Texas Capital Bancshares(US:TCBI)2023-01-19 20:25Financial Data and Key Metrics Changes - Criticized loans increased by $29.2 million or 6% in the quarter, totaling $513.2 million or 2.66% of LHI, although down 12% since year-end 2021 [2][52] - CET 1 capital ratio finished the quarter at 13%, with total risk-based capital at 17.7%, placing the company in the top 10% of peers [3][6] - Total adjusted revenue increased by $51.2 million or 23% compared to the fourth quarter of 2021, with net interest income rising by $8.5 million [50][62] Business Line Data and Key Metrics Changes - C&I loans increased by $2.3 billion or 29% year-over-year, reflecting a strong focus on core Texas-based clients [48][54] - Treasury product fees rose by 27% year-over-year, indicating increased adoption of new cash management capabilities [49] - Wealth management income grew by 14% due to an 11% increase in AUM, despite broader market declines [49] Market Data and Key Metrics Changes - Mortgage originations are expected to decline by more than 25% compared to 2022 levels, with the company anticipating modest outperformance due to market positioning [5][56] - Average full-year commercial operating deposits increased by 15%, reflecting the company's strategy to grow operating accounts [58] - Noninterest-bearing deposits decreased by 16% linked quarter, primarily due to seasonal fluctuations and repositioning of select clients [57] Company Strategy and Development Direction - The company is focused on transforming its business model to reduce reliance on high-cost deposits and improve balance sheet efficiency [15][29] - A new $150 million share repurchase program has been authorized, with a preference for reinvesting capital into growth opportunities [4][32] - The strategic plan includes a commitment to maintaining conservative capital levels, with a CET 1 capital ratio of 12% throughout 2023 [6][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining operating leverage despite potential pressures from interest rate changes, emphasizing a shift towards generating earnings from non-margin sources [23][46] - The company is entering 2023 with a strong capital position and expects total revenue to increase in the mid-teens percent range year-over-year [4][50] - Management acknowledged the challenges of the current economic environment but remains optimistic about the company's strategic positioning and operational improvements [46][62] Other Important Information - The divestiture of the national insurance premium finance business generated approximately $165 million of capital and was accretive to earnings from day one [33][50] - The company has launched over 20 new products and services in the last two years, with a roadmap to deliver over 25 new offerings by 2025 [45][46] Q&A Session Summary Question: Inquiry about asset quality and legacy loan charge-offs - Management indicated that they are closely monitoring legacy credits and expect to realize additional charge-offs in 2023 or 2024 [43][52] Question: Clarification on mortgage financed DDAs - Management clarified that mortgage finance DDAs are approximately 120% of mortgage financed loans, with seasonal fluctuations expected [18][20] Question: Expectations for non-mortgage finance DDA balances - Management expressed optimism about adding commercial operating accounts, with a 15% year-over-year increase in average deposits [21][22] Question: Commentary on maintaining positive operating leverage amid potential rate pauses - Management reiterated the importance of year-over-year quarterly PPNR and emphasized the shift towards less rate-dependent earnings sources [22][23]