Texas Capital Bancshares, Inc.

Hello everyone and welcome to the Texas Capital Bank Shares Inc. Q1 2023 Earnings Call. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I will now hand over to your host, Jocelyn Kukulka, Head of Investor Relations to begin. Jocelyn, please go ahead.

Good morning and thank you for joining us for TCBI's first quarter 2023 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 expectation 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. 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 a Q&A session. And now I'll turn the call over to Rob for opening remarks.

Thank you for joining us today. The collective actions taken over the last several years enabled the firm to enter 2023 operating from an unprecedented position of strength with sector-leading capital and liquidity. Our goal since our arrival was to build a firm characterized by the strength of its balance sheet and the breadth of its platform. A firm, quote, that is resilient through market and interest rate cycles, end quote. Our closely held belief was that doing so would enable us to confidently engage our clients when they needed us most, bringing forward a suite of solutions centered on their needs, not ours. Client and prospect engagement since the events of March 10th have been significantly and constructively heightened, with the agenda focused on their needs and what is in their best interest. We believe being in market during times of volatility is paramount. Our ability to be front-footed during this period of industry instability is in no small part grounded in the completely rebuilt liquidity risk framework installed during 2022. Our structure includes daily liquidity KRIs monitoring in normal times. Then in times of changing market conditions, relies on a defined and well-rehearsed set of governance and operating procedures to ensure we can react quickly if needed. As events began to unfold on March 9th, we were confident that our multi-year operational de-risking would ensure that we had the right data and a full real-time view into our deposit and liquidity positions. By Monday morning, our bankers were also equipped with the information necessary to proactively reach out to clients and prospects with a set of solutions meant to ensure their business operations continued seamlessly. despite financial industry turmoil. I'm incredibly proud of the response of our people and of our ability to be there for our clients in a time of great uncertainty and elevated apprehension. As I was in our markets visiting clients during the following weeks, they expressed appreciation for our proactive outreach. And in many instances, we were the first and sometimes only call they received that Monday morning. And they thanked us for the education we provided on what was transpiring in the market real time. Initial deposit flows following the weekend of March 10th were highly consistent with the assumptions in our liquidity stress testing framework. As the firm's focus has shifted over the last two years to emphasize businesses where clients find benefit from our broad set of solutions, we have aggressively reduced our reliance on disconnected deposit sources. They're highly credit or rate sensitive and hold highly liquid assets for what little portion remains. This effort has been well highlighted for the past eight quarters. Overall for the quarter, deposits excluding areas previously disclosed as targeted for reduction increased 3%, an indication of the strength of our platform and the depth of our client relationships. non-interest-bearing deposits were down only 1%, the majority of which related to normal business activity such as quarterly tax payments, capital expenditures, acquisitions, and quarterly distributions. We did see some activity whereby clients shifted excess operating account balances to treasuries on our platform. Additionally, non-interest-bearing operating account balances associated with a previously divested interest premium finance entity were transitioned to their new owner. As expected, on the heels of a seasonally weak deposit quarter in Q4 due to large balances of escrowed tax payments, mortgage finance non-interest bearing deposit balances increased meaningfully as we remain focused on deepening relationships with top tier clients in the space. In total, deposit balances were down just 3% for the quarter, a testament to both our proactive business model and the hard work of our employees who are actively calling on their clients to provide best in class treasury advisory services. The deposit flows we experienced in March did not require us to access broker CD markets or to utilize any of our other available sources of contingent liquidity. We exited the quarter in the same strong position in which we entered 2023 with a balance sheet necessary to continue executing against our strategy and supporting our clients. Our proprietary account opening and onboarding solution, called Initio, has been fully implemented and delivered to the market with over 70% of all Treasury onboarding processes now occurring digitally. Texas Capital's commercial clients can self-serve account openings and fund them within 24 hours. A unique advantage we utilized during the middle of March as clients in pipeline, as well as others, we're looking for a new banking partner with capital and liquidity. In total, we doubled the number of accounts opened in March compared to February on the initial solution. And account openings have improved 60% compared to January. The previously detailed technology-enabled solution is making us safer, more efficient, and easier to do business with while improving the client journey. Investment banking and trading income had a second consecutive record quarter with revenue up $6.8 million or 57% quarter over quarter to $18.8 million with contributions from multiple components of our newly built platform. We continue to achieve milestones along our product roadmap with the successful execution of the first securitization and the first mortgage finance whole loan trade from the sales and trading desk. Sales and trading has now completed over $17 billion in notional, riskless, flat trades since the first trade last May, closing every day flat as we said we would. Additionally, in April, the first gestation transactions were completed and we expect gestation activity to be a consistent part of our mortgage finance business going forward. We are very proud of the business we built in a short period and believe the diversified revenue stream will be an important contributor to earnings going forward. With the substantial and transformative investments made over the last two years to deliver a higher quality operating model, supporting a defined set of scalable businesses, we are now generating expected efficiencies. Last quarter, we noted that the pace of non-insurance expense growth would moderate in 2023. And with additional selected actions recently completed, we will begin realizing these efficiencies in Q2, allowing us to confidently pull in our expense guidance Again, which Matt will detail in his comments. Year over year, quarterly PPNR grew 55% in Q1, an acceleration of over the 20% growth, excluding non-recording items experienced in Q4. As a foundational tenet of the financial resiliency we have established and will continue to preserve, along with the value creation for our shareholders, Tangible book value per share grew 3% quarter over quarter and 6% year over year, ending at $58.06, a record level for our firm. As you have heard me say in the past, while fully committed to improving financial performance over time, maximizing near-term results is not the primary goal. We are instead focused on responsibly scaling high-value businesses through improved client adoption and realized operational efficiencies. The thoughtfully and deliberately rebuilt client focused business model is designed to earn above our cost of capital through cycle and drive structurally higher, more sustainable earnings. Importantly, as a reminder, our strategic planning process acknowledged that we would go through an economic slowdown during our plan horizon. As such, We are prepared and positioned to continue investing against the strategy to bank the best clients and support them through cycles. We do not manage the bank in a risk-on or risk-off posture, but instead based on the belief that client selection is always paramount. This remains our focus as we help our clients continue navigating a challenging operating environment in 2023. Thank you for your continued interest and support of our firm. I'll turn it over to Matt to discuss the quarter's results.