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DATE

  • Thursday, July 17, 2025, at 9 a.m. EDT

CALL PARTICIPANTS

  • Chairman, President, and Chief Executive Officer — Rob Holmes
  • Chief Financial Officer — Matt Scurlock
  • Head of Investor Relations — Jocelyn Kukulka

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TAKEAWAYS

  • Adjusted Total Revenue: Adjusted total revenue increased by $42.3 million, or 16%, year over year in Q2 2025 and grew $28.9 million, or 10%, quarter over quarter in Q2 2025, reflecting broad-based performance across business lines.
  • Adjusted Net Income to Common: Adjusted net income to common increased 100% year over year to $75.5 million in Q2 2025.
  • Adjusted Earnings Per Share: Adjusted earnings per share rose 104% year-over-year in Q2 2025.
  • Adjusted Return on Average Assets (ROAA): Adjusted return on average assets reached 1.02% in Q2 2025, nearly achieving the 1.1% target.
  • Commercial Loan Growth: Commercial loans grew 5% quarter-over-quarter and 13% year-over-year in Q2 2025, with average balances increasing by $399 million in Q2 2025.
  • Tangible Book Value Per Share: Ended the quarter at a record high of $70.14.
  • Tangible Common Equity to Tangible Assets: Finished at 10.04%, maintaining peer-leading capital ratios in Q2 2025.
  • Treasury Product Fees: Treasury product fees increased by 37% year-over-year in Q2 2025, reaching a record high and up in eight of the last twelve quarters.
  • Investment Banking and Trading Income: Investment banking and trading income increased 43% quarter-over-quarter and 4% year-over-year in Q2 2025; management attributes performance to rebounding capital markets activity.
  • Net Interest Income: Increased 17% year over year, driven by funding cost improvements and loan growth.
  • Net Interest Margin: Net interest margin expanded by 16 basis points in Q2 2025; Net interest margin was up 42 basis points year-to-date in 2025.
  • Adjusted Noninterest Revenue: Adjusted noninterest revenue increased by $11.5 million quarter-over-quarter in Q2 2025; Full-year 2025 noninterest income is forecasted at $230 million to $240 million.
  • Adjusted Noninterest Expense: Adjusted total noninterest expense decreased by $14.1 million quarter-over-quarter in Q2 2025 due to seasonal compensation changes and structural efficiencies; Year-over-year, adjusted noninterest expense rose by $900,000 in Q2 2025.
  • Adjusted Pre-Provision Net Revenue: Adjusted pre-provision net revenue increased 52% year-over-year to $120.5 million in Q2 2025.
  • Allowance for Credit Losses: Allowance for credit losses increased to $334 million, or 1.79% of loans held for investment excluding mortgage finance in Q2 2025, setting a firm record.
  • Commercial Real Estate (CRE) Loan Balances: CRE loan balances declined by $159 million quarter-over-quarter in Q2 2025, including a $53 million reduction in criticized assets in Q2 2025, to the lowest level in over two years.
  • Special Mission Loans: Special mission loans decreased by $144.3 million quarter-over-quarter in Q2 2025.
  • Total Criticized Loans: Total criticized loans dropped by $222 million, or 26%, year-over-year in Q2 2025; CRE criticized loans declined 59% year-over-year in Q2 2025, now at their lowest in two years.
  • Reserve Coverage Ratio: The reserve coverage ratio was maintained at 2.9 times nonaccrual loans in Q2 2025; Nonaccrual loans rose by $20 million in Q2 2025; but remain within historic range.
  • Deposit Trends: Client interest-bearing deposits increased by $2.8 billion, or 19%, year-over-year in Q2 2025; Non-brokered, non-indexed deposits grew by $3 billion, or 22%, year-over-year in Q2 2025.
  • Deposit Betas: Deposit betas increased to 81% in Q2 2025.
  • Mortgage Finance Loans: Average mortgage finance loan balances increased 34% quarter-over-quarter to $5.3 billion in Q2 2025; Full-year 2025 average balance growth is expected at 10% if the origination market remains at $1.9 trillion.
  • Mortgage Finance Deposit-to-Loan Ratio: The mortgage finance deposit-to-loan ratio improved to 91% in Q2 2025 from 120% in Q2 2024; It is expected to remain near 90% during Q3 2025 as seasonal loan volumes peak.
  • Capital Position: CET1 ratio was 11.45% in Q2 2025, down 18 basis points from the prior quarter in Q2 2025 due to loan growth, but still described as exceptionally strong.
  • Share Repurchases: 318,000 shares were repurchased (0.7% of shares outstanding) for $21 million at a weighted average price of $65.50 in Q2 2025, equating to 96% of the prior month's tangible book value per share.
  • Securities Portfolio Actions: Sold $282 million of AFS securities (3.1% yield) in April 2025 and reinvested in 5.4% yield securities in April 2025; added $221 million in 5.6% yield securities in Q2 2025 and $100 million forward-starting received fixed swaps effective October 1.
  • Securities and Cash as Share of Assets: Ending period cash and securities accounted for 23% of total assets in Q2 2025.
  • Quarterly Revenue Guidance: Management reaffirmed low double-digit percent revenue growth for full year 2025. Q3 2025 noninterest income is guided to $60 million–$65 million, including $35 million–$40 million in investment banking fees.
  • Expense Guidance: Expense growth guidance was lowered to mid to high single-digit percent for full year 2025 (from high single-digit previously), with Q3 and Q4 2025 noninterest expense is expected to be in the mid to high $190 million range.
  • Provision Expense Outlook: Provision expense outlook is maintained at 30–35 basis points of loans held for investment, excluding mortgage finance, for full-year 2025.
  • Wealth Management Build-Out: Management acknowledged that implementation lags other business segments but expects future durable growth in this area as the platform matures.

SUMMARY

Texas Capital Bancshares (TCBI 0.29%) management emphasized that continued execution on its multi-year roadmap has structurally improved and diversified Texas Capital Bancshares, Inc.'s earnings capabilities, as evidenced by all-time highs in tangible book value per share ($70.14) and reserve levels ($334 million) in Q2 2025. Executives described treasury product fee growth (up 37% year-over-year in Q2 2025) and the expansion of longer-duration, less rate-sensitive deposits as key contributors to recent net interest margin gains (up 16 basis points quarter-over-quarter in Q2 2025). Improvements in balance sheet positioning, credit quality—including reductions in criticized loans—and investment in scalable client service models position the company for further earnings momentum and risk-adjusted returns in the coming quarters.

  • Management stated, "Our now multi-quarter trends of significant new client acquisition again resulted in targeted balance sheet expansion, consistent with our strategic areas of focus."
  • The CFO noted, "Year-over-year, adjusted (non-GAAP) pre-provision net revenue increased 52%, or $41.4 million, to $120.5 million in Q2 2025 -- a record level since the announcement of the strategic transformation."
  • Executives highlighted that Quarterly treasury product fees grew 37% year-over-year in Q2 2025, setting a new record and illustrating sustained traction in becoming a premier payments bank.
  • Rob Holmes said, "one-one is just a mere stop along the way," indicating longer-term targets beyond the near-term goal.
  • Matt Scurlock clarified future earnings support, explaining that balance sheet momentum and fee income trajectory could "pretty easily deliver the high end of the revenue guide on $230 million of fees."
  • CRE loan paydowns moderated total portfolio growth in Q2 2025, as anticipated, driven by both overall market trends and proactive reductions in criticized assets.
  • Significant investments in technology were cited as drivers of improved cost efficiencies and discipline, factors expected to enable further operating leverage as the business continues to scale.
  • Client selection was described as a key factor in credit quality performance, with management stating, "We'll continue to perform well in credit because of our client selection," reinforcing confidence in reserve adequacy and risk management.

INDUSTRY GLOSSARY

  • LHI: Loans Held for Investment; loans intended to be held on the bank's balance sheet rather than sold.
  • Betas (Deposit Betas): A measure of how responsive a bank's deposit rates are to changes in market interest rates.
  • AFS Securities: Available-for-Sale Securities; debt or equity securities a bank may sell in response to liquidity needs or interest rate changes, marked to market for accounting.
  • SOFR Swaps: Interest rate swaps in which payments are based on the Secured Overnight Financing Rate, a benchmark for dollar-denominated derivatives and loans.
  • Criticized Loans: Loans classified by management or regulators as criticized due to higher credit risk, generally including special mention and substandard categories.
  • Mortgage Finance Loans: Short-term loans provided to mortgage originators for funding residential real estate lending before sale in the secondary market.
  • CET1: Common Equity Tier 1 Capital Ratio; a regulatory measure of a bank's core capital strength.

Full Conference Call Transcript

Operator: Good morning, and thank you all for attending the Texas Capital Bancshares Inc. Q2 2025 Earnings Call. My name is Breeka, and I will be your moderator for today. All lines will be muted. I would now like to pass the conference over to your host, Jocelyn Kukulka, Head of Investor Relations at Texas Capital Bancshares. Thank you. You may proceed. Good morning, and thank you for joining us for TCBI's second quarter 2025 earnings conference call.

Jocelyn Kukulka: I'm Jocelyn Kukulka, Head of Investor Relations. Before we begin, please be aware this call will include forward-looking statements that are based on our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them. Today's presentation will include certain non-GAAP metrics, including, but not limited to, adjusted operating metrics, adjusted earnings per share, and return on invested capital.

For reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings release and our website. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual report on Form 10-K, and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at texascapitalbank.com. Our speakers for the call today are Rob Holmes, Chairman, President, and CEO, and Matt Scurlock, CFO. At the conclusion of our prepared remarks, our operator will open up the call for Q&A.

I'll now turn over the call to Rob for opening remarks. Good morning.

Rob Holmes: Our strong quarterly performance is the result of continued execution on our multiyear roadmap, which is delivering structurally higher and more sustainable earnings across a broad set of products and services, with an operating model that is only beginning to deliver on its potential for future scale. Year-over-year quarterly earnings growth accelerated materially during the quarter, with adjusted total revenue increasing 16%, adjusted net income to common up 100%, adjusted earnings per share expanding 104%, and adjusted return on average assets of 1.02%, nearing the 1.1 goal we set out for 2025. Our now multi-quarter trends of significant new client acquisition again resulted in targeted balance sheet expansion, consistent with our strategic areas of focus.

Commercial loans grew 5% linked quarter and are up 13% year-over-year as we continue to effectively compete for and win holistic client relationships, which define the firm, and for whom we can be relevant over the duration of their personal and business life cycles. This growth did not come at the expense of our peer-leading capital ratios, as the firm continues to build tangible common equity to tangible assets, finishing the quarter at 10.04%, alongside tangible book value per share of $70.14, an all-time high for the firm. Significant investments in building our areas of focus have and will continue to drive increasingly elevated and granular revenue contributions.

Earning the right to be our client's primary operating bank remains a foundational component of our company, with sustained success again displayed by another quarter of peer-leading growth in treasury product fees, which increased 37% year-over-year to a record high for the firm. Quarterly treasury product fees have now increased eight of the last 12 quarters, demonstrating the sustainability of our trajectory and commitment to being a premier payments bank. Early and substantial investments in these products and services have returned the expected outcomes, which, as they scale, will continue to enhance profitability.

In addition to focusing on core operating account growth, our treasury platform is also contributing to expansion in longer duration, less rate-sensitive, interest-bearing deposits, again evidenced this quarter by a 16 basis point increase in linked quarter net interest margin. Our unique and focused client service models continue to gain scale, making it easier for our clients to bring more of their business to us through tech-enabled connectivity and same-day account opening. Despite portions of the capital markets being essentially closed in April and early May, investment banking and trading income increased 43% quarter-over-quarter and 4% year-over-year, led by a rebound in capital markets activity and our steadily growing sales and trading platform.

During the quarter, we also continued our equities build-out, further expanding our research coverage to 72 companies, adding key talent in equity capital markets, corporate access, and industry investment banking coverage, while also commencing trading operations near the end of the quarter. Our breadth of product offerings and integrated client solutions provided by industry experts aligned with client needs continues to be a competitive advantage driving pipeline growth, which will be further enhanced as these capabilities begin to scale during the second half of the year. As we close out this quarter, I want to take a moment to reflect on how far we have come.

Over the past four years, we have executed a bold and deliberate transformation, reshaping our firm into a more agile, diversified, and client-centric institution. Through purposeful actions, scaling value-accretive businesses, enhancing client journeys, and driving operational efficiency, we have built a platform that is resilient, relevant, and positioned to perform through any market or rate cycle. This quarter's results are a testament to the strength of the platform. We have delivered solid performance across our businesses, maintained risk discipline, and continue to invest in innovation and talent, all of which engender confidence we will deliver the risk-adjusted returns consistent with our published targets. None of this would be possible without the dedication and hard work of our employees.

Their commitment, creativity, and resilience have been the driving force behind our transformation and will ensure our future successes. Thank you again for your continued support and trust. I'll turn it over to Matt to discuss the financial results. Matt?

Matt Scurlock: Thanks, Rob, and good morning. Starting on slide five. Second quarter adjusted total revenue increased $42.3 million or 16% relative to Q2 of last year, supported by 17% growth in net interest income and 11% growth in adjusted fee-based revenue. Linked quarter adjusted total revenue grew by $28.9 million or 10% for the quarter, as a $17.4 million increase in net interest income was augmented by an $11.5 million improvement in adjusted noninterest revenue. Adjusted total noninterest expense decreased $14.1 million quarter-over-quarter, as first-quarter financials are impacted by seasonal payroll and compensation expenses, realized structural efficiencies enable continued repositioning of the expense base and support a defined capability build.

Taken together, year-over-year adjusted pre-provision net revenue increased 52% or $41.4 million to $120.5 million, a record level since the announcement of the strategic transformation. This quarter's provision expense of $15 million resulted from continued growth in gross LHI, $13 million of net charge-offs against previously identified problem credits, and our continued view of the uncertain macroeconomic environment, which remains decidedly more conservative than consensus expectations. The firm's allowance for credit loss increased $2 million to $334 million, finishing the quarter at 1.79% of LHI when excluding the impact of mortgage finance, allowance, and related loan balances.

As Rob noted, adjusted net income to common was $75.5 million, an increase of 100% compared to adjusted net income to common in Q2 of last year. This continued financial progress, coupled with a consistently multi-year share repurchase approach, contribute to a 104% increase in quarterly adjusted earnings per share compared to adjusted earnings per share from a year ago. The firm continues to operate from a position of financial strength, with balance sheet metrics remaining exceptionally strong. Ending period cash and securities comprised 23% of total assets, as the firm continues to onboard and expand client relationships while supporting their broad needs, which, again, this quarter included an increase in credit demand.

Focus routines on target client acquisition continue to deliver risk-appropriate return accretive loan portfolio expansion, with ending period gross LHI balances excluding mortgage finance growing $387 million or 9% annualized during the quarter. Average commercial loan balances increased 4%, $399 million during the quarter, with broad contributions across areas of industry and geographic coverage, with ending period balances up approximately $1.4 billion or 13% year-over-year. As expected, real estate loans declined slightly during the quarter, decreasing $159 million, including a $53 million reduction in previously criticized assets, to the lowest level in over two years.

Despite a modest increase in clients' new business volume, should the current rate outlook hold, our expectation remains that payoffs will outpace originations over the duration of the year, causing current quarter trends to continue at a comparable pace. As anticipated, average mortgage finance loans increased 34% linked quarter to $5.3 billion, as seasonal home buying activity hit its annual high during the summer months. We remain cautious on the mortgage outlook for the remainder of 2025, with continued expectation for 10% increase in full-year average balances predicated on a $1.9 trillion origination market.

As Rob noted, sustained success winning high-quality deposit relationships continues to allow for select reduction of higher-cost deposits where we are unable to earn an adequate return on the aggregate relationship. These trends are evidenced in part by our continued ability to effectively grow client interest-bearing deposits, which are up $2.8 billion or 19% year-over-year, while effectively managing deposit betas, which increased to 81% in the quarter and maintaining decade-low levels of broker deposits. This is also observed in the ratio of average mortgage finance deposits to average mortgage finance loans, which improved to 91% this quarter, down significantly from 120% in Q2 of last year, which is positively affecting margin while also improving liquidity value.

We expect this ratio to remain near 90% during the third quarter as loan volumes peak seasonally and deposit balances predictably build. Our modeled earnings at risk were relatively flat quarter-over-quarter, with current and prospective balance sheet positioning continuing to reflect a business model that is more resilient to changes in market rates. In April, we took advantage of significant tariff-driven rate volatility to sell $282 million of relatively short-duration AFS securities with a book yield of 3.1%, reinvesting the proceeds into securities yielding 5.4%, resulting in approximately four-month earn back and improvement in rates fall protection.

In addition to the small repositioning, we continue to effectively manage duration in anticipation of upcoming swap maturities, adding $221 million of additional securities yielding 5.6% along with $100 million in forward-starting received fixed swaps that will become active on October 1. We currently have $1.5 billion of received fixed SOFR maturing in the third quarter at a blended receive rate of 292 basis points, of which $250 million matured earlier this month. Partially offsetting this reduction, $300 million of previously added forward-starting SOFR swaps with a blended receive rate of 388 basis points become active later in the third quarter.

We do still anticipate future interest rate derivative or securities actions over the course of 2025, as we look to augment potential rates fall, earnings generation at materially better terms than available during our deliberate pause through the mid part of last year. Net interest margin expanded 16 basis points this quarter, as a $17.4 million increase in net interest income was driven by improvements in funding cost, growth in loan balances, and improvement in the mortgage finance self-funding ratio, partially offset by lower cash income associated with seasonally smaller balances.

Quarterly adjusted noninterest expense decreased $14.1 million for seasonally elevated Q1, while year-over-year adjusted levels were up only $900,000 as we continue to reposition the expense base in support of consistently defined growth initiatives and areas of focus. The allowance for credit loss, including off-balance sheet reserves, increased to $334 million, an all-time high for the firm. When excluding the impact of mortgage finance allowance and related loan balances, reserves are 1.79% of total LHI, and the top decile among the peer group, and up over $20 million relative to Q2 of last year. Special mission loans decreased $144.3 million quarter-over-quarter, while total criticized loans decreased $222 million or 26% year-over-year.

Criticized loans to total LHI decreased to 2.66%, the lowest level since 2022, with broad-based improvements across both C&I and CRE. The reserve coverage ratio remained strong at 2.9 times nonaccrual loans, which experienced a modest increase of $20 million this quarter to levels in line with those experienced over the last twelve months. Despite continued notable portfolio improvements, we remain focused on proactively assessing the credit impact of a wide range of macroeconomic and portfolio-specific scenarios. This consistent forward-looking approach reinforces our ability to adapt to evolving credit conditions while preserving balance sheet strength and supporting long-term value creation. Consistent with prior quarters, capital levels remain at or near the top of the industry.

Total regulatory capital remains exceptionally strong relative to both the peer group and our internally assessed risk profile. CET1 finished the quarter at 11.45%, an 18 basis point decline from prior quarter as strong capital generation was offset by robust loan growth. By quarter-end, approximately 30% of our mortgage finance loans had migrated to the enhanced credit structures discussed over the last few quarters, bringing the blended risk weighting to 79%. Our continued client dialogue suggested another 10% funded mortgage loan balances could migrate into the structure during the third quarter, further improving both our credit positioning and return on allocated capital.

We continue to deploy the capital base in a disciplined and analytically rigorous manner focused on driving long-term shareholder value. During the quarter, we repurchased approximately 318,000 shares or 0.7% of prior quarter shares outstanding, for a total of $21 million at a weighted average price of $65.50 per share, or 96% of prior month tangible book value per share. Turning to the full-year outlook, we're reaffirming our revenue guidance of low double-digit percent growth, reflecting confidence in the durability of our diversified earnings platform and ability to drive consistent client engagement across a range of market conditions. We are decreasing our noninterest expense outlook to mid to high single-digit percent growth from high single-digit percent growth previously.

This reduction is driven by sustained realization of structural efficiencies, partially offset by continued platform build-out, including non-salaries and benefits-related costs associated with putting new capabilities into the market. The full-year provision expense outlook remains 30 to 35 basis points of loans held for investment, excluding mortgage finance, which should enable the preservation of industry-leading coverage levels while effectively supporting clients' growth needs. Taken together, this outlook suggests continued earnings momentum and achievement of quarterly 1.1% ROAA in the second half of the year. Operator, we'd now like to open up the call for questions. Thank you.

Operator: Thank you. And as a reminder, that is star followed by one to ask a question. And when speaking, please ensure you pick up your handset before asking your question. The first question we have comes from Michael Rose with Raymond James. Please go ahead.

Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Matt or Rob, just wanted to get a better view into kind of the pipeline for investment banking and trading. I know you've made a fair amount of hires here recently, and we've seen the deal activity pick up on your LinkedIn page. Just want to get a sense for where pipelines are and how we could expect that to trend. Then if you can dovetail that with the ongoing investments that are going to be needed to support the growth of that business. I know you've launched on a couple sectors here within research and things like that. So just trying to level set near-term expectations. Thanks.

Matt Scurlock: Yeah. Happy to address that, Michael. So despite the fact that capital markets were essentially closed in April and through May, investment banking and trading income did come in above the guide, which was supported by strong capital markets syndication fees and then continued growth in sales and trading. Rob noted in his prepared remarks that the continued expansion of an integration of capabilities into existing coverage should support pretty strong fee growth in the back part of the year. So the guide currently contemplates that total non-interest income moves to $60 million to $65 million in the third quarter, which would be supported by $35 million to $40 million in investment banking fees, excuse me.

And that expectations for full-year noninterest income have moved to about $230 million to $240 million. On the expense side, we're proud to continue to find select opportunities to reposition the expense base against what have long been described as areas of focus, and we expect expenses are going to move to the mid to high one-nineties over the next couple of quarters. The size and benefits move into the low to mid one-twenties, and then other noninterest expense moves above the $70 million number that we've cited for the last few quarters. Both of those moves are related to the capability build-out that you described, Michael, primarily in investment banking coverage and product rollout.

And it's not just the comp and benefits expense, it's the technology expense, occupancy expense, the legal necessary to put those initiatives into the market.

Rob Holmes: I would just add one thing, which would be I think it's really, really important to note how the platform, including investment banking, affects NIM as well. So there's just a high there's a better client journey, better advice, better dialogue with our clients. It's a more valuable banking relationship, whether they use an investment banking service or not, which makes them less demanding of rate, which obviously contributed to 42 bps improvement year-to-date in NIM, which I think is sector-leading.

Michael Rose: That's great color. I appreciate all of it. Maybe just one follow-up question. I had probably seen a dead horse here on the ROA, but it seems like it's clearly within striking distance. I know it may be a little bit early, but just given ongoing momentum, in seasoning of investments, positive operating leverage, all the above. I mean, should we expect something higher as we contemplate, you know, next year? Thanks.

Rob Holmes: Look. We didn't we certainly our aspiration is not to achieve one-one and stop. I mean, you know us pretty well, Michael. That was a guidepost along the way of the transformation. And we have a long way to go, and we're super excited about it. We're certain of is that the strategy works. The client acceptance of this strategy and our bankers is actually surprising even to me. I'm super proud of bankers. The clients we're onboarding. As we said, we want to be defined by our clients. We're proud of all of them. We've reallocated a lot of capital to get the right clients onto the platform. And one-one is just a mere stop along the way.

Michael Rose: Appreciate it. Thanks for taking my questions.

Operator: Thank you. Your next question comes from Woody Lay with Keefe, Brunette and Woods. Line is open.

Woody Lay: Any commentary on the restructuring charges in the quarter? And as I think about the low end versus the high end of the guide, is that really a reflection of the investment banking trends over the back half of the year?

Matt Scurlock: Yeah. Well, I'm not sure if there was a beginning product question that we may have missed. So the first thing we heard is the restructuring charges to address that. To continue to find opportunities to drive what we term as real structural efficiencies. We're able to take expense from what we think of as less productive sources and match it up against the fee income areas of focus we've been describing really since 2021. So that's the trend that we hope to continue and take it to become a core competency for the firm. And then can you ask the second question again?

Woody Lay: Yeah. And just on the guide of sort of mid to high single digits, for expense growth, you know, the low end versus the high end, is that does that really come down to how investment banking fees trend in the back half of the year?

Matt Scurlock: Yeah. Good question. I really like about 6% year noninterest expense growth. I think mid to high $190 million the next two quarters supports $240 million of fee generation. As well as the outlook for full-year earnings.

Woody Lay: Got it. That's helpful. And then maybe last for me on capital, and just given sort of the shift in the regulatory tone, how does it impact your view on excess capital, and that CET1 target of above 11%?

Rob Holmes: Then it doesn't affect us whatsoever. As you know, we are super happy to have what you would call excess capital or we call a strategic advantage in the market, which allows us to onboard a record number of clients each of the last three years. And we don't see it as anything but a competitive advantage. We have lots of uses for it. We're great stewards of capital. As you know, we have a traditional data-driven capital allocation model, and we've proven to be good stewards of it. And the regulatory outlook has no bearing.

Woody Lay: Got it. Thanks for taking my questions.

Operator: We now have a question from Stephen Scouten with Piper Sandler.

Stephen Scouten: Hey, good morning. Thanks. So revenue trends were extremely strong in the quarter, which is great. And I know the guide is, you know, maybe a fairly wide band here at low double-digit percent growth, but I'm curious what would lead you to maybe raise that guidance, given what appears to be maybe some revenue trends that are ahead of schedule. Maybe what would take us to the highest end of what is low double-digit growth?

Matt Scurlock: Yeah. We take it $230 million of fees, so the low end of fee guide, we've got enough NII momentum, Steven, to move to the high end of the current guide. Maybe to walk through that a bit, as Rob alluded to, for us, NII really begins with deposit repricing, which we were clearly able to push past that 70 percentage spring deposit beta that we targeted during the second quarter. And are now at 81% since the beginning of the easing cycle. Rob and I both noted in our prepared remarks that we've done that while effectively growing non-brokered non-indexed interest-bearing deposits by $3 billion or 22% year-over-year.

Which, to Rob's point, we think highlights improved client relevance in a sustained value proposition. Supporting those results, we did have CDs repriced at $986 million of CDs that matured in the quarter at $475 and came back on at closer to $4.25. And we've got another $1 billion that's going to mature this quarter at an average rate of 4.62% relative to posted rates of 4.2%. Given the balance sheet momentum and multitude of relationship touch points with those consumers, we expect the majority of those CDs to be replaced at current market pricing.

We don't necessarily think that we're going to see other than the CD repricing additional success passing on marginal decreases and interest-bearing deposit costs up to and until the Fed moves. But we do think there's enough momentum to support an increase in net interest income of roughly $10 million linked quarter and if you carry that out for the duration of the year, I think you can pretty easily deliver the high end of the revenue guide on $230 million of fees.

Stephen Scouten: Okay. That's very helpful and specific. Appreciate that, Matt. Guess, as it pertains to the mortgage finance business and expected yields, if the related deposits stay in this 90% range, would you think that the mortgage finance yields could actually continue to tick up higher as that drag from the deposit weighting lessons relative to what it's been in the past?

Matt Scurlock: Yeah. The guide incorporates a cut in September, which would suggest that mortgage financials move down into the mid-four-thirties. Absent a cut, I think you said relatively flat linked quarter.

Stephen Scouten: Okay. Great. And then maybe just lastly, on the expense trends, I know last quarter, you had called out about $14 million in seasonal uptick that wouldn't repeat. But obviously, didn't see seemingly relative to that delta a lot of other growth. Was there anything that maybe surprised you guys in terms of your ability to keep expenses lower than what have been expected or anything of note in terms of larger-scale savings that occurred this quarter?

Rob Holmes: No. I think that I think we've made multiple years of investments in technology across the platform that's allowing for efficiencies and greater expense management and discipline that you will see going forward as we built the platform with the ability to scale with efficiency.

Stephen Scouten: Fantastic. Thanks for all the color. Appreciate the time. Great quarter.

Rob Holmes: You bet. You bet. Thanks.

Operator: Thank you. Just a reminder, if you would like to ask any further questions, you can do so by pressing. And your next question comes from Matt Olney with Stephens Inc.

Matt Olney: Thanks for taking the question, guys. Good growth on the commercial lending front. I'm curious what you saw from your commercial customer behavior from April and then course, into June. I mean, you mentioned it was evolved a quarter from a macro perspective. So just curious, as you move through the quarter, did you see any change of behavior, change utilization from all your commercial type customers?

Rob Holmes: Yeah. Thanks, Matt. So we've noted on every single call since this management team's been in place that we're trying to create what things are pretty unique offering to provide capital to our clients really across any continuum, which includes facilitating access to bank debt. This quarter for us generally played out as anticipated with continued strong client acquisition resulting in 20% annualized growth in C&I, which was partially offset by, I think, well-telegraphed payoffs in CRE, of which about a third of that was related to criticized assets.

The pipeline suggests that those client acquisition trends should remain intact heading into the third quarter and we haven't seen really any change in line utilization linked quarter and down about 2% year-over-year.

Matt Olney: I would just add to that. That the I see continued growth of activity, and the balance sheet form is extremely high for new clients. With the demand on loans going forward. On bank debt. Not just other types of debt. And I think you'll see continued growth as the reinvestment and the balance sheet continues to slow.

Matt Olney: Appreciate the color on that, Rob. And then, I guess, going back to the mortgage finance commentary, I'm a little bit surprised you're maintaining that guidance of the 10% year-over-year growth given industry expectations are a little bit softer now than a few months ago. It sounds like you could be gaining some market share. Any color you can share on that?

Rob Holmes: We think we bank really great clients in that space, Matt, and continue to try to provide a broader set of products and services to that client base. Our expectation for the market changed since the beginning of the year. So we've got a $1.9 trillion origination market that sits on top of thirty-year fixed-rate mortgages between six, eight, and seven. And if that continues, we expect 10% growth in full-year average balances. I think it's important to note also, we're not trying to gain market share in that sector. We're trying to bank the select few what we think are the best clients in that sector. And no more.

Matt Olney: Okay. Thanks for taking my questions.

Rob Holmes: You bet. Thanks.

Operator: Your next question comes from Jon Arfstrom with RBC Capital Markets.

Jon Arfstrom: Hey. Thanks. Good morning.

Rob Holmes: Hi, Jon.

Jon Arfstrom: Hey. Just a couple cleanups here. Matt, can you comment on the higher end PL? Balance? Obviously, not concerning, but just curious what was behind that.

Matt Scurlock: Yes. A couple of C&I credits, not industry-specific, no direct impact from tariffs. I'd say just in general on credit, I think we're really proud of how the team continues to practically manage that portfolio. I think we would view that as a pretty underappreciated portion of the transformation. So there was a minor move up in NPAs, but the ratio is consistent with what we've seen over the last few years. We added a couple million dollars through reserve, which nominally is now at the highest level in the firm's history. And it resulted in a slight reduction in the ACL coverage ratio, but the trends to the left of NPA are quite strong.

So we saw a 26% reduction in year-over-year criticized loans, 59% reduction in year-over-year criticized loans related to commercial real estate, which are the lowest level in two years, and then our reserve continues to be underpinned by an economic outlook that is significantly more conservative than consensus estimates.

Rob Holmes: Yeah. I would just add that I think we'll continue to perform well in credit because of our client selection as well, and our bankers do a great job with that today. Which I think is manifested in the stats that Matt just relayed. And we feel really good about where we are, reserve levels, and the performance of the credit portfolio.

Jon Arfstrom: Okay. So I'm good. Fair enough on that. Rob, where are you on in your wealth management build-out? Progress? It feels like maybe that's the last leg here. I'm just curious how you feel about that.

Rob Holmes: Yep. I feel really good about it. So you're right. It is the last leg. We're a little behind on that. We've spoken about it. Thanks for bringing it up. We went on to the new platform in the fourth quarter of last year. That's a dramatically improved client journey. If you look at our allocated portfolios that we put our clients in, we perform as well or better than other wealth managers. So it's not the performance of that. It's more the client journey and then getting the team on the field, if you will.

We think coupled with all the new client onboardings that we've had across the commercial space and investment banking, our ability and our TAM in that space is really unbelievable. I think you'll see great growth in that in the coming quarters and years. That's a slow-growth business, as you know, but it's highly durable, and we're really excited about it. And I think you're about to see the first leg of it.

Jon Arfstrom: Okay. Alright. Thank you very much. I appreciate it.

Rob Holmes: Thanks, Jon.

Operator: I can confirm we have no further questions. I would like to hand it back to Rob for some final closing comments.

Rob Holmes: Thanks, everybody, for your interest in the firm, and we look forward to speaking to you next quarter.

Operator: Thank you all for dialing in. I can confirm that does conclude today's conference call with Texas Capital Bancshares. You may now disconnect. Thank you all for your participation, and please enjoy the rest of your day.