Texas Capital Bancshares(TCBI) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by $32.6 million or 14% linked quarter, and $49.1 million or 23% year-over-year [27] - Net interest income rose by $33.6 million, primarily due to benefits from an asset-sensitive balance sheet and continued C&I loan growth [27] - Net income to common was $37.1 million for the quarter, up 24%, and $49.6 million excluding transaction expenses, up 66% compared to the second quarter [31] - PPNR excluding transaction expenses increased by 25% linked quarter to $84.1 million, achieving year-over-year quarterly growth one quarter earlier than previously guided [30] Business Line Data and Key Metrics Changes - C&I loans increased by $569 million or 6% linked quarter, and are up 38% year-over-year [34] - Treasury product fees increased by 27% year-over-year, driven by improvements in deposit service charges and growth in new products [10] - Real estate balances declined by $100 million or 2% in the quarter due to elevated payoffs and moderated new origination pace [37] Market Data and Key Metrics Changes - Commercial deposit accounts increased by 18% year-over-year, reflecting a focused strategy to generate core operating account growth [44] - Total ending period deposits declined by 4% quarter-over-quarter, with noninterest-bearing deposits down 8% linked quarter [43] Company Strategy and Development Direction - The company is transitioning from a concentrated build phase to execution, focusing on a client-centric offering [8] - A strategic divestiture of the insurance premium finance portfolio is expected to close in the fourth quarter, increasing tangible book value per share by approximately 6.5% [17] - The company aims to enhance its private wealth business and improve its digital client experience through a new onboarding platform [12][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges inflationary pressures and a challenging rate environment as potential headwinds for businesses [22] - The company is well-prepared for a potential economic downturn, emphasizing client selection and maintaining a conservative credit risk posture [24][120] - Management remains optimistic about market share gains despite economic uncertainties, focusing on value-driven relationships [123] Other Important Information - The company has seen strong organic inflows, with year-to-date net organic inflows over $225 million [14] - The loan portfolio composition is expected to be more representative of core C&I, comprising approximately 50% of the total portfolio post-divestiture [19] - The company is committed to managing its capital base in a disciplined manner, with CET1 and total risk-based capital finishing the quarter at 11.08% and 15.25% respectively [57] Q&A Session Summary Question: Insights on deposit costs and flexibility - Management indicated that beta is a function of the need to raise or retain deposits to support asset growth, with a focus on driving core operating deposits [68][70] Question: When might deposits stabilize? - Management believes the deliberate actions to remix the deposit base are largely complete, and a stabilization is expected as they continue to drive core operating deposits [72][73] Question: Clarification on net interest income sensitivity - Management confirmed that the net interest income sensitivity scenario includes the impact of the pending divestiture and assumes proceeds are parked in cash [81] Question: Future expense growth expectations - Management anticipates that the period of incurring significant costs without corresponding revenue is largely behind them, with continued build-out expected but supported by revenue [92] Question: Thoughts on stock buybacks - Management remains cautious about buybacks in the current economic environment, focusing on organic growth and strategic investments [96][98] Question: Timing and impact of the insurance premium sale - Management expects the sale to close in the fourth quarter, with an associated $36 million in operating expenses expected to fall out following the sale [106][107]