Texas Capital Bancshares, Inc.

Good afternoon. Thank you for attending today's TCBI Q1 2022 earnings call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to Jocelyn Kukulka with TCBI. Please go ahead.

Good afternoon, and thank you for joining us for TCBI's first quarter 2022 earnings conference call. I'm Jocelyn Kukulka, Head 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 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 first quarter of which concludes the first six months in the transformation of our firm. We noted on the last call that 2022 marks a clear transition from discovery and planning to executing on what we believe is our distinct opportunity to deliver a differentiated offering to best-in-class clients in our home markets. The strategy outlined on September 1st of last year is resonating with both clients and talent that we want to attract, and our resolve has only strengthened as we purposefully and aggressively reallocate both our capital and expense base to take advantage of the market opportunities we are uniquely positioned to serve. We continue to address the well noted imbalances in our legacy model by steadily progressing against our defined strategic performance metrics that, when realized, will enable us to generate structurally higher, more sustainable earnings through expected interest rate and credit cycles. observed short-term earnings vulnerability to changes in a long end of the curve, further evidences while we are rapidly pivoting our business model by adding the right talent and equipping support model with the products and services necessary to be increasingly relevant to our clients. Supported by the actions taken last year to improve the balance sheet and reposition our expense base, we are moving quickly to accomplish both objectives. We have now increased frontline talent by over 60 percent. One notable area of investment includes C&I, where we have more than doubled the number of client-facing bankers, aligning them to specifically newly formed market segments and industry verticals. Our bankers are increasingly enabled by the right, middle, and back office support model. focused on delivering new product and service capabilities while modernizing and improving the client experience. Material progress was evident again this quarter across one, treasury solutions, two, private wealth, and three, investment banking. And we expect to deliver new capabilities in each over the next two quarters that will significantly improve the product offering. Importantly, Encouraging results are beginning to materialize, as both realized client acquisition and product and balance sheet-related pipelines have increased each of the last few quarters. First, let's discuss Treasury solutions. We have been clear, both in our words and in our material actions, that we are focused on becoming more relevant to more clients by serving their needs to become their primary operating bank. We have also been clear about our belief that doing so requires tailoring expertise, products, and service to defined market segments, which we simply have not had in the past. On our January earnings call, we described two new purpose-built product offerings, a digitally enabled healthcare-specific revenue cycle management product and new business banking treasury bundles. both of which are in-market, producing new revenue generated by new bankers with new clients. We also noted, consistent with our September 1st strategy update, that we would be accelerating progress on both our new digital product roadmap and new digital client experience, using the competitive advantage inherent in our branch-like network to focus resources on owning the technology-enabled client experience across products with a focus on simplified intuitive interactions and client enablement. This has allowed us to build for what our customers want, not what they have had. Unique amongst our competitors, we are not burdened by legacy M&A infrastructure, allowing our greatly improved technology team a simplistic platform on which to build solutions for our clients. This quarter, Our technology and operations teams released the first version of our internally developed digital commercial onboarding platform. As with all new technologies, the rollout will be moderated and the initial version will require relationship managers to assist new clients when onboarding commercial DDA and savings accounts. We are meeting our original deadlines and on track to deliver full self-service capability to our commercial clients by the end of the year. The new platform reduces total onboarding time through an entirely digital experience, lowering risk, limiting internal handoffs, and enabling our clients to move at the pace of their business. As a result of this focus, Client acquisition and pipelines for future growth have accelerated over the last four quarters in this important category, and the rollout of the digital client journey is expected to only accelerate future market penetration. I'd like to now address private wealth. Last quarter, we announced the final member of our operating committee, John Cummings, who assumed, among other responsibilities, our consumer lines of business, consumer banking, and private wealth. John and his team have spent the last 90 days conducting a strategic review of the private wealth business and its go-to-market strategy, ultimately confirming the potential to accelerate growth in an already performing but subscale business. We continue to experience strong organic flows with more than half coming from new clients. Net organic flows over the last 12 months were $586 million, or 81% of total AUM growth. This is a trend we would expect to accelerate as recently added frontline talent begins maturing on the platform. We will continue to add client-facing advisors to support opportunities distinctive to our markets and business model. And finally, investment banking. After receiving FINRA approval in the fourth quarter of last year, our investment banking segment build is on schedule. Despite a recent broad market contraction, Due to geopolitical and economic uncertainty, our capital markets and advisory business continues to be well received and will be a critical part of the broader solutions to benefit our clients. It is important to remember that we are not building capabilities to chase market trends or generate short-term earnings. We are building capabilities that make our company more relevant and valuable to our clients throughout their corporate life cycle. We are happy to report that over the course of Q1, we closed our first underwritten capital markets transaction, and our M&A team won multiple new mandates to advise our clients on sell-side transactions. As expected, these advisory assignments were organically developed through referring bankers in our CNI and private wealth segments, evidencing strong engagement with our clients and meaningful collaboration with relationship managers across the firm. The last 90 days were marked by continued progress advancing both the operational infrastructure and functional expertise necessary to deliver our first set of sales and trading-based capabilities into the market this quarter. When discussing the strategic rationale for an investment bank as a component of our full-service offering, we often point to two things. The quality of our current and prospective commercial banking relationships and the eminent of our mortgage finance business, the latter of which is an early focus of these product capabilities. As a result, we expect to launch two new offerings this quarter, specifically helping our clients manage pipeline and interest rate risk in gestation finance and TBA or, to be announced, MBS markets. Consistent with our strategy, these services allow us to deepen relationships with existing clients and offer a more complete solution to our prospects as we provide a one-stop-shop solution for their mortgage finance needs. As a result, even though the mortgage market overall has contracted due to the recent rate environment, we do expect our expanded products and services will allow us to capture market share and enhance our profitability this year. This quarter, we also expect to launch trading in corporate debt securities and corporate loans, which will complement our existing syndicated finance business and offer our corporate and middle market clients to access institutional capital markets from our Dallas-based trading floor. We expect to continue making investments over the balance of this quarter and next, enabling trading and mortgage hold loans and corporate equity securities. We now know the progress we've achieved today, coupled with the sheer opportunity, created an ability to attract market-leading talent to Texas Capital. We are happy that the opportunity to build a sales and training platform in Texas has provided a sense of partnership and ownership that resonates with known experienced senior market leaders, which moved to Dallas from leading desks in New York. We continue to expand our existing capital markets, products, rates, and loan syndications platform to compliment our new client segmented and industry focused coverage model. As a result of market conditions in Q1, we have primarily seen the benefits of these changes in mandated and qualified late-stage pipelines. We expect to make continued investments in talent to further build product and industry expertise dedicated to our covered markets and verticals. Our capital markets and loan syndication businesses will also benefit from the distribution capabilities coming online this quarter and lead less capabilities we expect to deliver later this year. The platform we are building will be a critical complement to our core banking franchise, and over time, serve to further diversify current sensitivities in our revenue base. Although investment banking fees were down late quarter, we remain confident we will achieve our 10% target contribution levels, even in a more normalized rate environment. Matt will provide more detail on the trends and associated drivers of non-interest income as a percentage of total revenue in the first quarter. But I am confident we are building the capabilities required to achieve our stated 15 to 20% target. After completing our comprehensive internal reorganization last year, we continue to build our CNI business across client segmentation and industry specialization. While not exclusive to C&I, core disciplines such as our balance sheet committee are proving effective at socializing the required focus on one, client selection, two, capital allocation, and three, partnership across the firm. These routines connect our strategy directly to our actions and ensure banker-led client teams can proceed confidently with their clients and prospects. Business banking leadership is now in place across our five primary Texas markets, and we continue to add both client facing and credit talent to support robust early client demand. Our tailored treasury solutions, as well as a differentiated cost efficient credit model are performing as expected. And we see both realized revenue and pipeline growing across product types each week. Formerly created in September of last year, this entirely new segment will continue to produce new revenue with new clients using newly developed products and a new service model. I have been particularly pleased with a marked improvement in the middle market banking segment across geographies. We said in our last earnings call that after a couple of years of inward focus, we were now intensely externally focused. a fact that I continue to observe up close this quarter while spending nearly a third of my time in our markets with our bankers directly engaged with our clients and prospects. We are fortunate to have a foundation of well-respected bankers that were here before I arrived. They are currently banking some of the best clients in our markets. Their collective commitment to the firm's go-forward client-centric vision was a core part of the foundation for us to rapidly expand to other segments. within their geographic areas of focus and is a noted reason for our early success. The corporate banking leadership team is complete with each industry vertical lead now in place. Here is another newly formed segment with new leaders, new bankers, new clients with new products realizing new revenue. In fact, nearly 50 percent of the group's revenue producers joined Texas Capital in the last seven months. We have proven to attract great interest and talented professionals who want to build, not preside, create, and be a part of a highly constructive culture. Given the firm's current unacceptable market share, we believe our opportunity is outsized. And as an early indicator of our ability to grow market share and expand our client base, CNI loans grew again this quarter and are up 23% year over year. Much of this growth is accompanied by high-quality relationship-based commercial deposits, which are up 14% over the same period and supported by a solid pipeline. Each of the strategic priorities discussed, treasury, wealth, investment banking, and our expanded core commercial C&I coverage models are critical to our success to building the only full-service financial services firm headquartered in the state. We remain committed to reinvesting in organic growth in order to achieve our vision, which will create a more valuable firm for our shareholders. Our ability to confidently reinvest is contingent on a balance sheet appropriately positioned to deliver returns through cycle. Given the rapidly evolving rate environment, we continue to evaluate options to accelerate the balance sheet transformation, insulating the bank strategy from changing market conditions. This discipline and risk strategy has been missing in the past. Given the size of the opportunity before us, a preferred use of capital remains supporting the capability build and anticipated organic growth outlined in the strategic plan. However, the operating environment has changed significantly since our last earnings call and the impact of declining mortgage finance volumes coupled with the potential for significant rate increases could create opportunities for excess capital deployment. Put simply, capital levels are poised to benefit from reduced balance sheet usage and increased earnings potential. Our current CET1 ratio of 11.46% positions us strongly against peers, and coupled with the current valuation, the Board of Directors has authorized a $150 million share repurchase program representing approximately 5% of the outstanding shares. Consistent with our experience and disciplined capital management and sound corporate governance standards, a share repurchase program creates optionality and will allow for opportunistic repurchases when we believe that the valuation is dislocated from the long-term value. generated by high-quality organic growth. We will continue to provide updates on our progress, accomplishments, and near-term milestones each quarter going forward. Thank you for your continued interest and support in our firm. We are excited about our accomplishments today and the year ahead. Now, I'll turn it over to Matt to discuss the quarter's results in detail. Matt.