Texas Capital Bancshares, Inc.

Hello all and welcome to TCBI's third quarter 2023 earnings call. My name is Lydia and I'll be your operator today. If you'd like to ask a question, you can do so by pressing star followed by the number one on your telephone keypad. It's my pleasure to now hand you over to your host, Jocelyn Kukulka, Head of Investor Relations. Please go ahead when you're ready.

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

This quarter marks two years since we announced that we would transform Texas Capital into the first full-service financial services firm founded and headquartered in our state. Our work over the last two years has focused on ensuring Texas has a financial partner capable of providing clients the widest possible range of differentiated products and services on parity with those of the largest Wall Street firms with high touch, locally based execution from an experienced team of bankers invested in the success of this state's economy and our clients we are both committed and equipped to serve the best clients in all of our markets throughout the entire country while ensuring our firm is a relevant trusted partner throughout our clients corporate and individual life cycles and we know that the success of our clients will define our firm. With the strategy risk and build risk behind us and all critical roles now filled with top requisite talent, we have a solid and financially resilient foundation from which to execute. Our industry-leading liquidity and capital position afford us a competitive advantage in this unique operating environment. CET1 of 12.7% ranked fourth amongst the largest banks in the country. TCE of 9.4% ranked first among the largest banks in the country. And liquid assets of 28% allows our bankers to be front-footed in our clients' offices as we are well-prepared to support the diverse and broad needs of our clients in what continues to be a challenging operating environment for all industries. We saw the emerging power of the platform on display again this quarter. In the current environment, which is putting material pressure on the industry's ability to grow net interest income, the firm was again able to deliver financial results through resolution of critical client needs with new products and services purpose-built over the last two years. We are no longer a loan-only bank, unable to holistically serve our clients' needs, which, by definition, makes our capital less of a commodity. Our continued successes supporting clients across our platform has solidified our positioning as a full-service financial services firm. This quarter's financial results, but more importantly, market momentum earned through strong execution, suggest continued progress on the core components of long-term value creation. More than three-quarters of clients to whom we have made credit commitments since we launched our strategy have expanded their engagement with our Treasury business or other services. We continue to add clients and operating accounts at a pace consistent with our long-term plan. September was the highest month on record in the last two years for a new Treasury business, including new operating accounts, indicative of becoming our clients' trusted financial partner. The treasury business one today will generate balances, payments, and revenues in the next six to 18 months as the account activity ramps to full potential. Growth segment revenues were up 14% year over year. The highest growth since the first quarter of 2022 and a result of realized treasury business awarded in prior quarters. Additionally, as I've detailed in the past, our client's response to our proprietary onboarding tool, Initio, that provides significantly improved client journeys through faster and automated account opening and onboarding has exceeded expectations. For some specialized client types, we have been able to open several hundred accounts per client per day, including during March, when clients needed expedited onboarding. Our broad platform continues to avail itself to clients in need of alternative cash management solutions. In the current rate environment, clients are actively seeking options for those deposits in excess of their daily operating needs. And we remain active in advising them on how to best position their liquidity given their own unique circumstances. Our platform can now provide alternatives such as interest-bearing deposits, automated insured suite programs, money market options, or in some instances, liquid investments like treasuries. The firm's constant focus on a financially resilient balance sheet is enabling a consistent market facing posture, ensuring we can confidently approach clients and prospects based on their needs, not ours. In my many interactions with current and especially new clients, this is frequently cited as a reason why clients are choosing to do more with us or bank with us for the first time. As we continue to build this franchise, 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. Clients are also increasingly benefiting from our still emerging investment banking capabilities. Investment banking and trading income had a fourth consecutive record quarter with revenue up 6% quarter over quarter to $29.2 million which is comprised of revenue from all areas of the investment bank. Each of the past four quarters had significant contributions from a different part of the platform. This quarter, our capital markets group solved a material financing need outside the bank markets for a marquee client, a need a renowned money center bank attempted to solve, took to market, but failed to complete. We successfully arranged a comprehensive financing solution including serving as sole arranger on the $1.2 billion term loan, which was the largest transaction of its type this year and one of the largest sole managed term loans ever, plus acted as a financial advisor on the $155 million equity follow-on for the same client. This transaction was executed with a global reach and a wide variety of investors, including leading alternative asset managers energy specialists, insurance companies, and family offices, the majority of whom open new institutional accounts with Texas Capital Securities if they didn't already have one. These are the types of transactions that create real market momentum, and the amount of opportunity that is created from that institutional growth is and will be significant. It is important to once again note that this was not syndicated in the traditional bank market. As such, we do not hold any part of this financing transaction on our balance sheet. Since we launched the strategy, we acknowledged that revenues generated by the newly formed investment bank would not be linear and that it would take several years to mature the business with a solid base of consistent revenues. Despite broad-based early success, we expect revenue trends to be inconsistent in the near term. The same is all firms. as we work to translate early momentum into a sustainable contributor to future earnings. The substantial 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 fifth consecutive quarter of positive operating leverage, as year-over-year quarterly adjusted PPNR grew 18% in the third quarter. Non-interest income, as a percentage of total revenue, increased to 16.8% this quarter and stands at 15.7% year-to-date, in line with the bottom end of our full-year 2025 goal to generate 15 to 20% of total revenue from fee income sources. As you know, a foundational tenet of the financial resiliency we have established and will preserve is continued focus on tangible book value, which finished the quarter up 12% year over year, ending at $57.82 per share, which continues to be near an all-time high for our firm. As we enter the fourth quarter from a position of strength and fully committed to improving financial performance over time, we do recognize that we have made strategic capital decisions that suppresses near-term profitability. But as you have heard me say in the past, maximizing near-term returns is not the immediate goal of the transformation. We will drive attractive through-cycle shareholder returns with both higher quality earnings and a lower cost of capital as we scale high-value businesses through increased client adoption, improved client journeys, and realized operational efficiencies all objectives that we made significant headway on this year. 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.