00:00You sent a letter to your shareholder saying you achieved goals set four years ago. You had a record third quarter. I want to know what's next.
00:07Well, first, let's talk about the third quarter. So we set out goals in September of 2021, and we told the street everything that we were going to do to transform Texas capital into the first full service financial services firm ever headquartered in Texas, which is just very strange that it took this long to have a full service firm headquartered here.
00:28And we had qualitative goals and quantitative goals, and we hit every single one of those by the time we said we'd hit them, which was the third quarter of this year.
00:37What I noticed you did is you have kept shareholders in the loop as this whole process has gone on, because we've talked to you through this process where you've said where your goals were at the time.
00:46Yeah, I think we've been one of the most transparent management teams in banking in the United States these past four years.
00:52It's very rare to get four-year goals, and it's very rare to give guidance as transparent as we did.
00:57And we thought it was really, really important to create credibility with the investor community, which this bank needed before the transformation started.
01:06What do you think worked to make this all happen in the timeframe you wanted?
01:10Well, where we started was really a blessing, and that was a mandate to fix all of it, not to go linear, because there was so much to do.
01:21And so one of the risks to the strategy was doing it all at once, risk, control, compliance, technology, operations, products, service, talent.
01:31But it was really imperative to do it all at once because it was all connected.
01:35You're reporting a lot of success, yet there have been recent mergers and acquisitions in regional banks.
01:41Huntington Bank shares, of course, agreed to buy Cadence Bank.
01:43Dallas-based Comerica agreed to be acquired by Fifth Third.
01:47Do you see this trend continuing with M&A?
01:50Well, I think banks do M&A for one of three reasons.
01:54They're in the wrong markets.
01:55They need to be in better markets.
01:57Or they can't build products and services they need to be relevant to their clients.
02:01Or they can't attract the right talent.
02:04We have all of those here.
02:05We're the best market in the country, in Texas, as you know.
02:08We just built a full-service platform.
02:10We can do anything a money-centered bank can do, literally, other than commodity hedging.
02:15And we attracted some of the best talent in America from New York and California and other spot parts and Texas to come here to build a special place.
02:25So the way you're describing it, it doesn't sound like you are interested in any M&A at this time.
02:30Well, so I'd describe it this way.
02:33We're going to do what's best for the shareholders.
02:34We're really focused on tangible book value per share, as any bank should be.
02:38We have improved book value per share, outperformed the KRE, which is the bank index, by over 30% since we started this.
02:47We've improved ROA more than any bank, $20 billion or above the last four years.
02:52We improved tangible common equity to assets more than any bank in the country, above $20 billion the last four years, 247 basis points.
03:00And so we don't have to do M&A.
03:03It's been red on the capital menu because we didn't have the currency.
03:07It's now yellow, but we're certainly capable of doing it, and we can do it.
03:11So open to it?
03:12Open to it, for sure.
03:14Tricolor set off.
03:14But not necessary.
03:16Open to it, but not necessary.
03:18Tricolor has set off a lot of concerns in the credit world.
03:21As you know, it's not the only one.
03:23Now Dallas-based Renovo is declaring bankruptcy.
03:26This is not a one-off.
03:27So what do you think of the concerns in the credit world?
03:30Well, I think client selection is the number one mitigate for a bank in risk, whether it's operating risk, credit risk, or what have you.
03:40Client selection has been paramount to our strategy since we began.
03:45Tricolor is here in Dallas.
03:47Renovo is here in Dallas.
03:49First brands affected some Dallas institutions and some others.
03:54We said that our credit costs are going to be between 30 and 50 basis points through cycle.
04:00We've been between 30 and 35.
04:02So clearly outperformed.
04:05Our performance in credit has become really a hallmark of our transformation.
04:11And what I'd say is with capital this loose and this much money looking for a deal, you're going to have things like this happen.
04:18And we have not experienced anything such as those and don't expect to.
04:23Is there something you just mentioned, three Texas-based, three organizations that are affected in Texas?
04:31Is there something about the financial markets in the state that make it easier for companies with somewhat risky balance sheets to expand and attract sophisticated investors but then fail?
04:40No, no.
04:41Texas is just one of the largest markets in the country, super diverse, has some of the best companies in the country.
04:48And there's, you know, 10 percent of all public companies reside in Texas.
04:53And so I think it's just more of a numbers game and an odd coincidence.
04:59So while you're sitting here, we're in the longest government shutdown ever.
05:03Now it looks like there's a deal, but you never know with something like this.
05:07How do you think that has affected the banking economy?
05:09Well, I think it's one more thing to add stress to the lower-end consumer.
05:16And our lower-end consumer-facing clients clearly have seen troubling times more recently.
05:25And just like, you know, in the quick-serve industry, inflation is getting them and the consumer stretch.
05:30So they have an issue on the cost and the revenue side.
05:33Any company focused on a lower FICO score consumer is really struggling.
05:41And I think the shutdown adds to that.
05:43But having said that, if you look at – I looked at four databases that have payrolls and other things that indicate labor markets.
05:55And there hasn't been a big drop-off at all.
05:57There's been a lower – a more slowing growth of labor.
06:00But, you know, unemployment is still pretty good.
06:02Zoran Mamdani handily won the election for New York.
06:05Mayor, as you know, Wall Street raised a lot of concerns about his candidacy.
06:09You are very familiar with Wall Street, working for J.P. Morgan in New York.
06:13So Mayor Johnson tweeted out to, quote, concerned residents or businesses come to Texas.
06:19What do you think this victory actually means for Texas?
06:22Well, I find it very, very interesting.
06:26In the same period, Texas passes a constitutional amendment banning taxes on financial transactions that New York elected a communist mayor.
06:39So we're open for business here.
06:41Over 300 companies have moved –
06:42He claims Democrat socialist.
06:44Same thing.
06:45So we – just read what he says.
06:50There was a formation of business in Texas last year of 125,000.
06:56More businesses moved to Texas than any other state.
06:59We've had over 320 companies move here since 2015.
07:04And I think you'll just see a continuation of that.
07:07Tariffs.
07:08Texas economy.
07:09How do you think they've affected it?
07:11It certainly has affected it.
07:12Texas is the largest exporter, $450 billion, 17 percent of our GDP.
07:19We have the largest port in the country, which is Laredo.
07:22We have the largest deepwater port, Houston, by tonnage.
07:26So in trade accounts for about a million jobs in Texas.
07:31So it clearly has affected it.
07:33But we still outperform the broader economy because our economy is so broad and diverse.
07:38Before I let you go, you have now taken on an advisory role with the Texas Stock Exchange.
07:43What do you think now the Texas Stock Exchange is here?
07:46New York Stock Exchange has increased its presence, as does NASDAQ.
07:50What does this mean for the competition here?
07:52Well, look, I think that the new exchange, the taxi, is going to do nothing but add investment,
08:00talent, and capital flows into Texas, which is great for the state.
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