Texas Capital Bancshares, Inc.

Hello and welcome to today's conference call titled Texas Capital Bank Shares Q2 2023 Earnings Call. My name is Ellen and I'll be coordinating the call for today. During the presentation, if you would like to ask a question, please press star followed by one on your telephone keypad to join the question queue. I'll now hand over to Jocelyn Capulca to begin. Jocelyn, please go ahead whenever you're ready.

Good morning, and thank you for joining us for TCBI's second 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 firm's sustained progress against our well-documented strategy was evident again this quarter as the people, products, services, and infrastructure implemented over the past two and a half years delivered another quarter marked by notable improvements in financial performance. I am proud of the foundation we have built and acknowledge the early successes of our strategy are due entirely to the material efforts of the employees across the firm and the trust placed in us by our clients who believe in what and the how we are building. We are resolute in our mission to realize the unique opportunity to create something differentiated for our clients and steadfast in our commitment to building something of lasting value. The financial resiliency of this firm continues to be a strategic advantage. A 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. Maintaining sector-leading capital and liquidity continues to enable our bankers to focus on growing the firm by both serving the broader needs of existing clients and confidently engaging identified prospects with an increasingly mature and compelling offering. The pace of client acquisition over the first two years of the transformation was marked largely by aggressive balance sheet reallocation to focus our capital on defined industry and market segments, where we believed clients would benefit from the material investments made in our treasury solutions, private wealth, and investment banking offerings. Our view was that as the capabilities and culture evolved, we would become more relevant to our clients and in turn begin to generate structurally higher returns on that allocated capital. Both this quarter's financial results and client behaviors suggest sustained progress towards this objective. We continue to add operating accounts at a pace consistent with our long-term plan. Gross payment revenues increased for the second straight quarter, and we're up 12% year-over-year, as our multi-year focus in material investments and proprietary applications, like our commercial onboarding solution, Initio, are enabling us to win the operating business indicative of becoming our client's primary bank, a designation that not only improves long-term earnings capacity, but also advances the already strong quality and associated resiliency of a transforming deposit base. Over 90% of our commercial client onboardings now occur digitally. And during the second quarter, new business client onboarding increased over 30% compared to the prior quarter. Given the current rate environment, clients with deposits greater than necessary for daily operating needs are utilizing other cash management options on our platform, including interest-bearing deposits or, in some instances, short-term liquid investments like treasuries. We are and will remain materially more focused on ensuring client needs can be met with our offerings than on our own near-term financial outcomes. The full rebuild of the private wealth business that I have detailed in prior calls is nearing completion, resulting in a front, middle, and back office structure built for both superior client experience and significant scale. The pace of year-over-year client acquisition was 13% this quarter and remains an indication of both future earnings potential and further connectivity across our services. Clients are increasingly benefiting from our still emerging investment banking capabilities. Investment banking and trading income had a third consecutive record quarter with revenue up $8.7 million or 47% quarter over quarter to $27.5 million with contributions from all components of our newly built platform. We continue to achieve milestones on our product and services roadmaps and will focus future investments in an offering capable of delivering at least the 10% of total revenue targeted by 2025. Since its launch in December 2021, our investment banking business has built an impressive array of capabilities to help clients solve a broad set of needs. Our capital solutions offering enables our clients to manage their interest rate risk via strategies of varying complexities and sophistication, such as swaps, collars, corridors, and FX hedging. Our capital markets group has been actively assessing and executing alternative financing strategies for clients, including securitizations, high yield, follow on, initial public offerings, and our first convertible bond trade occurring this quarter. Additional trades in the last six quarters have included TBA trades, specified MBS pool trades, corporate bond trades, corporate loan trades, and equity trades. Sales and trading has now completed over $35 billion in notional flat trades since the first trade last May. Our M&A advisory team has assisted clients in realizing the long-term strategic objectives through its first buy side advisory mandate and the closing of its first sell side engagement. Finally, our newly created ETF and funds management team successfully launched the Texas Capital Texas Equity ETF, now trading under the ticker TXS on the NYSE. At Texas Capital, we recognize that Texas' diverse, business-friendly climate and vibrant economy are critical to our growth and success. I am excited to announce that last week we launched the aforementioned Texas Capital Texas Equity Index Exchange Traded Fund as the first investment offering created by Texas Capital's newly founded ETF and funds management business. With this launch, we entered one of the fastest growing spaces in the asset management industry, further progressing against our objective to be the flagship financial services firm in the state of Texas and marking a significant expansion of our asset management capabilities. 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 is resulting in the intended outcomes. The entire platform contributed to our now fourth consecutive quarter of positive operating leverage. As year over year quarterly PPNR grew 43% in Q2. Non-interest income as a percentage of total revenue increased to 16.6% this quarter. It stands at 15.1% year to date. Already in line with the bottom end of our full year 2025 goal to generate 15 to 20% of total revenue from fee income sources. Importantly, these diverse and complimentary revenue streams were all built in the last two years and will take time to deliver both at the magnitude and with the consistency we expect. That said, we are pleased with our progress to date and have proven that each of our areas of focus will be key contributors to earnings going forward. Before concluding, A foundational tenant of the financial resiliency we have established and consistently communicated and will preserve is continued focused on tangible book value, which finished the quarter up 7% year over year, ending at $57 and 93 cents per share, a near all time high for our firm. As you have heard me say in the past, While fully committed to improving financial performance over time, maximizing near-term returns is not the primary goal. We are instead focused on responsibly scaling high-value businesses through increased client adoption, improved client journeys, and realized operational efficiencies. Doing so will enable both higher quality earnings and a lower cost of capital, which results in attractive, through cycle shareholder returns. Thank you for your continued interest in and support of our firm. I'll turn it over to Matt to discuss the quarter's results.