Q3 2023 Texas Capital Bancshares Inc Earnings Call
Hello, and thank you for standing by T. C. P. I third quarter 2023 Islands will begin in approximately two minutes time.
Speaker 1: Hello all and thank you for standing by. TCBI's third quarter 2023 Ireland Court will begin in approximately two minutes time.
[music].
Speaker 2: The.
Speaker 1: Hello all and welcome to TCBI's third quarter 2023 earnings call. My name is Lydia and I'll be your operator today.
Hello, and welcome to T. C. P O I's third quarter 2023 earnings call. My name is Nick Yeah, there'll be your operator today.
Speaker 1: If you'd like to ask a question, you can do so by pressing star followed by the number one on your telephone keypad.
If you'd like to ask a question you can do side My question Scott followed by the number one on your telephone keypad.
Speaker 1: It's my pleasure to now hand you over to your host, Joss Linkokolka, Head of Investor Relations. Please go ahead when you're ready.
It's my pleasure to know how enjoys a July just linker Coca head of Investor Relations. Please go ahead, Ben your already.
Speaker 3: Good morning and thank you for joining us for TCBI's third quarter 2023 earnings conference call. I'm Jocelyn Kokolka, 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.
Good morning, and thank you for joining us for T. C. B is third quarter 2023 earnings conference call I'm dropping her Coca 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.
Speaker 3: Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements.
Forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements.
Speaker 3: Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise.
Our forward looking statements are as of the date of this call and we do not assume any obligation to update or revise them.
Speaker 3: 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.
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 the press release in the Investor Relations section of our website at Texas Capital Bank Dot Com.
Speaker 3: 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 at texascapitalbank.com. Our speakers for the call today are Rob Holmes, President and CEO , and Matt Skriloch, 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.
Unknown Executive: Hello all and thank you for standing by. TCBI Third Quarter 2023, Erling Court will begin in approximately two minutes time[inaudible] 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 the experienced team of bankers invested in the success of this state's economy and our clients.
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.
Speaker 4: 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.
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.
Speaker 4: 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.
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 are the largest wall street firms with high touch locally based execution from an.
<unk> team of bankers invested in the success of this state's economy and our clients.
Speaker 4: 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 client's corporate and individual lifestyles.
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.
Speaker 4: And we know that the success of our clients will define our firm.
And we know that the success of our clients will define our firm.
Speaker 4: with a strategy risk and build risk behind us. And all critical roles now filled with top requisite talent.
With the strategy risk is build risk behind us and all critical roles now filled with top requisite talent.
Speaker 4: We have a solid, and financially resilient foundation from which to X.
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.
Speaker 4: our industry leading liquidity and capital position afford us a competitive advantage in this unique operating environment.
Speaker 4: CET 1 of 12.7% ranked fourth amongst the largest banks in the country.
CET one of 12, 7% ranked fourth amongst the largest banks in the country.
Speaker 4: TCE of 9.4% ranked first among the largest banks of the country.
TCE of nine 4% ranked first among the largest banks in the country.
Speaker 4: 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. It will continue to be a challenging operating environment for all industry.
And liquid assets of 28% allows our bankers to be front footed and our clients offices as we are well prepared to support the diverse and broad needs of our clients and work continues to be a challenging operating environment for all industries.
We saw the emerging power of the platform on display again this quarter.
Speaker 4: 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.
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.
Speaker 4: We are no longer alone only bank, unable to holistically serve our client's needs, which, by definition, makes our capital less of a commodity.
We are no longer alone only bank unable to holistically serve our clients' needs.
Which by definition makes our capital less of a commodity.
Speaker 4: Our continued successes supporting clients across the platform has solidified our positioning as a full service, financial services.
Our continued success is 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.
Speaker 4: This course financial results, but more importantly, market momentum earned through a strong execution suggest continued progress on the core components of long-term value creation.
Speaker 4: More than three quarters of clients to whom we have made credit commitments since we lost our strategy have expanded their engagement with our treasury business or other services.
More than three quarters of clients to whom we've made credit commitments as we launched our strategy had expanded their engagement with our treasury business or other services.
Speaker 4: We continue to add clients and operate accounts at a pace consistent with our long-term plan.
We continue to add clients and operating accounts at a pace consistent with our long term plan.
Speaker 4: September was the highest month on record in the last two years for new Treasury business.
September was the highest month on record in the last two years for new Treasury business.
Speaker 4: including new operating accounts, indicative of becoming our clients trusted financial partners.
Including new operating accounts indicative of becoming our clients' trusted financial partner.
The Treasury business, one of the day will generate balances payments and revenues in the next six to 18 months as the account activity ramps to full potential.
Speaker 4: The Treasury Business 1 today will generate balances, payments and revenues in the next six to 18 months as the account activity ramps due full potential.
Speaker 4: Growth payment revenues were up 14% over year. The highest growth since the first quarter of 2022 and a result of realized treasury business awarded in prior quarter.
Gross segment revenues were up 14% year over year, the highest growth since the first quarter of 2022.
Rob: 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 client's 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.
And a result of realized treasury business awarded in prior quarters.
Speaker 4: Additionally, as I've detailed in the past, our client response to our proprietary operating tool initial that provides significantly improved client journeys through faster and automated account opening and onboarding has exceeded expectations.
Actually as I've detailed in the past our clients' response to our proprietary onboarding tool initio that provides significantly improved client journeys through faster and automated account opening and onboarding has exceeded expectations.
Speaker 4: 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 onboard.
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.
Speaker 4: 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 and excess other daily operating needs.
Our broad platform continues to avail itself to clients in need of alternative cash management solutions and the current rate environment clients are actively seeking options for those deposits in excess of their daily operating needs and.
Rob: Our industry leading liquidity and capital position afford us a competitive advantage in this unique operating environment. CET1, a 12.7% ranked fourth amongst the largest banks of the country. TCE of 9.4% ranked first among the largest banks of 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 and will continue to be a challenging operating environment for all industries.
Speaker 4: and we remain active in advising them on how to best position their liquidity given their own unique circumstances.
And we remain active in advising them on how to best position their liquidity given their own unique circumstances are.
Speaker 4: Our platform cannot provide alternatives such as interest-bearing deposits, automated insured suite programs, money market options, or in some instances, liquid investments like treasure.
Our platform can now provide alternatives such as interest bearing deposits automated insured sweep programs money market options or in some instances liquid investments like treasuries.
The firm's constant focus on our financially resilient balance sheet.
Speaker 4: The firm's constant focus on a financial resilient balance sheet is enabling a consistent market-facing and a firm's constant focus on a financial resilient balance sheet is enabling a consistent market-facing
It is enabling a consistent market facing posture, ensuring we can confidently approach clients and prospects based on their needs not ours.
Speaker 4: ensuring we can confidently approach clients and prospects based on their needs, not ours.
Rob: We saw the emerging power of the platform on display again this quarter and 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 alone only bank unable to holistically serve our clients needs which by definition makes our capital less of a commodity.
Speaker 4: 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.
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 banked with us for the first time.
Speaker 4: 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.
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.
Speaker 4: clients are also increasingly benefiting from our still emerging investment making credibility.
Rob: Our continued success is supporting clients across the platform has solidified our positioning as a full service financial services firm. This quarter's financial results but more importantly market momentum earned through a 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.
Clients are also increasingly benefiting from our still emerging investment banking capabilities and 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 <unk>.
Speaker 4: Investment banking and trading income had a fourth consecutive record quarter with revenue of 6% quarter to 29.2 million dollars, which is comprised of revenue from all areas of the investment bank.
Bank.
Speaker 4: Each of the past four quarters had significant contributions from a different part of the platform. This quarter, our capital markets group, saw the material financing need. Outside the bank markets for a marquee client, a need, a renowned money center bank that attempted to solve, took to market, but...
Each of the past four quarters has significant contributions from a different part of the platform. This quarter, our capital markets group saw the material financing need outside of the bank markets for a marquee client a need a renown money center bank attempted to solve.
Rob: September was the highest month on record in the last two years for new treasury business including new operating accounts indicative of becoming our clients trusted financial partners. The Treasury business won today will generate balances, payments, and revenues in the next six to 18 months as the account activity ramps due full potential. Gross payment 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.
Took to market, but failed to complete.
Speaker 4: We successfully arranged a comprehensive financing solution, including serving as solar ranger.
We successfully range of comprehensive financing solution.
Including serving as sole arranger.
Speaker 4: on the $1.2 billion term loan, which was the largest transaction of its time this year, and one of the largest sole managed term loans ever.
On the $1 $2 billion term loan, which was the largest transaction of its type this year and we're the largest sole managed term loans ever.
Speaker 4: plus acted as a financial advisor on the $155 million equity follow-on for the same client.
<unk> acted as a financial advisor on the $155 million equity follow on for the same client.
Speaker 4: This transaction was executed with a global reach and a wide variety of investors...
This transaction was executed with a global reach and a wide variety of investors.
Speaker 4: including leading alternative asset managers, energy specialists, insurance companies, and family office.
<unk>, leading alternative asset managers.
Rob: Additionally, as I've detailed in the past, our client response to a proprietary onboarding tool initiative 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.
Energy specialists insurance companies and family offices.
Speaker 4: The majority of whom opened new official accounts were Texas capital securities if they didn't already have one.
The majority of whom opened new institutional accounts with Texas capital Securities. If they didn't already have one.
Speaker 4: 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.
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.
Speaker 4: It is important to once again note that this was not syndicated in a traditional bank market. As such, we do not hold any part of this financing transaction on our balance.
It is important to once again note that this was not syndicated and the traditional bank market as.
Such we do not hold any part of this financing transaction on our balance sheet.
Rob: In the current rate environment, clients are actively seeking options for those deposits and excess other 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.
Speaker 4: Since we launched the strategy, we acknowledge 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 revenue.
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 offer.
Speaker 4: 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.
Firms as we work to translate early momentum and to a sustainable contributor to future earnings.
Speaker 4: The substantial investments made over the last two years to deliver a higher quality operating model, supporting a defined set of schedule businesses is resulting in the intended out.
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.
Speaker 4: The entire platform contributed to our now fifth consecutive quarter of positive operating leverage.
The entire platform contributed to our now fifth consecutive quarter of positive operating leverage as year over year quarterly adjusted <unk> grew 18%.
Rob: 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 then on our own near term financial outcomes. Clients are also increasingly benefiting from our still emerging investment banking capabilities.
Speaker 4: As year over year, quarterly adjusted PPRR grew 18% and a third quarter.
In the third quarter.
Speaker 4: Non-interest income as a percentage of total revenue increased to 16.8%.
Noninterest 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.
Speaker 4: 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.
Speaker 4: 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.
As you know our foundational tenant the financial resiliency, we have established and will preserve as 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.
Rob: Investment banking and trading income had a fourth consecutive record quarter with revenue up 6% quarter to 29.2 million dollars 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.
Speaker 4: 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 risks.
<unk> 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.
Speaker 4: But as you have heard me say in the past, maximizing near-term returns is not the immediate goal of the transformation.
But as you have heard me say in the past maximizing near term returns is not the immediate goal of the transformation.
Rob: We successfully arranged a comprehensive financing solution, including serving as solar ranger on the 1.2 billion dollar term loan, which was the largest transaction of its time this year. And where the largest soul managed term loans ever plus acted as a financial advisor on the 155 million dollar equity follow on for the same client. This transaction was executed with a global reach and a wide variety of investments, including leading alternative asset managers, energy specialists, insurance companies, and family offices.
Speaker 4: We will drive attractive through cycle shareholder returns with both higher quality earnings and a lower cost of capital.
We will drive attractive through cycle shareholder returns with both higher quality earnings and a lower cost of capital as.
Speaker 4: as we scale high-value businesses through increased client adoption, improved client journeys, and realized opportunities.
As we scale high value businesses through increased client adoption improved client journeys.
And realized operational efficiencies.
Speaker 4: 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.
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.
Speaker 5: Thanks, Robin. Good morning starting on slide 5 progress against our 2021 strategic performance drivers continued this quarter, but the revenue base increasingly balanced toward non interest income targets and capital and liquidity and excess of both medium and longer term guidance.
Thanks, Rob and good morning, starting on slide five progress against our 2021 strategic performance drivers continued this quarter with the revenue base increasingly balanced toward noninterest income targets and capital and liquidity in excess of both medium and longer term guidance year.
Rob: The majority of whom opened 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. 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.
Speaker 5: Year-to-date non-interest income to total revenue is 15.7 percent, in line with our long-term target of 15 to 20 percent, and reflective of our increased ability to support a broad range of clients' financial needs.
Year to date noninterest income to total revenue was 15, 7% in line with our long term target of 15% to 20% and reflective of our increased ability to support a broad range of clients financial needs.
Speaker 5: Treasury product fees increased 5% quarter over quarter as client onboarding continues to accelerate.
Great product fees increased 5% quarter over quarter as client Onboarding continues to accelerate.
Rob: Since we launched the strategy, we acknowledge 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 as 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 schedule businesses is resulting in the intended outcomes.
Speaker 5: Near-term pull-through to earnings from sustained momentum in our cash management and payment businesses is being offset by increased deposit compensation at this point in the rate cycle.
Near term pull through to earnings from sustained momentum in our cash management and payment businesses is being offset by increased deposit compensation at this point in the rate cycle.
Speaker 5: We remain less focused on current quarterly fluctuations in revenue from this offering, and we are ensuring we are adding primary banking relationships consistent with our long-term plan.
And less focused on current quarterly fluctuations in revenue from this offering and we are ensuring we are adding primary banking relationships consistent with our long term plan.
Speaker 5: Wealth management income decreased 3% year over year, in large part due to continued client preference for managed liquidity options given market rates.
Wealth management income decreased 3% year over year and large part due to continued client preference for manage liquidity options given market rates.
Speaker 5: Similar to the Treasury offerings, we are at this point more focused on client growth and platform use than on quarterly changes and revenue contributions.
Similar to the Treasury offerings. We are at this point more focused on client growth and platform use quarterly changes in revenue contribution.
Speaker 5: Year-over-year growth and assets under management and total clients of 22% and 16% respectively is on pace with plan as connectivity between private wealth and commercial banking continues to mature.
Year over year growth in assets under management in total clients, a 22% and 16% respectively is on pace with plan is connectivity between private wealth and commercial banking continues to mature.
Rob: The entire platform contributed to our now fifth consecutive quarter of positive operating leverage. As year-over-year quarterly adjusted, PPR grew 18% and a third quarter. Non-interest income as a percentage of total revenue increased to 16.8% this quarter, and it's there that 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 tenant, 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.
Speaker 5: Investment banking and trading income of $29.2 million increased 6% late quarter.
Investment banking and trading income of $29 $2 million increased 6% linked quarter.
Speaker 5: which is our fourth consecutive record quarter since launching the investment banking business last year.
It is our fourth consecutive record quarter since launching the investment banking business last year.
Speaker 5: Rob described one marquee transaction that occurred during the quarter, however, we continue to see early success across the breadth of that platform, both in transactions executed year to date and in the broad and granular medium term pipeline.
Rob described one marquee transaction that occurred during the quarter.
We continue to see early success across the breadth of that platform both in transactions executed year to date and in abroad and granular medium term pipeline.
Fee income from our areas of focus more than doubled year over year as each individual offering continues to advance against our expectations and their collective benefit further differentiates our value proposition in the market.
Speaker 5: Fee income from our areas of focus more than doubled year over year, as each individual offering continues to advance against our expectations and their collective benefit further differentiates our value proposition in the market.
Total revenue increased modestly linked quarter to $278 9 million as both net interest income and noninterest revenue improved slightly over previous year to date highs experienced last quarter.
Speaker 5: Total revenue increased modestly linked quarter to $278.9 million as both net interest income and non-interest revenue improved slightly over previous year-to-date highs experienced last quarter.
Rob: 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 realize operational efficiencies, all objectives that we made significant headway on this year.
Speaker 5: As expected, further net interest income expansion was pressured by industry-wide trends related to rising deposit costs and slowing credit demand.
As expected further net interest income expansion was pressured by industry wide trends related to rising deposit costs and slowing credit demand.
Total revenue increased $14 5 million or 5% when compared to Q3 2022.
Speaker 5: Total revenue increased $14.5 million, or 5%, when compared to Q3 2022, with year-over-year results benefiting from an 85% increase in non-interest income, coupled with disciplined balance sheet repositioning into higher earning assets associated with our long-term strategy.
With year over year results benefiting from an 85% increase in noninterest income coupled with disciplined balance sheet repositioning into higher earning assets associated with our long term strategy.
Speaker 5: Total non-interest expenses declined 1% late quarter after a 6.4% reduction during the second quarter.
Total noninterest expenses declined 1% linked quarter after a six 4% reduction during the second quarter our.
Structural efficiencies associated with our go forward operating model are improving near term financial performance, while enabling select investments associated with long term capability build.
Speaker 5: Structural efficiencies associated with our go-forward operating model are improving near-term financial performance while enabling select investments associated with long-term capability build.
Rob: Thank you for your continued interest in and support of our firm.
Speaker 5: Taken together, quarterly adjusted PPNR increased 18% year-over-year to $99.1 million, the high point since we began this transformation in Q1 of 2021.
Taken together quarterly adjusted <unk> increased 18% year over year to $99 1 million. The high point since we began this transformation in Q1 2021.
Matt: I'll turn it over to Matt to discuss the quarter's results.
Matt: Thanks, Robin.
Matt: Good morning. Starting on slide five, progress against our 2021 strategic performance drivers continued this quarter, but the revenue base increasingly balanced toward non-interesting income targets and capital in liquidity and excess of both medium and longer term guides. Your-to-date non-interested income to total revenue is 15.7% in line with our long-term target of 15 to 20% and reflective of our increased ability to support a broad range of client's financial needs. Treasury Product fees increased 5% quarter-over-quarter.
This quarter's provision expense of $18 million resulted primarily from continued resolution of select legacy problem credits and a modest increase in criticized loans.
Speaker 5: This quarter's provision expense of $18 million resulted primarily from continued resolution of select legacy problem credits and a modest increase in criticized loans.
Speaker 5: That income to common was $57.4 million, an increase of 15% from Q3 of last year when adjusted for the divestiture of our insurance premium finance business.
Net income to common was $57 4 million an increase of 15% from Q3 of last year when adjusted for the divestiture of our insurance premium finance business.
Speaker 5: Our balance sheet metrics remain exceptionally strong. Cash balances grew $1.3 billion this quarter as clients' deposit growth broadly outpaced credit needs.
Our balance sheet metrics remain exceptionally strong cash balances grew $1 3 billion this quarter as clients deposit growth broadly outpaced credit needs.
Matt: Its client onboarding continues to accelerate. Near-term pull-through to earnings from sustained momentum in our cash management and payment businesses is being offset by increased deposit compensation at this point in the rate cycle. We remain less focused on current quarterly fluctuations in revenue from this offering than we are ensuring we are adding primary banking relationships consistent with our long-term plan. Wealth management income decreased 3% year-over-year, and March-part due to continued client preference for managed liquidity options given market rates.
Speaker 5: Ending period gross LHI balances declined by approximately $700 million, or 3% in the quarter, driven predominantly by predictable seasonality in the mortgage finance business, whereby average balances grew, but end-of-period balances declined, reflecting the end of the summer home-buying season.
Ending period gross <unk> balances declined by approximately $700 million or 3% linked quarter, driven predominantly by predictable seasonality in the mortgage finance business, whereby average balances grew but end of period balances declined reflecting the end of the summer home buying season.
Speaker 5: Deposit balances increased 2%, or $560 million in the quarter, resulting in period-end loan-to-deposit ratio of 86%, down from 91% at the end of the second quarter.
Deposit balances increased 2% or $560 million in the quarter, resulting in period end loan to deposit ratio of 86%.
Matt: Similar to the Treasury offerings, we are at this point more focused on client growth and platform use than on quarterly changes in revenue contribution. Year-over-year growth and asset-under management and total clients of 22% and 16% respectively is on pace with plan. Its connectivity between private wealth and commercial banking continues to mature. Investment banking and trading income of 29.2 million increased 6% late quarter, which is our fourth consecutive record quarter since launching the investment banking business last year.
Down from 91% at the end of the second quarter.
Speaker 5: Finally, the nearly 50 basis point increase in five year treasury yields during the quarter resulted in AOTI to climb to 66 million, which is nearly offset by net income of common and results in tangible book value per share of $57.80.
Finally, the nearly 50 basis point increase in five year treasury yields during the quarter resulted in a OCI decline of $66 million, which is nearly offset by net income to common and result in tangible book value per share of $57 82 sets.
Speaker 5: Total LHI excluding mortgage finance decreased $43 million for the quarter, but remains up $1 billion or 6.5% for the year.
Total <unk>, excluding mortgage finance decreased $43 million for the quarter, but remains up $1 billion or six 5% for the year.
Speaker 5: During the quarter, we executed a $164 million pooled sale of non-strategic C&I loans sold at par.
During the quarter, we executed a $164 million pool sale of non strategic C&I loans sold at par.
Matt: Rod described one more key transaction that occurred during the quarter. However, we continue to see early success across the breadth of that platform, both in transactions executed year-to-date and in a broad and granular medium-term pipeline. The income from our areas of focus more than double year-over-year, as each individual offering continues to advance against our expectations and their collective benefit for the differentiates our value proposition in the market. Total revenue increase modestly linked quarter to 278.9 million is both net interest income and non-interest revenue improved slightly over previous year-to-date highs experienced last quarter.
Speaker 5: $36 million was delivered in September , and a related $127 million were moved to held-for-sale and subsequently sold in early October . Both our market-facing posture and capital priorities remain unchanged as we continue our multi-year process of recycling capital into a client base that benefits from our broadening platform of available product solutions delivered within an enhanced client journey.
$36 million was delivered in September and a related $127 million or moved to held for sale. Subsequently sold in early October , but our market facing posture and capital priorities remain unchanged as we continue our multi year process of recycling capital into a client base that benefits from our broadening platform available product solutions delivered within an enhanced.
Client journey.
Speaker 5: Commercial loan balances continue to moderate this quarter, declining 94 million, or about 1%.
Commercial loan balances continued to moderate this quarter declining $94 million or about 1%.
Speaker 5: which while marginally unfavorable to near-term earnings expansion, obscures continued strong underlying momentum in the commercial business.
Which while marginally unfavorable to near term earnings expansion obscures continued strong underlying momentum in the commercial business.
Matt: As expected, further net interest income expansion was pressured by industry rides trends related to rising the positive costs and flowing credit demand. Total revenue increased 14.5 million or 5% when compared to Q3 2022. With the over-year results benefiting from an 85% increase in non-interest income, coupled with Discipline Bout sheet repositioning into higher earning assets associated with our long-term strategy. Total non-interest expenses declined 1% linked quarter after a 6.4% reduction during the second quarter.
Speaker 5: New relationships onboarded year to date are up nearly 10% relative to elevated 2022 levels.
New relationships onboard and year to date are up nearly 10% relative to elevated 2022 levels.
Speaker 5: portion of new activity that includes more than just the loan product remaining over 95 percent for the first nine months of the year.
With a portion of new activity that includes more than just the loan product remaining over 95% for the first nine months of the year.
Speaker 5: The noted progress on winning clients' treasury business is highly correlated with the increasing percentage of commercial relationships in which we are the lead bank.
The noted progress on winning client Treasury business is highly correlated with the increasing percentage of commercial relationships in which we are the lead bank.
Speaker 5: For commercial syndicated transactions that meet the definition of a shared national credit, the portion we agent has increased to 30% from 12% at Q3 of last year.
For commercial syndicated transactions that meet the definition of a shared national credit. The portion we agent has increased to 30% from 12% Q3 of last year.
Matt: As structural efficiencies associated with our bill-forward operating model are improving near-term financial performance while enabling select investment associated with long-term capability build. Taken together, quarterly adjusted PT&R increased 18% year-over-year to 99.1 million, the high point since we began this transformation in Q1 of 2021. Disquarters provision expense of 18 million resulted primarily from continued resolution of select or legacy problem credits and a modest increase in criticized loans. Net income to common was 57.4 million, an increase of 15% from Q3 of last year when adjusted for the divestiture of our insurance premium finance business.
Speaker 5: For other syndicated loans on our balance sheet, we now act as agent on over two thirds of existing credit facilities.
Other syndicated loans on our balance sheet, we now active agent on over two thirds of existing credit facilities, which is consistent with our desired value proposition and stated balance sheet priorities.
Speaker 5: which is consistent with our desired value proposition and stated balance sheet priorities.
Speaker 5: This manifests in the FI income trends Rob noted in his commentary, as we are increasingly the primary operating bank, providing value in multiple ways, for those clients for whom we choose to extend balance sheet.
This manifest in the fee income trends Rob noted in his commentary as we are increasingly the primary operating day, providing value in multiple ways for those clients for whom we choose to extend balance sheet.
Speaker 5: Peered in real estate balances increased 50 million or 1% in the quarter. We continue to experience the expected but still material slowdown and pay off rates off recent record highs.
Period end real estate balances increased $50 million or 1% in the quarter. We continued to experience the expected, but still material slowdown in payoff rates of recent record highs.
Speaker 5: Despite a modest increase in the third quarter, we are positioned for continuation of year-to-date payoff trends in the medium term. Our clients' new origination volume
A modest increase in the third quarter, we are positioned for continuation of year to date payout trends in the medium term.
Matt: Our balance sheet metrics remained exceptionally strong. Cash balances grew 1.3 billion this quarter, as clients deposit growth broadly outpaced credit, needs. Ending period gross LHI balances declined by approximately 700 million or 3% link quarter, driven predominantly by predictable seasonality in the mortgage finance business, whereby average balances grew, but end of period balances declined, reflecting the end of the summer home buying season. Deposit balances increased 2% or 560 million in the quarter, resulting in period and low deposit ratio of 86% down from 91% at the end of the second quarter.
Our clients new origination volume also remains depressed.
Speaker 5: With new credit extension largely focused on multi-family, reflecting both our deep experience in the space and observed performance through credit and interest rate sites.
With new credit extension largely focused on multifamily, reflecting both our deep experience in this space and observed performance through credit and interest rate cycles.
Speaker 5: Approximately 36% of the real estate portfolio has a maturity date in 2020 or 2024. All over 64% of the portfolio that I'm materials in 2025 for later.
Approximately 36% of the real estate portfolio has a maturity date in 2023 or 2024 over 64% of the portfolio matures in 2025 or later.
Speaker 5: Our authd exposure is 459 million or approximately 9% of the total commercial realists.
Our office exposure is $459 million or approximately 9% of the total commercial real estate book.
The office portfolio has solid underwriting with a current weighted average LTV of 57% and 90% recourse as well as strong market characteristics as over 73% as class eight properties and over 71% located in Texas.
Speaker 5: The Office portfolio has solid underwriting with a current out-of-the-average LTV of 57%, and 90% recourse, as well as strong market characteristics as over 73% as class A properties, and over 71% located in text.
Matt: Finally, the nearly 50 basis point increase in 5-year treasure yields during the quarter resulted in AOTI declined of 66 million, which is nearly offset by net income of common and results in tangible book value per share of $57.82. Total LHI excluding mortgage finance decreased 43 million for the quarter, but remains up 1 billion or 6.5% for the year. During the quarter, we executed a $164 million pooled sale of non-strategic CNI loans sold at par.
Average mortgage finance loans increased $321 million or 7% in the quarter.
Speaker 5: Average mortgage finance loans increased 321 million or 7% in the quarter. As the seasonality associated with summer home buying, partially offset rate driven pressures that continue to drive down estimates of next 12 to 24 month activity.
As the seasonality associated with summer home buying partially offset rate driven pressures that continue to drive down estimates of next 12 to 24 month activity.
Speaker 5: Overyear, the industry is contracted from 3.4 to 1.5 trillion in trailing 12-month origination.
Year over year, the industry has contracted from three four to $1 five trillion and trailing 12 month originations.
Matt: 36 million was delivered in September and a related $127 million removed to help for sale at subsequent sold in early October. Both our market-fafing posture and capital priorities remain unchanged as we continue our multi-year process of recycling capital into a client base that benefits from our broadening platform of available product solutions delivered within and enhanced client journey. Commercial loan balances continue to moderate this quarter declining 94 million or about 1%, which while marginally unfavorable to near-term earnings expansion obscures continued strong underlying momentum in the commercial business.
Speaker 5: Overall market and volume estimates from professional forecasters to just total Originations to decrease approximately 20% in the fourth quarter
Overall market and volume estimates from professional forecasters suggest total originations to decrease approximately 20% in the fourth quarter.
Speaker 5: It's for your expectations showing a decline of nearly 35% in total origination voice.
With full year expectations, showing a decline of nearly 35% in total origination volume.
Speaker 5: As you know, Q4 and Q1 are the seasonally weakest origination quarters from a home buying perspective.
As you know Q4, and Q1 are the seasonally weakest origination quarters from a home buying perspective, and we expect the next six months to be amongst the toughest the industry has seen in the last 15 years.
Speaker 5: And we expect the next six months to be amongst the toughest the industry has seen in the last 15 years.
Total ending period deposits increased 2% quarter over quarter with changes in the underlying mix reflected in both the continued funding transition in a tightening rate environment, coupled with predictable seasonality and a sustained focus on leveraging our cash management platform into deeper client relationships.
Speaker 5: Total ending period deposits increased 2% quarter of a quarter. With changes in the underlying next reflected of both the continued funding transition in a tightening rate environment, coupled with predictable seasonality and a sustained focus on leveraging our cash management platform into deeper, client relationships. Total not-inspiring deposits
Matt: New relationships onboarded year-to-date are up nearly 10% relative to elevated 2022 levels, with a portion of new activity that includes more than just the loan product remaining over 95% for the first nine months of the year. The noted progress on winning clients' treasury business is highly correlated with the increasing percentage of commercial relationships in which we are the lead bank. For commercial syndicated transactions that meet the definition of a shared national credit, the portion we agent has increased to 30% from 12% at Q3 of last year.
Total non interest bearing deposits remained stable quarter over quarter.
Speaker 5: with the portion to total of the deposits decreasing modestly to 39% from 42% at year end.
With a portion to total deposits decreased modestly to 39% from 42% at year end.
Speaker 5: Mortgage Finance, Non-Ispray and Deposit Balances, increased 363 million or 7% quarter over quarter. As we remain focused on holistic relationships with top tier clients in the industry, average mortgage finance deposits were 128% of average mortgage finance loans. At the high end of our guidance end up from 108% last year, due to both continued success in capturing more of our clients' treasury business and the impacts of system-wide contraction in mortgage origination volume on their short-term credit.
Mortgage finance non FC bearing deposit balances increased $363 million or 7% quarter over quarter.
We remain focused on holistic relationships with top tier clients and the industry average mortgage finance deposits were 128% of average mortgage finance loans at the high end of our guidance and up from 108% last year due to both continued success in capturing more of our client treasury business and the impacts of system wide contraction in mortgage origination volume on their short.
Matt: For other syndicated loans on our balance sheet, we now act as agent on over two-thirds of existing credit facilities, which is consistent with our desired value proposition and stated balance sheet priorities. This manifests in the fee income trends Rob noted in his commentary, as we are increasingly the primary operating bank providing value in multiple ways for those clients for whom we choose to extend balance sheet. Peered-in real estate balances increased 50 million or 1% in the quarter.
Term credit needs.
Speaker 5: As a reminder, Q4 is a seasonally weak quarter for mortgage finance deposit.
As a reminder, Q4 is a seasonally weak quarter for mortgage finance deposits.
Speaker 5: As escrow balances related to tax payments are remitted beginning in late November and run through Jan
As escrow balances related to tax payments are remitted beginning in late November and run through January <unk>.
Matt: We continue to experience the expected but still material slowdown and payoff rates off recent record highs. Despite a modest increase in the third quarter, we are positioned for continuation of the year-to-date payoff trends in the medium term. Our client's new origination volume also remains suppressed. With new credit extension, largely focused on multi-family, reflecting both our deep experience in the space and observed performance through credit and interest rate cycles. Approximately 36% of the real estate portfolio has a maturity date in 2020 or 2024, while over 64% of the portfolio matures in 2025 or later.
Speaker 5: However, given the previously mentioned client-level trends, we expect a ratio of average mortgage finance deposits to average mortgage finance loans to increase in the fourth quarter. Further pressuring the firms net interest markets.
Given the previously mentioned client level trends, we expect the ratio of average mortgage finance deposits to average mortgage finance loans to increase in the fourth quarter further pressuring the firm's net interest margin.
Speaker 5: I think expected other non-interpreting deposits to clients $440 million or 11% this quarter. As previously described trends or by select clients, shifted excess balances to intersparing deposits, or to other cash management options on our platform has slowed.
As expected in other non interest bearing deposits declined $440 million or 11%. This quarter. As previously described trends whereby select clients shifted excess balances to interest bearing deposits were two other cash management options on our platform has slowed.
Speaker 5: Non-exprayent deposits excluding mortgage finance is now 15% of total deposits. Down from 18% last quarter and 26% in Q3 of last year.
Non interest bearing deposits, excluding mortgage finance is now 15% of total deposits down from 18% last quarter and 26% in Q3 of last year.
Matt: Our office exposure is 459 million or approximately 9% of the total commercial real estate book. The office portfolio has solid underwriting, with a current average LTV of 57% and 90% recourse, as well as strong market characteristics is over 73% is class A properties, and over 71% located intact. Average mortgage finance loans increased 321 million or 7% in the quarter. As the seasonality associated with summer home buying partially offset rate-driven pressures that continue to drive down estimates of next 12 to 24-month activity.
Speaker 5: Our expectation remains that the portion of our total deposits comprised of non-interest-bearing excluding mortgage finance will continue to decline but at a decelerating pace in the near term.
Our expectation remains that the portion of our total deposits comprised of noninterest bearing excluding mortgage finance will continue to decline, but at a decelerating pace in the near term.
Speaker 5: A refusitioning away from reliance on index deposit sources is complete. Balances are now aligned to clients consistent with our strategy and paired with bankers equipped to effectively serve their specific needs.
Our repositioning away from reliance on index deposit sources as complete as balances are now aligned to clients consistent with our strategy and paired with bankers equipped to effectively serve their specific needs.
Speaker 5: 7% of total deposits, well inside our published 2025 threshold of 15%. We now consider these relationships as part of the target client base. And we'll report them.
At 7% of total deposits well inside our published 2025 threshold of 15%.
We now consider these relationships as part of the target client base, and we'll report them as interest bearing deposits moving forward.
Matt: Year over year, the industry is contracted from 3.4 to 1.5 trillion in trailing 12-month originations. Overall market and volume estimates from professional forecasters suggest total originations to decrease approximately 20% in the fourth quarter. With full year expectations showing a decline of nearly 35% in total origination volume. As you know, Q4 and Q1 are the seasonally weakest origination quarters from a home buying perspective, and we expect the next six months to be amongst the toughest the industry has seen in the last 15 years.
Broker deposits declined $86 million during the quarter as growth in client focused deposits consistent with our long term strategy remains sufficient to satisfy desired near term balance sheet positioning.
Speaker 5: Broker deposits declined 86 million during the quarter, is growth in client-focused deposits consistent with our long-term strategy renamed sufficient to satisfy desired near-term balance sheet position.
Speaker 5: We maintain ample brokerage capacity and will always evaluating future liquidity composition consistent with established balance sheet management priorities. Do anticipate that broker CDs will decline during the fourth quarter. As 124 million will mature.
We maintained ample brokered capacity and we're always evaluating future liquidity composition consistent with established balance sheet management priorities do anticipate the brokerage Cds will decline during the fourth quarter at 124 million will mature without replacement.
Speaker 5: As expected, our modeled earnings at risk was relatively flat quarter over quarter at 3% or 29 million and a plus 100 base point shock scenario and negative 4.3% or 42 million and a down 100 basis point shock scenario.
As expected our modeled earnings at risk was relatively flat quarter over quarter at 3% or $29 million and a plus 100 basis point shock scenario and negative four 3%, a $42 million and a down 100 basis point shock scenario.
Matt: Total ending period deposits increased 2% quarter over quarter. With changes in the underlying next reflected in both the continued funding transition in a tightening rate environment coupled with predictable seasonality and a sustained focus on leveraging our cash management platform into deeper client relationships. Total non-inspiring deposits remain stable quarter over quarter. With the portion to total deposits decreasing modestly to 39% from 42% at year end. Mortgage finance, non-inspiring deposit balances increased 363 million or 7% quarter over quarter.
Speaker 5: Proactive measures taken earlier in the year to achieve a more neutral posture at this stage of the rate cycle Coupled with an increase in quarterly cash balances have produced the intended out
Proactive measures taken earlier in the year to achieve a more neutral posture at this stage of the rate cycle, coupled with an increase in quarterly cash balances have produced the intended outcome there.
Speaker 5: There were no new securities purchases in the quarter and we continue to believe current levels to be inefficient and prudent portion of a liquid asset composition at this time.
There were no new securities purchases in the quarter and we continue to believe current levels to be an efficient and prudent portion of our liquid asset composition at this time.
Speaker 5: The core component of our naturally asset sensitive profile remains the large portion of our earning asset mix that reprizes with changes in short term rates.
The core component of our naturally asset sensitive profile remains the large portion of our earning asset mix that re prices with changes in short term rates, 93% of the total <unk> portfolio. Excluding <unk> is variable rate with approximately 90% of these loans to tied to either prime or one month index.
Speaker 5: 93% of the total LHI portfolio excluding MSL's is variable rate. With approximately 90% of these loans to tie to either prime or a one month index.
Matt: As we remain focused on holistic relationships with top to your clients in the industry, average mortgage finance deposits were 128% of average mortgage finance loans. At the high end of our guidance, end up from 108% last year, due to both continued success in capturing more of our clients' treasury business and the impacts of system-wide contraction in mortgage origination volume on their short-term credit needs. As a reminder, Q4 is a seasonally weak quarter from mortgage finance deposits.
Net interest margin decreased 16 basis points this quarter and net interest income was flat $232 1 million.
Speaker 5: Net interest margin decreased 16 basis points this quarter, and net interest income was flat at 232.1 million. Predominantly as a function of the deposit mixed shift into intersparing deposits and higher quarter over quarter deposit costs, partially offset by improved loan yield and increased cash balance.
Dominantly as a function of the deposit mix shift into interest bearing deposits and higher quarter over quarter deposit costs, partially offset by improved loan yields and increased cash balances.
Matt: As escrow balances related to tax payments are remitted beginning in late November and run through January. However, given the previously mentioned client level trends, we expect the ratio of average mortgage finance deposits to average mortgage finance loans to increase in the fourth quarter, further pressuring the firms in that interest margin. As expected, other non-inspiring deposits declined 440 million or 11% this quarter, as previously described trends or by select clients shifted excess balances to interest bearing deposits, or to other cash management options on our platform has slowed.
Speaker 5: Our multi-year business model transformation and associated platform build is directly intended to lessen our dependence on these inevitable fluctuations in rate-driven earnings.
Our multi year business model transformation and associated platform build is directly intended to lessen our dependence on these inevitable fluctuations in rates you have in earnings sustained.
Speaker 5: Staying in execution on non-interesting common initiatives will over time enable revenue stability, even as near term that interest income expansion modern.
Sustained execution on noninterest income initiatives will over time enable revenue stability, even as near term net interest income expansion moderates.
Speaker 5: Further, the systematic realignment of our expense base, which strategic priorities continues to deliver the expected efficiencies associated with a rebuilt and more scalable operating model.
Further the systematic realignment of our expense base with strategic priorities continues to deliver the expected efficiencies associated with a rebuilt and more scalable operating model, we expect to see another contraction in quarterly year over year noninterest expense, which when coupled with maturing revenue generation capabilities enables a foundation for future earn.
Speaker 5: We expect to see another contraction in quarterly, year-to-year, non-interest expense, which when coupled with maturing revenue generation capabilities enables a foundation for future earnings expansion despite the market backdrop.
Matt: Non-inspiring deposits excluding mortgage finance is now 15% of total deposits, down from 18% last quarter and 26% in Q3 of last year. Our expectation remains that the portion of our total deposits comprised of non-interest bearing excluding mortgage finance will continue to decline but at a decelerating pace in the near term. Our repositioning away from reliance on index deposit sources is complete, as balances are now aligned to clients consistent with our strategy and paired with bankers equipped to effectively serve their specific needs.
<unk> expansion, despite the market backdrop.
Criticized loans increased $58 1 million or 9% in the quarter to $677 4 million or three 3% of total IHI as.
Speaker 5: Criticized loans increase 58.1 million or 9% in the quarter, the 677.4 million or 3.3% of total LHI. As increases in special mention of both commercial loans and real estate loans were only partially offset by 17.9 million reduction in on accrual loans.
As increases in special mention of both commercial loans and real estate loans were only partially offset by $17 9 million reduction in non accrual loans as a result of both realized net charge offs of $8 9 million and selected payoffs and upgrades.
Speaker 5: as a result of both realized net charge offs of 8.9 million and selected payoff and up.
Matt: At 7% of total deposits, well inside our published 2025 threshold of 15%, we now consider these relationships as part of the target client base and will report them as interest bearing deposits moving forward. Broker deposits declined 86 million during the quarter, as growth and client focused deposits consistent with our long-term strategy remains sufficient to satisfy desired near-term balance sheet position. We maintain ample brokerage capacity and will always evaluating future liquidity composition consistent with established balance sheet management priorities.
Speaker 5: Now performing assets are at 0.21% of total assets, which continues to be near all time industry low.
Nonperforming assets are at two 1% of total assets, which continues to be near all time industry lows.
Speaker 5: Ed and prior quarters, the composition of criticized loans is way towards commercial clients with dependencies on consumer discretionary income. For the handful of well-structured commercial real estate loans supported by strong spots.
As in prior quarters. The composition of criticized loans is weighted towards commercial clients with dependencies on consumer discretionary income.
A handful of well structured commercial real estate loans supported by strong sponsors. We continue to believe our client selection and underwriting guidelines to provide adequate protection against realized loss.
Speaker 5: We continue to believe our client selection and underwriting guidelines provide adequate protection against realized laws.
Speaker 5: Preparation for an inevitable normalization and asset quality began early in 2022. As we steadily built to reserve necessary to both address known legacy concerns and align balance sheet metrics with our foundational objective of financial resilience.
Preparation for an inevitable normalization in asset quality began early in 2022 as we steadily built a reserve necessary to both address known legacy concerns and a line balance sheet metrics with that foundational objective of financial resilience.
Matt: Do anticipate that broker CDs will decline during the fourth quarter as a 124 million will mature without replacement. As expected, our modeled earnings at risk was relatively flat quarter over quarter at 3% or 29 million in a plus 100 base point shock scenario and negative 4.3% or 42 million in a down 100 basis point shock scenario. Proactive measures taken earlier in the year to achieve a more neutral posture at this stage of the rate cycle coupled with an increase in quarterly cash balances have produced the intended outcome.
Speaker 5: Total allowance for credit loss, including off-balance sheet reserves, increased 9 million on a link quarter basis to 291 million or 1.41 percent of total LHI at quarter end. Up nearly 35 million or 11 basis points a year over year, an anticipation of a more challenging economic environment.
Total allowance for credit loss, including off balance sheet reserves increased $9 million on a linked quarter basis to $291 million or 141% of total <unk> at quarter end up nearly $35 million or 11 basis points year over year in anticipation of a more challenging economic environment, while our ACL to nonaccrual loans improved to four.
Speaker 5: While our ACL to not accrual loans improved to 4.6 times.
Six times.
Matt: There were no new securities purchases in the quarter and we continue to believe current levels to be an efficient and prudent portion of our liquid asset composition at this time. The core component of our naturally asset sensitive profile remains the large portion of our earning asset mix that reprises with changes in short term rates. 93% of the total LHI portfolio excluding NFLs is variable rate with approximately 90% of these loans to tie to either prime or a one month index net interest margin decrease 16 basis points this quarter and net interest income was flat at 232.1 million.
We have previously commented on the portion of legacy loans still on the balance sheet and consistent with current client selection, our underwriting principles there'll be resolved and maturities workouts or select charge offs during.
Speaker 5: We have previously commented on the portion of legacy loans still on the balance sheet inconsistent with current client selection or underwriting.
Speaker 5: though the resolved the maturities, workouts, or select charge offs.
Speaker 5: During the quarter, we recognize gross charge offs of 7.5 million against this identified portfolio. And exposures to this client's set is now approximately 60 million a book balance.
During the quarter, we recognized gross charge offs of $7 5 million against this identified portfolio and exposure to this client set is now approximately $60 million a book balance.
As Rob described in his commentary capital levels remain at or near the top of the industry.
Speaker 5: As Rob describes in his commentary, capital levels remain at or near the top of the industry.
Speaker 5: Total regulatory capital remained exceptionally strong, relative to the peer group and are internally assessed to risk profile. CT1 finished the quarter at 12.7%. A 50 basis point increase in prior.
Regulatory capital remains exceptionally strong relative to the peer group and our internally assess the risk profile of <unk>.
Matt: Predominantly is a function of the deposit mixed shift into interest bearing deposits and higher quarter over quarter deposit costs partially offset by improved loan yield and increased cash balances. Our multi-year business model transformation and associated platform build is directly intended to lessen our dependence on these inevitable fluctuations and rate driven earnings sustained execution on non interesting come initiatives will over time enable revenue stability even as near term that interest income expansion moderates.
<unk> finished the quarter at 12, 7%, a 50 basis point increase from prior quarter intangible common equity to tangible assets finished the quarter at nine 4%, which ranks first relative to second quarter results for all large U S banks and in the top quartile of the peer group, we remain focused on managing the Heartland capital base and a disciplined and analytic.
Speaker 5: The tangible common equity detangible assets finished the quarter at 9.4% which ranks first, we're all to the second quarter results for all large US banks and a top quartile of the period.
Speaker 5: We may focus on managing the hard earned capital base in a disciplined and analytically rigorous manner. Focus on driving long-term shareholder value.
Rigorous manner focused on driving long term shareholder value.
Speaker 5: Our guidance accounts for the Market Mace Forward Rit Curve, which assumes that's 50 to the remainder of the year.
Our guidance accounts for the market base forward rate curve, which assumes that funds of $5 50 through the remainder of the year.
Matt: Further the systematic realignment of our expense base which strategic priorities continues to deliver the expected efficiencies associated with a rebuilt and more scalable operating model. We expect to see another contraction in quarterly year-to-year non interest expense which when coupled with maturing revenue generation capabilities enables a foundation for future earnings expansion despite the market backdrop. Criticized loans increase 58.1 million or 9% in the quarter the 677.4 million or 3.3% of total LHI as increases in special mention of both commercial loans and real state loans were only partially offset by 17.9 million reduction in non accrual loans as a result of both realized net charge offs of 8.9 million and selected payoffs and upgrades.
The recognition of system wide funding cost increases has resulted in net interest income pressure as we anticipated earlier this year.
Speaker 5: The recognition of system-wide funding cost increases has resulted in net interest income pressure as we anticipated earlier this year. Our outlook for low double-digit percent, full-year revenue growth, remained unchanged. As recognized, the income year today has partially offset net interest income pressure associated with market events and chosen balance sheet position.
Our outlook for low double digit percent full year revenue growth remains unchanged as recognized fee income year to date has partially offset net interest income pressure associated both with market events and chosen balance sheet positioning.
Speaker 5: As Dito above, the significant investments made over the last two years are yielding expected operating and financial efficiencies. That will continue contributing to profit of
As detailed above the significant investments made over the last two years are yielding expected operating and financial efficiencies that will continue contributing to profitability of the firm.
Speaker 5: Our non-interest expense guidance remains unchanged, and we believe that current consensus, expense estimates are achievable with flat total non-interest expense in Q4, before counting for an FDIC specialist.
Our noninterest expense guidance remains unchanged and we believe that current consensus expense estimates are achievable with flat total noninterest expense in Q4 before counting for an FDIC special assessment.
Speaker 5: The same commitment to our long-term strategy coupled with a historically challenging environment for a mortgage client. Resulting us lowering PPR expectations in Q4 to below Q4 2022.
The same commitment to our long term strategy, coupled with the historically challenging environment for our mortgage clients resulted in us lowering PNR expectations in Q4 to below Q4 2022 levels.
Matt: Non performing assets are at 0.21% of total assets which continues to be near all time industry lows. As in prior quarters the composition of criticized loans is way towards commercial clients with dependencies on consumer discretionary income for the handful of well structured commercial real state loans supported by strong sponsors. We continue to believe our client selection and underwriting guidelines provide adequate protection against realized loss. Preparation for an inevitable normalization asset quality began early in 2022 as we steadily built to reserve necessary to both address known legacy concerns and align balance sheet metrics with that foundational objective of financial resilience.
Finally, we remain committed to maintaining our strong liquidity and capital positions and our intent remains to hold greater than 20% of our total assets in cash and securities and to exit the year with CET, one ratio of greater than 12%.
Speaker 5: Finally, we remain committed to maintaining our strong liquidity in capital positions, and our intent remains to hold greater than 20% of our total asset and cash and securities, and to exit the year with CET1 ratio of greater than 12%. And now I'll turn the call back over to Rob for closing remarks.
And now I'll turn the call back over to Rob for closing remarks.
I wanted to ask questions.
Speaker 1: Yes, absolutely. If you'd like to ask the team a question, please press star followed by the number one on your telephone keypad. When it's your turn to speak, please enjoy your devices unmuted locally.
Yes, absolutely.
You'd like to ask a question. Please press star followed by the number one on your telephone keypad when it your attention ladies and Julia devices are needed lately.
Matt: Total allowance for credit loss including off balance sheet reserves increased 9 million on a link quarter basis to 291 million or 1.41% of total LHI at quarter end. Up nearly 35 million or 11 basis points year over year in anticipation of a more challenging economic environment. Senate, while our ACL to not accrual loans improved to 4.6 times. We have previously commented on the portion of legacy loans still on the balance sheet inconsistent with current client selection or underwriting principles, though the resolved the maturities, workouts, or select charge offs.
Speaker 1: Our first question today comes from Michael Rose of Raymond James. Your line is open.
Our first question today comes from Michael Levine of Raymond James Your line is open.
Speaker 6: A good morning everyone. Thanks for taking my questions. Maybe we could just start on just the increase in CET-1 levels in your guidance in the intermediate term. I think the question.
Hey, good morning, everyone. Thanks for taking my questions.
Maybe we could just start on just the the increase in <unk>.
<unk>, one levels and your guidance in the intermediate term I think the question.
Speaker 6: that I think we've gotten now for the past year, perhaps longer, is how do you meet the targets in 2025, particularly when it seems like there's gonna be some further pressure on margin, and especially in the warehouse, just giving kind of a challenge how to look matches to your commentary on keeping in our levels being a little bit lower, year on year on the fourth quarter. Yeah, I think that's a big question everyone's trying to get at. You continue to reiterate these targets, but you know, consensus continues to reflect, you know, something in some cases much lower than that.
That I think we've got now for the past year, perhaps longer is how do you meet the targets in 2025, particularly when it seems like theres going to be some further pressure on margin.
Matt: During the quarter, we recognize gross charge offs of 7.5 million against this identified portfolio, and exposures to this client set is now approximately 60 million of book balance. As Rob describes in his commentary, capital levels remain at or near the top of the industry. Total regulatory capital remains exceptionally strong, relative to the peer group, and are internally assessed risk profile. CT1 finished the quarter at 12.7%, a 50 basis point increase in prior quarter.
Question on the warehouse just given a kind of a challenge outlook, Matt just sort of your commentary on PPR levels being a little bit lower year on year in the fourth quarter, Yes, I think thats a big question on everyone's trying to get at you continue to reiterate these targets, but this continues to reflect something in some cases much lower than that.
Speaker 6: So if you could just try to help us bridge the gap now that we're, you know, a couple quarters closer than another quarter closer than we're.
So if you could just try to help US bridge the gap now that we're a couple of quarters closer than I am.
Another quarter closer than where we were.
Matt: Intangible common equity, detangible assets finished the quarter at 9.4%, which ranks first, relative to second quarter results for all large US banks, and in the top quartile of the peer group. We remain focused on managing the hard earned capital base in a disciplined and analytically rigorous manner focused on driving long-term shareholder value. Our guidance accounts for the market-based forward rate curve, which assumes that funds of 5.50 through the remainder of the year.
Speaker 5: Appreciate the question, Michael. Capital priorities remain the same for us.
I appreciate the question Michael capital priorities today.
Same for US. So we said September of 'twenty, one that we wanted to run the place based on a principle of financial resilience, which for us the ability to access markets for clients.
Speaker 5: So we set the December 1st of 21 that we want to enter on the place based on our principal of financial resilience.
Speaker 5: for us and the ability to access markets for clients.
Speaker 5: Sir, communities do any cycle and we do that as a competitive advantage always and certainly one right now.
Our communities through any cycle and we do that.
Competitive advantage always and certainly one right now.
Matt: The recognition of system-wide funding costs increases has resulted in net interest income pressure as we anticipated earlier this year. Our outlook for low double-digit percent full-year revenue growth remains unchanged. As recognized the income year today has partially offset net interest income pressure associated both with market events and chosen balance sheet positioning. As Dito above, the significant investments made over the last two years are yielding expected operating and financial efficiencies that will continue contributing to profitability of the firm.
Speaker 5: Rob mentioned in his comments that our market-facing posture remains the exact same, which is having clear benefits in terms of new client acquisition. I mentioned in my comments that we've all morted 10% more new TNI relationships than new TNI relationships last year, and those are coming with materially more new business.
Rob mentioned in his comments that our market facing posture remains the exact same which is having a clear benefit in terms of new client acquisition.
I mentioned in my comments that we have onboard and 10% more new C&I relationships and new C&I relationships last year, and those are coming with materially more new business.
Speaker 7: Those are in our view the things that drive long-term. About you were going to continue to buy us the capital base in that direction. Yeah, I would, that would you say, Michael. Let me give you an example of that. I kind of feel out of form. We all feel like that capital is...
Those are in our view the things that drive long term value, we're going to continue to bias the capital base in that direction, Yes, I would just add Michael Let me give an example of that I kind of feel like.
Matt: Our non-interest expense guidance remained unchanged, and we believe that current consensus expense estimates are achievable with flat total non-interest expense in Q4, before counting for an FESC special assessment. The same commitment to our long-term strategy coupled with a historically challenging environment for our mortgage clients results in us lowering PPR expectations in Q4 to below Q4 2022 levels.
That capital.
It is really.
Speaker 7: equity course and as it relates to the defined acquisition.
Equity for us as it relates to the implied acquisition and maintaining client. So quite story there was a new client we on boarded.
Speaker 7: and maintaining clients. So quick story, there was a new client, we all awarded some kind of February of last year. They came on the platform, what they'll tell you is they came on the platform, do our treasury platform, our advice and treasury and technology, which is
Matt: Finally, we remain committed to maintaining our strong liquidity in capital positions and our intent remains to hold greater than 20% of our total asset and cash and securities and to exit the year with CET-1 ratio of greater than 12%.
February of last year, they come on the platform what they will tell you that they have on the platform due to our treasury platform.
Treasury and technology, which is pretty cool story when youre not led to this client. This is a great company and great people.
Speaker 8: Pretty cool story. When you're not lensed at this client, this is great company, great people. When fully ran, this substantial amount of payments will run through this bank, like over a billion dollars in a year. And so it's a great point. I look through the CEO and his team last month. And after I got back,
When fully ramped a substantial amount of the payments will run through this bank over $1 billion in a year.
Rob: And now I turn the call back over to Rob for closing remarks.
So it's a great client I would say the CEO and his team.
Unknown Executive: Are you one of those questions? Yes, absolutely.
Last month.
And after I got back.
Speaker 8: TFO wrote me notes that, hey, I think I'm just meeting, but you need to understand exactly how this happened. And the difference between
Unknown Executive: If you'd like to ask the team a question please press star followed by the number one on your telephone keypad. When it's your turn to speak please enjoy your devices unmuted locally.
Wrote me, a note and said hey.
How are you this meeting, but indeed understand.
Exactly how all of this happen.
There are some trade taxes capital and.
Michael Rose: Our first question today comes from Michael Rose of Raymond James. Your line is open. Hey, good morning everyone. Thanks for taking my questions. Maybe we could just start on just the increase in CET-1 levels in your guidance in the intermediate term. I think the question that I think we've gotten out for the past year perhaps longer is how do you meet the targets in 2025, particularly when it seems like there's going to be some further pressure on margin and especially on the warehouse just given a challenge.
Speaker 8: Texas Capital and our incumbent bank, which was a super regional. They said, we get all our diligence on your capital structure and your financial resiliency before we came to your platform. But for your banker.
Our incumbent bank, which was a superregional banks.
We did all our diligence all your capital structure.
Your financial resiliency before we.
Turning to your platform.
But for your banker.
Speaker 8: to come out the day after the events of March.
The day after the events in March.
Speaker 8: And then your CFO , get on a call with us after that, and explain to us your capital position. There's just no comparison in your technology, your service, and issue, but your capital and financial stability gives us the comfort to stay with you. So, you know, it has a huge benefit to attract and maintain clients. And these are great clients running that client.
And then your CFO .
Got a call with us after that and explain to you that your capitalization.
There are no comparison in your technology Your service and this show that your capital and financial stability gives us the comfort to stay.
Michael Rose: I'll look match to start your commentary on keeping in our levels being a little bit lower year on year on the fourth quarter. I think that's a big question that everyone's trying to get at. You continue to reiterate these targets but you know consensus continues to reflect you know something in some cases much lower than that. So if you could just try to help us bridge the gap now that we're you know a couple quarters closer than another quarter closer than where we were.
With you so.
Yes.
It has a huge benefit to attract and retain clients and these are great clients running.
That plant will have I think over 30 lockbox is with us.
Speaker 7: They come at 30 lock boxes with us and do like that, that approaching $2 billion in payments through our system.
And do like I said approaching $2 billion in payments through our system, that's pretty valuable.
Michael Rose: Thanks. Appreciate the question, Michael. Capital priorities remain the same for us. So we said since December 1st, 21, that we wanted to run the place based on a principle of financial resilience, which for us meant the ability to access markets for clients to serve communities through any cycle. And we do that as a competitive advantage always and certainly one right now. Rob mentioned in his comments that our market-facing posture remains the exact same, which is having clear benefits in terms of new client acquisition.
Speaker 6: Okay, but I guess the latter part of my question.
Okay.
I guess the latter part of my question is just can you help us try and bridge the gap to kind of get to some of the targets now the capital levels are continuing to climb higher I think that's the real question.
Speaker 5: Can you help us try and bridge the gap to kind of get to some of the targets now that the capital levels are continuing to climb higher? I think that's the real question. And just to follow up, as my follow up, the investment bank and trading line continue to go higher again this quarter. Obviously really hard to predict, but it seems like we're getting a greater confidence in the durability of the business model here. So maybe if you can kind of encapsulate that all, which I think is the question that most investors are asking. Sorry. Thank you for joining me, Birmingham. So that was a very good one. Sorry, dedicated to buying our company so are you look at what is going to come from our government now?
Just a follow up as my follow up the investment banks and trading line continue to move higher again this quarter, obviously really hard to predict but it seems like.
We're getting a greater confidence in the durability of the business model here. So maybe if you can kind of encapsulate that all which I think is the question that most investors are asking.
Michael Rose: I mentioned in my comments that we've all morted 10% more new T&I relationships than new T&I relationships last year, because they're coming with materially more new business. Those are in our view the things that drive long-term value and we're going to continue to buy us the capital base in that direction. Yeah, I would just add, Michael, let me give an example of that. I kind of feel like we all feel like that capital is really equity-force as it relates to the new client acquisition and maintaining clients.
Speaker 5: Michael, so keeping our average assets north of 130, for one point.
Michael.
Asset north of 134.
One 3%.
For the second straight quarter, we've got to get that to 165 to 170 <unk> balance sheet is 20% to $25 million of additional PPE and are per quarter.
Speaker 5: For the second straight quarter, we've got to get that to 155 to 170, which on the same set of energy, is 20 to 25 million additional PPR per quarter. There's a multitude of levers that will be dependent on the environment, which we find ourselves in in 24 and 25. As we continue to warehouse liquidity, that's certainly an available lever.
A multitude of levers that will be dependent on the environment, which we find ourselves in in 'twenty four 'twenty five as we continue to warehouse liquidity, that's certainly an available lever.
Speaker 5: simply move the loaded upon the ratio back to 90% through repositioning of cash into loans. I'm gonna drive another seven million or so a quarterly PPR. And into your comment, the FIJ generating businesses while we've seen material progress this year, during their infancy, their brand new. To, for example, we've got a...
Simply the loan to deposit ratio back to 90% or repositioning of cash into loan that's going to drive another $7 million or so a quarterly peak in art and then to your comment fee generating businesses, while we've seen material progress this year.
Michael Rose: So quick story, there was a new client, we all morted kind of February of last year, they came on the platform. What they'll tell you is they came on the platform, they'll do our treasury platform, our provides and treasury and technology, which is a pretty cool story, when you're not in the lens of this client, is a great company, great people with fully rampant substantial amount of payments will run through this bank, like over a billion dollars in a year.
They are in their infancy, they are brand new.
For example, we got a pretty robust at this point M&A offering.
Speaker 5: Immunate bankers landed in the second quarter. So they had over 80 conversations with clients this quarter. So any conversations the last 90 days about perspective and the NA transactions over the next two years. But those are brand new.
Bankers landed in the second quarter, so that over 80 conversations with clients. This quarter. So any conversations in the last 90 days about perspective M&A transactions over the next two years.
Michael Rose: And so it's a great point, I would say to CEO and his team last month and after I got back, the TFO wrote me a note, said, hey, I didn't tell you this in meetings, but you need to understand exactly how this happened and the difference between Texas Capital and our income of bank, which was a super regional, they said, we did all our diligence on your capital structure and your financial resiliency before we came to your platform, but for your banker to come out the day after the events of March, and then your CFO, get on a call with us after that and explain to us your capital position, there's just no comparison in your technology, your service and issue, but your capital and financial stability gives us the comfort to stay with you. So, you know, it has a huge benefit to attract and maintain clients. And these are great clients running, so that client will have, I think, over 30 lockboxes with us and do like I said, approaching two billion dollars in payment through our system. That's pretty valuable.
Brand new businesses so.
Speaker 5: So if we were to look into the crystal ball and look forward, you would continue the prospect of recycling capital from low return relationships into those where we can be more relevant. Drive higher with adjusted return on that allocated capital. Start to reduce some of the excess liquidity as the deposit base continues to improve. That provides that $67 million for the DTR right there. And then the expense outlook and private durability Looking at that
If were to look into the crystal ball and look forward.
The prospect of recycling capital from lower return relationships into those where we can be more relevant and drive higher risk adjusted return on allocated capital start to reduce some of the excess liquidity is the deposit base continues to improve that provide $7 million.
And then the expense outlook and private if you're ready to go detailed into 2024.
We continue to run the same playbook that we have on the noninterest expense base.
Speaker 5: We've been able to run the same place, look, do we have on the non-extric existence stage where we're focused on making technology investments that lead to structural improvements and how we show it for our clients while reducing risk and increasing efficiency.
I thought making technology investments will lead to structural improvements and how we show up for our clients, while reducing risk and increasing efficiency.
Speaker 6: That's really helpful, but thanks for that, Matt. Thanks for taking my question, guys. Appreciate it.
That's really helpful. Thanks, Thanks for that Matt. Thanks for taking my question guys I appreciate it.
Okay.
Speaker 1: And that's a question today comes from Matt O'oney of Stephen. Matt, your line is open.
Our next question today comes from Matt Olney of Stephens your.
Your line is open.
Speaker 9: Hey, thanks, everybody. On the mortgage finance, great to see those balances of loans and deposits at the platform in a difficult backdrop and the third quarter. Any more colors on that app performance that we just saw, and then now you mentioned industry expectations for originations down 20% in the fourth quarter. Can you just talk about the ability or potential to app a fourth event? Thanks.
Hey, Thanks, good morning, everybody.
On the mortgage finance, great to see those balances of loans and deposits outperform.
<unk> backdrop in the third quarter.
Any more colors on that outperformance that we just saw.
Rob: Okay, but I guess the latter part of my question is just, can you help us try and, you know, bridge the gap to kind of get to some of the targets, now the capital levels are continuing to climb higher. I think that's the real question, and you know, just to follow up, as my follow up, you know, the investment bank and trading line continue to go higher again this quarter, obviously really hard to predict, but it seems like, you know, we're getting a greater confidence in the durability of the business model here, so maybe, you know, if you can kind of encapsulate that all, which I think is the question that most investors are asking, about Michael Sue, Keegan Art Average Assetto, North of 130 for 1.3% for the second straight quarter.
And then Matt you mentioned industry expectations for originations down 20% in the fourth quarter can you just talk about the ability or potential to outperform that.
Speaker 5: Yeah, the mortgage market, the office and the comments the next six months can be the most challenged in the last 15 years. I mean, just yesterday saw a home affordability in a 25 year low, just as 30 year constraint mortgages hit a 25 year high.
Yes.
Mortgage market you also said in the comments in the next six months could be even more challenged in the last 15 years.
Just yesterday you saw from affordability at a 25 year low.
Just as 30 year fixed rate mortgages hit a 25 year high.
Speaker 5: which is certainly a pressing industry-wide originations. As you know, that will generally move in about 75% data relative to change in overall one-of-four-film originations. So professional forecasters are not calling for originations to be down about 35% across the industry for the year.
Certainly pressing industry wide originations as you know Matt.
Will generate generally move that about 75% data relative to change in overall 140 million originations.
Rob: We've got to get that to 1.65 to 1.70, which on the same set, Palachee, is 20 to 25 million of additional Keegan Art per quarter. There's a multitude of levers that will be dependent on the environment, which we find ourselves in in 24 and 25, as we continue to warehouse liquidity that's certainly an available lever. If you simply move the loaded upon the ratio of back to 90% through repositioning of cashed into loans, that's going to drive another 7 million or so, a quarterly PPR.
So professional forecasters are now calling for originations to be down about 35% across the industry for the year, which would suggest will be down by about 25% for the year to look for a full year average solid somewhere in the low fours off about five three to four year average balance last year.
Speaker 5: suggest we'll be down by about 25% for the year. So look for a full year average balance somewhere in the low fours off of a 5.3 full year average balance last year. We continue to successfully execute against the strategy map of moving up market.
We continued.
Definitely execute against the strategies that are moving up market and serving stronger and larger clients with a strategy similar to what we have across the commercial franchises that we wanted to be relevant to those clients to a wide range of products and services.
Speaker 5: serving stronger and larger clients with the strategy similar to what we have across the commercial franchises that we want to be relevant to those clients through a wide range of products and services have done so originally through the capture of more of the treasury wallet as well as the deposit wallet. So that ratio generally for us has been 100 to 120 percent self-funding.
Rob: And then to your comment, the degenerating businesses, while we've seen material progress this year, they're in their infancy, they're brand new. For example, we've got a pre-robust at this point, M&A offering the M&A bankers landed in the second quarter. So they had over 80 conversations with clients this quarter, so any conversations the last 90 days about perspective and M&A transactions over the next two years. But those are brand new businesses. So if we were to look into the crystal ball and look forward, you would continue the prospect of recycling capital, from low return relationships, and to those where we can be more relevant, drive higher risk adjusted return on that allocated capital, start to reduce some of the excess liquidity, as the deposit base continues to improve.
So originally through to capture more of the treasury wallet as well as the deposit wallet.
That ratio generally for us.
100, 120, or so percent self funding.
Speaker 5: In a seasonally and certainly stichly, slower, fourth quarter, we think that ratio could go up to about 150%, not which has some near term negative impact on NII and margin.
And as these Italy, certainly cyclically slower fourth quarter, we think that ratio could go up to about 150%.
Which has some near term negative impact on NII and margin.
Speaker 5: We've got a material set of new capabilities that are coming out of line with those clients that over time we think are gonna drive a higher and less volatile return on capital, but they're certainly gonna be near-term pressure as they continue that bill.
We've got a material.
New capabilities that are coming online with those clients that over time, we think youre going to drive.
Rob: That provides that $67 million before the DTR right there. And then the expense outlook, and private durability, it got detailed into 2024, but continue around the same place, okay, we have on the non-exercise expense base, where we're focused on making technology investments that lead to structural improvements and how we show it for our clients or reducing risk and increasing efficiency. That's really helpful, but thanks for that Matt. Thanks for taking my question, guys, appreciate it. See you Michael.
Higher and less volatile return on capital, but they are certainly going to be near term pressures, we continue that bill.
Speaker 9: Okay, that's great, Matt, thanks for the color around that. And then just as a follow up on the positive operating leverages in the near term, I appreciate the updated guidance around the challenges of achieving kind of your goals in the fourth quarter. Can you speak just more broadly about operating leverage in 2024? Where are the just the puts and takes around the challenge of achieving the operating leverage in 24 versus 23? Thanks.
Okay.
Matt Thanks for the color around that and then just as a follow up.
On the positive operating leverage in the near term.
I appreciate the updated guidance around the challenges of achieving kind of your goals in the fourth quarter can you speak more broadly about operating leverage in 2024.
What are the just the puts and takes around the challenge of achieving the operating leverage in 24 versus <unk> 23.
Matt: And that's a question today comes from Matt Oane of Stephen. Matt, your line is open. Hey, thanks for everybody. On the mortgage finance, great to see those balances of loans and deposits that perform in a difficult backdrop in the third quarter. Any more colors on that app performance that we just saw. And then, Matt, you mentioned industry expectations for originations down 20% in the fourth quarter. Can you just talk about the ability or potential to Apple for that? Thanks.
Yes.
Speaker 5: Yeah, that's the update to the guide. Certainly incorporate these analyses associated with that mortgage business and the fourth and the first quarter. I say the other item that was included in our comments is important to call out is that we're continue to be quite aggressive on capital recycling, which has obviously been a core part of our playbook since Rob got here. So between the noted loan sale FR, which was a set of
Yes, Matt the update to the guide.
Certainly incorporate seasonality associated with that mortgage business in the fourth and the first quarter I would say the other item that was included in our comments, it's important to call out is that.
To be quite aggressive on capital recycling, which has obviously been.
Core part of our playbook sense, Rob got here.
So between the noted loan sale.
<unk>, which was a set of.
Matt: Yeah, the mortgage market office in the comments the next six months can be the most challenged in the last 15 years. I mean, just yesterday saw a home affordability in a 25-year low just as 30-year constraint mortgages hit a 25-year high, which is certainly pressing industry-wide originations. As you know, Matt will generally move in about 75% data relative to change in overall one-of-four-family originations. So professional forecasters are not calling for originations to be down about 35%.
Consumer facing C&I credits that were well in only about $160 million reduction in balances and then exceeding expectations on our ability.
Speaker 5: consumer-facing CNI credits that were low-nomin, about $160 million dollar reduction in balances.
Speaker 5: And then exceeding expectations on our ability to reduce capital committed to relationships where we don't see a path to being relevant. And we pull down about $300 million of CNI loan balances this quarter and then park it in cash.
Reduced capital committed to our relationships, where we don't see a path to being relevant and we pulled down about $300 million of C&I loan balances. This quarter and then park did in cash in preparation for the ability to be able to redeploy at much higher risk adjusted returns moving into 2024.
Speaker 5: preparation for the ability to be able to redeploy it much higher risk adjusted recurrence moving into 2024. So we're obviously extraordinarily committed to delivering on the 2025 target.
Obviously extraordinarily committed to delivering on the 2025 target.
Matt: Across the industry for the year, which would suggest will be down by about 25% for the year. So look for a full-year average balance somewhere in the low fours off of a 5.3 full-year average balance last year. We continue to successfully execute against the strategy Matt of moving up market, and serving stronger and larger clients with the strategies similar to what we have across the commercial franchises that we want to be relevant to those clients to the white range of products and services have done so originally through the capture of more of the treasury wallet as well as the pocket wallet.
We see all sorts of levers to get there, which again would include continued maintenance of noninterest expense delivering on the fee income target.
Speaker 5: all sorts of levers to get there, which again would include continuations of not interest expense delivering on the CMC on target. And then a lot of opportunity to re-position within the AFS that may.
And then a lot of opportunity to reposition within the asset base.
Speaker 5: So, I will, I certainly appreciate the question. We're not going to give the detail guidance on 24 yet, but that's how I would think about, or that's how we are thinking about about sheep positioning as we get closer to achieving the 25 target.
Doug.
I certainly appreciate the question, we're not going to give the detailed guidance on 'twenty four yet, but that's how I would think about but thats. How we are thinking about balance sheet positioning as we get closer to achieving the 25 targets.
Speaker 9: Okay, that's helpful guys. Thank you.
Okay. That's helpful guys. Thank you.
You bet.
Speaker 1: As a reminder, if you'd like to ask a question today, please press star followed by the number one on your telephone keypad.
As a reminder, if you'd like to ask a question today. Please press star followed by the number one on your telephone keypad.
Matt: So that ratio generally for us then 100 or 120 percent self funding in a seasonally and certainly strictly slower fourth quarter we think that ratio could go up to about 150 percent not which has some near term negative impact on NII and margin. We've got a material set of new capabilities that are coming offline with those clients that over time we think you're going to drive a higher and less volatile return on capital but they're certainly going to be near term pressure as we continue that bill.
Speaker 1: And next question comes from the three Westland of UVA. Please go ahead.
Our next question comes from Sam <unk> question.
Westland of UBS. Please go ahead.
Good morning, Zach on for Brady.
Speaker 10: Morning, it's Zach on for Brody. Just had a couple quick ones. On the consumer dependent commercial loans that are going to move to criticize and classify, are those oriented towards sub-time consumers or just any color you can provide on what's driving the move and just criticize and classify it for those?
Just had a couple of quick ones.
On the on the consumer dependent commercial.
Loans that are moved to criticized and classified are those are oriented towards sub prime consumers or just any any color you can provide on what's driving the move into criticized classified for us.
Speaker 5: Yeah, they're not oriented towards subprime consumer. So, and we called out, I guess they're called last year, so a year ago.
Yes, theyre not theyre not oriented towards up got it.
Prime consumer.
So and we called out.
I guess they are current called last year, so a year ago.
Speaker 5: that we expected to see some downgrades across our CNI, but the CRE as well as a movement to the middle part of this year. Those have materialized largely as expected. There's nothing that's unique enough about these consumer dependence CNI credits to go into a whole lot of detail around them.
Matt: Okay that's great Matt thanks for the color around that and then just as a follow up on the positive operating leverages in the near term appreciate the updated guidance around the challenges of achieving kind of your goals in the fourth quarter. Can you speak just more broadly about operating leverage in 2024? What are the just that the puts and takes around the challenge of achieving the operating leverage in 24 versus 23?
We expected to see some downgrades across certainly C&I CRE as well as we move into the middle part of this year.
That materialized largely.
Theres nothing thats unique enough about these consumer independent C&I credits to go into a whole lot of detail around them.
Speaker 5: There's some franchise finances in there, but there's nothing that we call out as sort of systemic cross-advortfolio or the need additional color of the arm that we've provided. Go with notes.
Yourself and franchise finance in there, but there's nothing that we'd call out as sort of systemic across the portfolio or the need for additional color beyond what we've provided.
No.
Matt: Thanks. Yeah Matt the update to the guide certainly incorporate these analogy associated with that mortgage business in the fourth and the first quarter I say the the other item that was included in our comment that's important to call out is that we're we continue to be quite aggressive on capital recycling which has obviously been a core part of our playbook since Rob got here. So between the noted loan sale F-R which was a set of consumer-facing CNI credits that were loan only about $160 million dollar reduction in balances and then exceeding expectations on our ability to reduce capital committed to relationships where we don't see a path to being relevant and we pull down about $300 million dollars of CNI loan balances this quarter and then parked it in cash in preparation for the ability to be able to redeploy it much higher risk adjusted return moving into 2024.
Generally on credit we're quite pleased with the progression of this quarter. So we've been pretty public doing Ralph started we had about $200 million.
Speaker 5: Generally on credit work, but quite pleased with the progression of this quarter. So we've been pretty public. Doing Rob started. We had about $200 million, but we identified as legacy problem credits that we needed to.
Legacy problem credits that we needed to work down.
Speaker 5: That's now down to 60 million. So we reduced that by $40 million this quarter. About 20 million out was through sales or payoff. They had about $10 million restructured and upgraded and then we charged down 10 million, which is part of how you get a 17.9 million dollar reduction not a cruel. So sitting down at 60, 3 million, I'm not a cruel off of a pie as of mid 90s earlier this year.
Now down to $60 million, and we reduced debt by $40 million this quarter about $20 million that was through sales or pay off.
$10 million restructured and upgraded and then we charged down $10 million, which is part of how you get $17 $9 million reduction in non accruals, so sitting down at 63 million of non accrual of Hyatt.
Mid Ninety's earlier this year.
Speaker 5: Like we're making material progress on the credits that we're most concerned for us.
I feel like were making material progress on the credits that were most concerning for us.
Understood I appreciate that and then just on the on the shared national credits I apologize if I missed this one.
Speaker 10: understand, appreciate that. And then just on the shared national credits, apologies if I missed this. What percentage of the loan portfolio is our SNCCS and then of that, what amount are you guys to lead under right around?
What percentage of the loan portfolio is our snacks and then of that what amount.
Matt: So we're we're obviously extraordinarily committed to delivering on the 2025 targets. We see all sorts of levers to get there which again would include continuous maintenance of not interest expense delivering on the income targets and then a lot of opportunity to re-position within the asset base. So I will I certainly appreciate the question we're not going to give the detailed guidance on 24 yet but that's how I would think about or that's how we are thinking about about cheap positioning as we get closer to achieving those 25 targets. Okay that's helpful guys. Thank you.
Are you guys the lead underwriter on.
Yes, great question.
Speaker 5: Yep, great question. 22% of total loans. We leave 30% of that. That's not all syndicated.
Total loans in the 30% of that Zach.
Not all syndicated credits are snakes.
Speaker 5: There's certain criteria that classify syndicate card as SNIC, more than 100 million, three and more banks.
There are certain criteria that classify as indicated snick north of 100 million three or more banks.
Speaker 5: We lead a large portion of syndicated credit across the middle market. So we were the ninth ranked middle market book runner through the first two quarters of this year to meet we originated and distributed more middle market credit than all but eight banks in the country. So we noted in the comments across syndications that are not snics or they'll lead on north of two thirds.
We need a large portion of syndicated credits across the middle market. So we werent Knights ranked the middle market book runner and through the first two quarters of this year, which means we originated and distributed more middle market credit than all but eight banks in the country.
So we noted in the comments.
Across syndications that are not fix for the lead on north of two thirds.
Unknown Executive: As a reminder if you'd like to ask a question today please press star for the number one on your telephone keypad.
Of those relationships, which is the critical part of our strategy.
Speaker 5: which is a critical part of our strategy.
Zachary Westerlind: And next question comes from Zachary Westerlind of UBS. Please go ahead. Morning, it's Zach on for Brady. Just had a couple quick ones on the consumer dependent commercial loans that are going to move to criticized and classified. Are those oriented towards subprime consumers or just any color you can provide on what's driving the move and to criticize classified for those? Yeah, they're not oriented towards subprime consumers. So we called out, I guess they're called last year, so a year ago, that we expected to see some downgrades across our CNI, but CRE as well as a movement to the middle part of this year.
Speaker 5: and a key driver of why we're driving increased the income which obviously improves return on equity or return on allocated balance.
And a key driver of why we're driving increased fee income, which obviously improves return on equity return on allocated balance sheet.
Got it thanks for that that's very.
Speaker 5: Got it. Thanks for that. Thanks. That's very helpful. Oh, sorry. Yeah, one more quick. One more quick comment on the next things helpful. And we've said since since Rob got here, that are approached to any sort of participation in a credit facility, whether it was a snicker or otherwise.
Helpful Sorry, yes.
Great color. Thanks helpful.
<unk> said.
And dropped out here that.
Our approach to any sort of participation in our credit facility, whether it was snick or otherwise.
Speaker 5: based on the same client selection and the writing principles that we use when it's a violat or we leave.
Just on the same client selection underwriting principles that we use when into bilateral.
Speaker 5: And that oftentimes is there was a target client where we need a management team and it's the strategy we're going to be willing to move into a credit facility with the desire to move left or desire to capture more of the wallet. You're now seeing us going back to math question. You're now seeing us start to rotate out some of those relationships when we don't see a path to seeing more relevance to that client. So it's just an important to note that this is all entirely consistent with the messages that we've been trying to communicate to the last couple years.
<unk>.
And that oftentimes if there was a targeted plan, where we knew the management team and the strategy, we would be willing to move into a credit facility with the desire to move left their desire to capture more of the wallet.
Zachary Westerlind: Those have materialized largely as expected. There's nothing that's unique enough about these consumer dependency and I credits to go into a whole lot of detail around them. There's some franchise finances in there, but there's nothing that we call out as sort of systemic crop and portfolio or the need additional color of the amount we've provided. I would note just generally on credit work, but quite pleased with the progression of this quarter.
Now seeing us going back to Matts question Youre now seeing start to rotate out of some of those relationships and we don't see a path.
Being more relevant to that client. So I think it's important to note. This is all entirely consistent with the messages that we've been trying to communicate for the last couple of years.
Speaker 10: I appreciate that. And then if I could just sneak one more quick one in, the office portfolio, are you able to share what the reserve is on that?
Got it I appreciate that and then if I could just sneak one more quick one in.
Zachary Westerlind: So we've been pretty public when Rob started. We had about $200 million, but we identified as legacy problem credits that we needed to work down. That's now down to 60 million, so we reduced that by $40 million this quarter. 29 and that was through sales or layout. We had about $10 million restructured and upgraded, and then we charged down 10 million, which is part of how you get 17.9 million dollar reduction, not a cruel.
The office portfolio are you able to share what the reserve is on that.
Speaker 5: Now, we generally don't disclose that. I mean, we have $460 million of office and we get $4.2 billion of cash, 2% of total love.
No we generally don't disclose that.
We have $460 million of office, and we've got $4 $2 billion of cash.
2% of code of logs.
Speaker 5: So generally, don't describe the asset class for property types, but specific reserved. So never?? rated, be internal, nothing much. So in terms of its false headset configuration and design, no comments are required. see just see what is in thespeed.
So.
Generally describe the asset class or property type specific reserve.
Understood. Thanks for taking my questions.
Zachary Westerlind: So sitting down at 63 million, I'm not a cruel off of the eyes of mid-90s earlier this year. So like we're making material progress on the credits that we're most concerning for us. Understand, appreciate that. And then just on the on the shared national credits, apologies if I missed this. What percentage of the loan portfolio is our SNICs and then of that, what amount are you guys believe under right around? Yep, great question.
You got it.
Speaker 1: And our next question is from Brady Galey of KBW. Please go ahead.
And our next question is from Brady Gailey of <unk>. Please go ahead.
Hey, Thanks, good morning, guys.
Good morning, I think one of the most difficult things to.
Speaker 11: I think one of the most difficult things to, I think one of the most difficult things to forecast is just this investment banking line. It's been so strong recently. I mean, 29 million this quarter that's up from only 8 million a year ago. And I know it's volatile. I know it's tough to forecast, but I mean over time should the trend even off this three Q base.
I think one of the most difficult things to forecast is just its investment banking.
I mean, it's been so strong recently and a $29 million this quarter, that's up from only $8 million.
Zachary Westerlind: 22% of total loans. We leave 30% of that. It's not all syndicated credits are SNICs, so there's certain criteria that classify syndicated credit as SNIC and worth 100 million, three or more banks. We lead a large portion of syndicated credit across the middle market. So we were the ninth ranked middle market book runner for the first two quarters of this year, which means we originated and distributed more middle market credit than all but eight banks in the country.
A year ago, and I know, it's volatile I know it's tough.
Forecast, but I mean over time.
The trend even off this <unk> base still be to drift higher or do you think you're at a level like I think you guys targeted about 10% of revenue, which I think you're almost there.
Speaker 11: still be to drift higher? Or do you think you're at a level? Like I think you guys targeted about 10% of revenue, which I think you're almost there. You know, is this kind of the level that we should think of as a kind of good run rate for the next couple of years from here?
Is this kind of the level that we should think of as kind of a good run rate for the next couple of years from here.
Speaker 7: Let me just comment on the business and that can come on guidance. That's okay, Bernie. I think it's a great question and obviously a very fair question.
Well, let me just comment on the business and that can comment on guidance. If that's okay. Brady I think it's a great question and obviously a very fair question.
Zachary Westerlind: So we noted in the comments that across syndications that are not SNICs, or they'll lead on worth a third of those relationships, which is a critical part of our strategy and a key driver of why we're driving increased the income, which obviously improves return on equity or return on allocated balance sheet. Got it. Thanks for that. That's very helpful. Sorry.
As as you know I think we've had this conversation before.
Speaker 8: As you know, I think we've had this conversation before. When Matt and I were coming up with a strategy, I told Matt, we say we're going to start investing in bank, enterprise investing, we're crazy. Then we're going to do it. We're going to be successful. We're going to have great revenues.
We're coming out with the strategy I told Matt when we say, we're going to start investment Bank Airbus I think we're crazy then we're going to do I'm going to be successful, we're going to have great revenues.
Speaker 8: and a great practice and then everybody's gonna complain about the ability to model go forward earning.
And a great practice, and then everybody is going to come.
Complaint about the ability to model go forward earnings.
Speaker 8: And I think that'll be a great problem to have. So first of all, we have a conversation and a problem to the business of the team. And the broader business, because remember, we're not doing a best of banking business.
And I think that'll be a great that'll be a great problem to have so first of all I'm glad we're having a conversation.
Rob: I want to come over a couple of exact things helpful and we said since since Rob got here that our approach to any sort of participation in a credit facility, whether it was a SNIC or otherwise, was based on the same client selection underwriting principles that we use when it's a violat where we leave and that oftentimes is there was a target client where we need a management team and the strategy we're going to be willing to move into a credit facility with the desire to move left or desire to capture more of the wallet. You're now seeing us going back to Matt's question, you're now seeing us start to rotate out some of those relationships when we don't see a path to seeing more relevant to that client.
The business the team and the broader business because remember we're not doing investment banking business with other clients are clients of our commercial banking corporate banking and real estate banking franchise. So.
Speaker 7: With other clients, their clients of our commercial bank and corporate bank
Speaker 7: and we will stay banking franchise. So it's one farm, which I think is really, really important of. The...
It's it's one firm, which I think is really really important.
Yes.
Speaker 8: Another big transaction this week that we talked about in this quarter is a great example of how the platform works.
Yes.
The big transaction this week that we talked about.
This quarter.
It is a great example of how the how the platform works. So we went in.
Speaker 8: So we went in, committed, on three percent of a credit facility to a big public company, and started hammering them with it by.
Committed about 3%.
Our credit facility to a big public company.
Rob: So it's just an important to know if this is all entirely consistent with the messages that we've been trying to communicate for the last couple of years. Got it, appreciate that. And then if I could just sneak one more quick one in, the office portfolio, are you able to share what the reserve is on that? No, we generally don't disclose that. I mean, we have $460 million of office and we've got $4.2 billion of cash, 2% of total votes. So generally don't describe the asset class for property types specific reserved. Understood. May I just take on my questions? You got it.
Started hammering them with advice.
Speaker 8: And we lost. They went with another money for the bank to address 24 maturities that they had to address.
And.
We lost.
Went with another money Center bank.
To address 24 maturities that they had to address is a strategic imperative and they took it to market. They failed to get it done they called US back assets. If we if we could get it done so our strategy. We said, yes remember the bank market is substantially closed on everybody has our capital.
Speaker 8: is a strategic imperative. And they took it in the market, they failed to get it done, they called us back, half as if we could get it done. So.
Speaker 8: We said yes. Remember the bank market is substantially closed. That everybody has our capital or liquidity error calls on their clients right now like we are. So we went to a market that was non-banked.
Liquidity, Eric calling on their clients right now like we are so we went to a market that was non bank.
Speaker 7: You know, like I said in my remarks, it was a global and about some very energy specialists, alternative asset managers, insurance companies, family offices, et cetera. When you do that, and you get a transaction, that's the largest so many transactions in country year-to-day. And I'm...
Like I said in my remarks.
As a global Investor base energy specialists alternative asset managers insurance companies family offices et cetera. When you do that and you can get a transaction thats the largest sole managed transactions and country year to date.
Brady Gailey: And our next question is from Brady Galey of KBW. Please go ahead. I think one of the most difficult things to talk about. I think one of the most difficult things to forecast is just this investment banking line. It's been so strong recently. I mean, 29 million this quarter. That's up from only 8 million a year ago. And I know it's volatile. I know it's tough to forecast, but I mean, over time, should the trend even off this 3Q base still be to drift higher? Or do you think you're at a level like I think you guys targeted, you know, about 10% of revenue, which I think you're almost there.
Speaker 7: then everybody in that industry, and frankly other industries, wants to talk to you about
Then every everybody in that industry and frankly other industries want to talk to you about.
Speaker 8: the market and market recent activity. And so that opens doors and credibility for new business.
The market and market receptivity, and so that opens doors and credibility for new business.
Speaker 7: The principal of the company is part of the private wealth business. And then when you distribute the allocations to these different investors.
The principle of the company.
Private wealth business and then what are you what are you.
<unk>.
Allocations to.
Through these different investors.
Speaker 7: We had over 30, I forget the exact number, but well over 30 investors that opened accounts for the sales and trading floor that we weren't doing business with before. So that, you know, helps sales and trading, helps private wealth, it helps further dialogue with other clients. And then when you allocate the right amount of money, you're gonna be able to do a lot more with that money.
We had over.
30, I forget the exact number but well over 30 investors and opened account for the sales and trading floor that we werent doing business with before so that helps sales and training helps private well it helps further.
Rob: Is this kind of the level that we should think of as a kind of good run rate for the next couple of years from here? Let me just comment on the business then Matt can comment on guidance. That's okay. Brady, I think it's a great question and obviously it's a very fair question. As you know, I think we've had this conversation before. When Matt and I were coming up with a strategy, I told Matt, we think we're going to start investing bank.
Dialogue with other clients and then would you allocate.
<unk>.
The right amount.
Speaker 8: demand to that investor, it creates an unwritten IOU with that investor. And so, that's another way of generating more business. And then, when somebody wants to trade the debt, they come to us because they know we know where the debt is. So, then you have secondary trading. So, it's very granular and broad, like Matt talked about, the go-forward pipeline in investment banking.
The demand to that investor It creates an unwritten IOU with that investor and so.
That's another wave.
With more business and then when somebody wants to trade the debt.
They come to us they know noteworthy.
Rob: We're going to do it. We're going to be successful. We're going to have great revenues and a great practice. And then everybody's going to complain about the ability to model, go forward earnings. And I think that'll be a great, that'll be a great problem to have. So first of all, we're having a conversation and problem to the business of the team and the broader business because remember, we're not doing investment banking business with other clients.
So then you have secondary trading so.
Its very granular and broad like Matt talked about.
The go forward pipeline in investment banking and I. Just wanted you to kind of know how it works in a lot of people that follow us hasn't haven't followed investment banks.
Speaker 7: And I just want you to kind of know how it works. A lot of people have followed us, haven't followed the best of things in the past.
In the past.
Speaker 12: That was an important note, and that much of it goes. Yes, the back...
So that was an important but not much guidance.
Rob: They're clients of our commercial bank and corporate bank and we will stay banking franchise. So it's one firm, which I think is really, really important of the big transaction this week that we talked about in this quarter is a great example of how the platform works. So we went in committed to 3% of a credit facility to a big public company and started hammering them with advice. And we lost, they went with another money for the bank to address 20 woman charities that they had to address is a strategic imperative.
Yes.
Back quarters of landmark transactions Brady.
Speaker 5: near-term pipeline is materially more granular. We've suggested to you and the rest of the investor base to model this as trailing four-quarter average.
Near term pipeline is materially more granular we suggested.
You and the rest of the Investor base to model versus trailing four quarter average, we point to that guidance that suggests that some quarters, we're going to be in excess the last two quarters being examples of that in some quarters, we're going to be below our current outlook would suggest will be below a four quarter trailing average in the fourth quarter.
Speaker 5: point to that guidance and suggest that some quarters we're going to be in excess, the last two quarters being examples of that, and some quarters we're going to be below. Our current outlook would suggest we'll be below a four quarter trailing average in its fourth quarter.
Speaker 5: As we think about the long-term prospects for that business, we need to sustainably hit 10% of total revenue, which is the guide, until we alter that guide. I think that
As we think about the long term prospects for that business, we need to sustainably hit 10% of total revenue, which is the guide until we offer that.
I think that.
Speaker 5: The platform to date has proven to be one that clients certainly value and one that we're quite optimistic is going to be able to achieve the growth targets that we've set out at 24.5.
The platform to date has proven to be one that clients certainly value and one that we're quite optimistic its going to be able to achieve the growth targets that we set out to that 'twenty four 'twenty five.
Rob: And they took it to the market. They failed to get it done. They called us back. If we, if we could get it done. So our strategy. We said yes. Remember the bank market is substantially closed. Everybody has our capital or liquidity air calls on their clients right now like we are. So we went to a market that was non bank, you know, like I said in my remarks, it was a global about today, energy specialists, alternative asset managers, insurance companies, family offices, etc.
Okay.
Speaker 11: Okay, and sorry if I missed it, but did you guys quantify the fee from that marquee bit big transaction?
Sorry, if I missed it but did you guys quantify the fee from that marquee big transaction.
No.
Speaker 8: No, no, but the quarter would have been, I'll just say the quarter, but it would have been a good one, but it was a good solid.
No for the quarter would have been I'll, just second quarter, but it would have been good without it.
But it was it was a good solid.
Okay.
Okay.
Speaker 11: All right, then my last question. I mean, if you look at Texas capital today versus, you know, pre-rob, I mean, the capital is a lot higher. The liquidity is a lot greater.
Alright, and then my last my last question.
Rob: When you do that, and you get a transaction that's the largest so many transactions in country year to day. Then everybody in that industry and frankly, other industry wants to talk to you about the market and market where is activity. And so that opens doors and credibility for new business. The principal of the company is part of the private wealth business. And then when you distribute the allocations to these different investors, we had over 30, I predict the exact number of well over 30 investors and opened accounts for the sales and trading floor that we weren't doing business with before.
If you look at Texas capital today versus.
Pre Rob I mean the.
Capital is a lot higher the liquidity is a lot greater the credit as a lot cleaner.
Speaker 11: credit is a lot cleaner. You know, it's just a much stronger institution, but you still have a stock that trades it like one time stands will go value. I know you guys have done buybacks in the past, but I know there's a lot of uncertainty in today's backdrop. So when do you, it seems like you're a perfect candidate for the share buyback, but when do you more seriously consider getting more involved there?
It's just a much stronger institution.
But you still have a stock that trades at like one times tangible book value. I know you guys have done buybacks in the past, but I know theres a lot of uncertainty in today's backdrop. So when do you.
It seems like you are a perfect candidate for the share buyback, but when do you more seriously consider getting more involved there.
Speaker 5: We seriously consider getting involved there every day and
We seriously consider getting involved there every day and.
Rob: So that helps the sales and trading helps find the wealth that helps for their dialogue with other clients. And then when you allocate the right amount of demand to that investor, it creates an underwritten IOU with that investor. And so that's another way to generate more business. And then when somebody wants to trade the debt, they come to us because they know we know where the debt is. So then you have secondary trading.
Speaker 8: As you know, we have a very disciplined capital all-patient framework. We've proven...
As you know we had a very disciplined capital allocation.
Framework, we've proven in the past.
Speaker 8: that we can we purchase shares responsibly, very efficiently, most frequently. We do believe we're, appreciate your words those are imperatives for us, and our commitment to...
And then we can repurchase shares possibly very efficiently.
Most recently, we do believe.
I appreciate your words.
Denver imperatives for us.
And our commitment to you.
Speaker 8: and all of our constituents that when we do that.
And all of our constituents that we would do that.
Speaker 8: We still believe that we're in the build mode. And we are onboarding clients that have paid that we are all very...
We still believe that we're in.
The build mode.
Our onboarding clients at a pace that we are all very.
Rob: So it's very granular and broad, like Matt talking about, to go forward pipeline and investment banking. And I just want you to kind of know how it works. A lot of people with followers haven't followed investor banks in the past. So I thought that was an important note, but Matt, much of us guys Yes, back, back orders of landmark transactions, Brady, near term pipeline is materially more granular. We suggested to you and the rest of the investor based and modeled this is trailing full quarter average.
Speaker 7: A happy with the pipelines continue to be strong, where it's activity and the strategy by the client base is good. A lot of banks right now, frankly, are out of business. So to invest in the organic growth.
Happy with that.
The pipelines continue to be strong activity that strategy by the client base is good.
A lot of banks right now frankly are out of business.
So two to invest in the organic growth.
Speaker 7: in a much higher return for this franchise over the longer term. However
It's a much higher return for this franchise over the longer term. However, having said that you are right we will need to consider.
Speaker 12: Having said that, you're right, we will need to consider buybacks and we do and we will. And but it's not our first reference.
Buybacks and we do well.
But it's not our first preference.
Rob: We point to that guidance and suggested some quarters. We're going to be in excess the last two quarters being examples of that and some quarters we're going to be below. And our current outlook with the just will be below a four quarter trailing average and four quarter. If we think about the long term prospects for that business, we need to sustainably hit 10% until the revenue, which is the guide until we all through that.
Understood. Thanks, Rob.
Thank you Brian .
We have no further questions at this time, so I'll turn the call back over to Bob <unk> for any closing remarks.
Speaker 1: We have no further questions at this time, so I'll turn the call back over to Rob for any closing remarks.
Jess Thanks for everybody further entrants in the firm and look forward to talking to you next quarter.
Speaker 7: Just thanks very body for their entrance in the farm and look forward to talking to you next.
Rob: Yeah, I think that the platform today has proven to be one that clients certainly value in one that we're quite optimistic is going to be able to achieve the growth targets that we set out should move to 2425. Okay, and sorry if I missed it, but did you guys quantify the fee from that marquee bit big transaction. No, no, but the quarter would have been, I'll just say the quarter, but it would have been good with that. But it was, it was a good solid one.
Speaker 1: This concludes today's course. Thank you for joining. You may now disconnect your line.
This concludes today's call. Thank you for joining.
May now disconnect your lines.
Speaker 2: thir the to.
[music].
Rob: All right, and then my last question. I mean, if you look at Texas capital today versus, you know, pre rob, I mean, the capital is a lot higher. The liquidity is a lot greater. The credit is a lot cleaner. You know, it's just a much stronger institution, but you still have a stock that trades it like one time stands will go value. I know you guys have done buybacks in the past, but I know there's a lot of uncertainty in today's backdrop.
Rob: So when do you, it seems like you're a perfect candidate for the share by back, but when do you more seriously consider getting more involved there. We seriously consider getting involved there every day. And as you know, we have a very disciplined capital allocation framework. We've proven in the past that we can we purchase shares responsibly, very efficiently, most recently. We do believe we're appreciating your words, those are imperatives for us and our commitment to you and all of our constituents that we would do that.
Rob: We still believe that we're in the build mode. We are onboarding clients that have paid that we are all very happy with. The pipelines continue to be strong with activity, the strategy by the client base is good. A lot of banks right now, frankly, are out of business. So to invest in the organic growth in a much higher return for this franchise over the longer term, however, having said that you're right, we will need to consider buybacks. And we do and we will and but it's not our first rep. [inaudible] I understood. Thanks, Rob. Thank you, right?
Rob: We have no further questions at this time, so I'll turn the call back over to Rob for any closing remarks.
Unknown Executive: Now disconnect your line.