. The expansion of our products and services are on track with our strategic plan. Our investment banking segment build is on schedule. and will only accelerate with our recent FINRA approval and the launch of our new investment banking division, Texas Capital Securities. The majority leadership team of our investment bank is in place working with our credit and operating risk partners to thoroughly review each of our new products and services, which will culminate in our full suite of offerings being available to our clients in the third quarter of 2022. As you know, there are several capabilities which will be housed in our investment banking division of which the baseline core offering is already in place. We are expanding our existing capital markets products and loan syndications platform. This investment is directly related to our new client segmented and industry focused coverage model. Greater capital markets and syndications knowledge by industry will be required to work with our different industry verticals. Consistent with both our strategic pivot away from the loan product as our primary client offering, you will see we are now reporting investment banking and trading income as a standalone category within non-interest income, which is consistent with our peers. Our investment banking strategy is being very well received as evidenced by multiple mandates and capital markets, as well as sell-side advisory assignments. It is important to note that these advisory assignments were organically developed through the structure of our platform. One was referred by a private banker and private wealth and others by bankers and middle market banking. Investment banking fees contribution to total revenue is trending favorably. Given us confidence, we will achieve our 10% target contribution levels even in a more normalized rate environment. Our investment and treasury solutions expertise products, services, and technology resulted in early positive trends. As you know, fees can and will fluctuate through cycle as we manage earnings credit rates. But we are pitching Treasury solutions from a position of strength and proficiency, resulting in new Treasury relationships at an accelerating pace. P times V revenue run rate accelerated at year end in line with expectations. A large percentage of Treasury P times V comes with a high percentage of operating deposits, which is critical. During the course of the year, operating deposits had double-digit percentage growth. As we become more relevant to more clients becoming their primary operating bank, our reliance on higher cost index deposits with 100% beta will decrease, improving our funding cost and incrementally making us less asset sensitive over time. As planned, in the fourth quarter, we landed numerous product offerings on our Treasury platform focused on both client segments and industry specialization. In our new healthcare vertical, we have many new clients benefiting from our revenue cycle management offering. We created Treasury bundles for our business banking clients and, importantly, have already improved upon them, adding more functionality for the benefit of our business banking clients. We are excited about the pipeline of the products and services plan for our treasury business during the course of this year. One of the things we're most excited about is our digital product roadmap, which we will talk about more in the coming quarters. We are confident heading into 2022 that we are meaningfully closer to our treasury solutions fee target of 5% of total revenue by 2025. Private wealth continues to drive steady growth in both assets under management, which grew almost 50%, and in fees, which grew more than 40%. The PWA team added almost $900 million in assets under management, over 25% of which was from new clients, many of whom were referred from our expanded banking teams. In our most aggressive year of talent acquisition and private wealth, we increased our client-facing advisors by a large percentage. As noted on September 1st, PWA offers a relatively mature product suite that will benefit from scale. John Cummings will quickly commence a strategic review of the business and its go-to-market strategy. We are confident a very good business on an already built very good platform can be even better. Matt will provide more detail on the trends and associated drivers of non-interest income as a percentage of total revenue in the fourth quarter. I am confident we are on track to achieve our stated 15 to 20% target. We completed our planned internal reorganization, which resulted in new client segmentation and industry specialization. Four, out of our five primary business banking markets has leadership in place and bankers engaging with clients. We developed tailored treasury solutions, as well as a differentiated cost-efficient credit model to address this market segment. It is important to realize this is a new segment with a new leader, with new bankers, with new clients, with new products producing new revenue today. The middle market banking segment has been our primary focus since our founding. As expected, it led in client acquisition and adding new bankers onto our platform. The talent pipeline remains strong, business activity is good, And after a couple of years of inward focus, we are now intensely externally focused. Highly talented legacy bankers coupled with the new bankers who have very quickly contributed to new client acquisition resulted in well over 100 new relationships this year and an increased pace in the back half. The creation of corporate banking is complete with the leadership of each industry vertical as well as diversified in place. Each of these leaders came from larger, more complex institutions with significant and relevant experience in covering clients with a full suite of sophisticated products and services. Importantly, here is another newly formed segment with new bankers, a new leader, and new clients with new products realizing new revenue. The corporate banking and middle market banking segments are highly engaged with their partners in the investment bank to create a pipeline of opportunities to provide high-value solutions for our clients. Moving forward, I'm excited to be personally engaged in this effort, spending as much time in the market that opportunity allows. We all know it is a very competitive environment for talent, and we are unwilling to compromise. However, to date, we have enjoyed marked success in attracting client-facing professionals with no regrettable losses in talent. The number of frontline client-facing professionals we have serving our markets increased 40% since the end of 2020, and we saw a 70% increase in the business banking, middle market, and corporate CNI segments. We have proven to attract great interest in talented professionals who want to build, not preside, create, and be a part of a highly constructive culture. As shown in our accompanying slides, C&I loans grew 17% year-over-year, excluding PPP, the majority of which has come in the past two quarters as a byproduct of the progress I just described. And importantly, the growth is accompanied by high-quality relationship deposits, which are up 35% over the same period. Each of these strategic priorities, Treasury, wealth, investment banking, and our expanded CNI coverage models are critical to our success, and we will continue to provide updates on our progress, accomplishments, and near-term milestones each quarter going forward. As I have said to many of you, self-funding of our material investments is a very high priority. We will make progress on our investments and reallocation of expenses a priority in our regular reporting updates. Matt will share more detail on our progress to date. We will use this more traditional guidance to supplement this detail where appropriate. But for the elements of the bank, most central to our transformation, we believe communicating the improvements in each of these areas and describing how they translate into our financials provides a clearer picture and more of our progress as we execute our strategic objectives. Noting financial results will lag before they begin to ramp. Thank you for your continued interest in our firm. We are very excited about our accomplishments today and a year ahead. Now, I'll turn it over to our new CFO, Matt Scurlock, to discuss this quarter's results. Matt.