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DATE

Thursday, January 22, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

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

TAKEAWAYS

  • Adjusted Return on Average Assets (ROAA) -- 1.2% for the fourth quarter, sustaining performance above the legacy 1.1% target.
  • Full Year Adjusted ROAA -- 1.04%, a 30-basis-point improvement, evidencing a persistent step-up in earnings power.
  • Adjusted Total Revenue -- $1.26 billion for the year, increasing 13%, setting a firm record.
  • Adjusted Net Income to Common Stockholders -- $313.8 million for the year, up 53%, and $94.6 million for the quarter, up 45%.
  • Adjusted Earnings Per Share (EPS) -- $6.80 for the year, marking a 53% annual increase.
  • Adjusted Pre-Provision Net Revenue (PPNR) -- $489 million, rising 32% year over year and reaching a firm record.
  • Adjusted Fee-Based Revenue -- $229 million for the year, up 9%, with strategic areas of focus generating $192 million.
  • Full Year Net Interest Income -- $1.03 billion, growing 14%, with net interest margin improving 45 basis points year over year.
  • Adjusted Noninterest Expense -- $768.9 million for the year, increasing by 4%, aligning with previous guidance.
  • Quarterly Provision Expense -- $11 million, primarily related to $10.7 million of net charge-offs in the commercial portfolio.
  • Total Allowance for Credit Loss (Excluding Mortgage Finance) -- 1.82% of total LHI, among the top decile of peers.
  • Commercial Loan Growth -- Balances increased $1.1 billion, or 10%, year over year to $12.3 billion; fourth-quarter expansion was $254 million, or 8% annualized.
  • Total Gross Loans Held for Investment (LHI) -- $24.1 billion, up $1.6 billion, or 7%, year over year.
  • Interest-Bearing Deposit Growth (Excluding Brokered and Indexed) -- Rose $1.7 billion, or 10%, year over year; total deposit growth was $1.2 billion, or 5%.
  • Share Repurchases -- 2.25 million shares repurchased for $184 million during the year, representing 4.9% of prior-year shares outstanding, at an average price of $64.33 per share since 2020.
  • Tangible Common Equity to Tangible Assets -- 10.56% at year-end, the highest among large U.S. banks, increasing 58 basis points during the year.
  • Tangible Book Value Per Share -- $75.25, up 13.4% year over year and a record fifth consecutive quarter.
  • Investment Banking Fees Guidance -- For 2026, expected between $160 million and $175 million; total noninterest income guidance is $265 million to $290 million.
  • CET1 Ratio -- 12.1% at year-end, up 75 basis points.
  • Deposit Beta -- 67% through the cycle including the December rate cut, with expectations to reach low 70% in early 2026 if no additional Fed actions occur.
  • Commercial Real Estate Loan Guidance -- Full-year average balances expected to decline approximately 10% in 2026.
  • Mortgage Finance Loans -- Average balances increased 8% sequentially to $5.9 billion; 59% of the portfolio migrated into enhanced credit structures with a blended risk weighting of 57%.
  • Quarterly Adjusted Noninterest Expense -- $186.4 million, down 2% sequentially; first-quarter 2026 guidance anticipates a temporary increase to $210 million–$215 million.
  • Provision Guidance -- 35–40 basis points of average LHI excluding mortgage finance, moderately higher than the 2025 result.
  • Notional Bank Capital Arranged -- Grew 20%, positioning the company as the number two arranger for traditional middle-market loan syndications nationwide.
  • Capital Markets and Syndication Volume -- Transaction volumes increased nearly 40% year over year, though average deal size declined.
  • Securities and Swap Management -- $250 million in swaps matured and were replaced with $1 billion in fixed receive swaps at 3.41%; $400 million in additional swaps executed at a 3.32% received rate became effective in the first quarter of 2026.
  • Quarterly Net Interest Margin -- Declined nine basis points sequentially; benefit from lower deposit costs expected to be fully reflected in January results.
  • Treasury Product Fees -- Increased 24% for the year as a result of client acquisition and expansion.
  • Texas Capital Securities -- 2025 volume rose 45% year over year.
  • Industry Mortgage Market Outlook -- Projected $2.3 trillion originations for 2026, with internal estimates targeting a 15% increase in average mortgage finance balances if rate environment holds.
  • Client Acquisition in C&I -- C&I commitments rose more than 25% sequentially, supporting low-double-digit growth in C&I balances.
  • Noninterest-Bearing Deposits (Excluding Mortgage Finance) -- Quarter-end balances rose 8% to make up 13% of total deposits; average balances remained stable sequentially.
  • Repurchased Shares -- In the fourth quarter, approximately 1.4 million shares acquired for $125 million at an average price of $86.76 per share, representing 117% of prior month tangible book value per share.

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RISKS

  • Increase in Special Mention Loans -- Special mention loans increased due to a handful of multifamily properties experiencing net operating income pressure, given required rental concessions to maintain target occupancy levels.
  • Commercial Real Estate Portfolio -- Management guided for commercial real estate average balances to fall approximately 10% in 2026, citing ongoing payoffs and limited new originations.
  • Higher Provision Outlook -- Provision expense guidance of 35–40 basis points of average LHI (excluding mortgage finance) for 2026, up from the prior year, reflects a decidedly more conservative stance in an uncertain macroeconomic environment.

SUMMARY

The call emphasized Texas Capital Bancshares (TCBI +2.10%)'s deliberate shift from transformation to scaled execution, highlighting substantial topline and bottom-line expansion through record fee generation and disciplined cost control. Management detailed the expanded contribution of noninterest revenue, forecasting $265 million–$290 million for 2026, with investment banking fees of $160 million to $175 million underpinned by robust transaction volume and recent client wins. The commercial loan book grew by 10%, reinforcing the bank’s high-value client focus and supporting management’s multi-pronged strategy of operational leverage and differentiated fee income. Enhanced credit structures in mortgage finance now cover 59% of balances, lowering risk weighting and signaling ongoing capital optimization for further regulatory efficiency.

  • Leadership articulated a continued emphasis on capital deployment, with a stated intent to maintain sector-leading tangible common to tangible assets, and flexibility to further repurchase shares if profitability supports it.
  • Sustained market penetration was demonstrated by a 24% rise in treasury product fees, and a number two national ranking for middle-market loan syndications by notional capital arranged.
  • Year-end CET1 of 12.1% and tangible book value per share of $75.25, both record highs, reinforce management’s commitment to resilience and balance sheet strength while targeting mid–high single-digit revenue growth for 2026.
  • Investment banking and trading operations remain subscale by management admission, with significant future scalability cited across all product lines and explicit reference to a business approaching scale.
  • Seasonal and structural headwinds are anticipated in early 2026 for noninterest expense, with guidance calling for $210 million–$215 million in the first quarter due to compensation resets and incremental front-office hiring.

INDUSTRY GLOSSARY

  • LHI (Loans Held for Investment): Loans intended to be held by the bank until maturity, not originated for sale.
  • SPE (Special Purpose Entity): A legal entity created to isolate financial risk, here referenced within mortgage finance structures for capital and risk management benefits.
  • Deposit Beta: The percentage of a change in market interest rates that banks pass on to depositors through adjustments in deposit rates.
  • CET1 (Common Equity Tier 1): A core capital measure that compares a bank’s common equity to its risk-weighted assets, used to assess capital strength and regulatory compliance.
  • Lead Left: The primary bank in a syndicated loan transaction responsible for structuring, negotiating, and distributing the loan among other lenders.

Full Conference Call Transcript

Jocelyn Kukulka: Good morning, and thank you for joining us for Texas Capital Bancshares' Fourth Quarter 2025 Earnings Conference Call. I'm Jocelyn Kukulka, 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 measures, including, but not limited to, adjusted operating metrics, adjusted earnings per share, and return on capital.

For reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to the earnings press 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-Ks, 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 texascapital.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, the operator will open up the call for Q&A.

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

Rob Holmes: Thank you for joining us today. 2025 was a defining year in this firm's history. In the third quarter, we achieved our stated financial targets, marking completion of our transformation and delivering the largest organic profitability improvement of any commercial bank exceeding $20 billion in assets over the past two decades. We reinforced this achievement in the fourth quarter with a 1.2% ROAA, demonstrating that our third quarter performance was not an anomaly, but instead reflects firm-wide client obsession, unwavering commitment to operational excellence, and a balance sheet and business model increasingly centered on the high-value client segments that we are uniquely positioned to serve.

Full year adjusted ROAA of 1.04% represents a 30 basis point improvement versus 2024 and signals a fundamental improvement of our earnings power. The result of disciplined execution, strategic investments, conservative portfolio management, and sustained operational leverage. Our comprehensive 2025 results validate this trajectory. Record adjusted total revenue of $1.3 billion. Record adjusted net income to common stockholders of $314 million. Record adjusted earnings per share of $6.8. Record adjusted pre-provision net revenue of $489 million. Record fee income of $192 million from strategic areas of focus. Equally important, we achieved record tangible common equity to tangible assets of 10.56% and record tangible book value per share of $75.25.

Metrics that underscore both the quality of our earnings and the prudence of our capital allocation strategy. Our disciplined capital allocation process remains focused solely on driving long-term shareholder value. We continue to bias capital towards franchise accretive client segments, evidenced by commercial loan growth of $1.1 billion or 10%. And interest-bearing deposits, excluding brokered and indexed, increased $1.7 billion or 10% year over year. During periods of market dislocation in 2025, we opportunistically repurchased 2.2 million shares, or 4.9% of prior year shares outstanding, and approximately 114% of prior month tangible book value per share.

Since 2020, we repurchased 14.6% of our starting shares outstanding at a weighted average price of $64.33 per share, while adding 340 basis points to our peer-leading tangible common equity to tangible assets ratio. These achievements demonstrate a fundamentally stronger business model, one positioned to deliver consistent, industry-leading returns and sustainable value creation for shareholders. Having established a strong foundation, our strategic focus now shifts to consistent execution and realizing the full potential of our investments. Our infrastructure, talent, and platforms are designed for scale, enabling us to handle significantly higher volumes and revenue while maintaining disciplined expense management. A defining driver of our improved profitability is the diversification and growth of our fee income streams.

Fee income areas of focus generated $192 million in 2025, with substantial growth opportunity ahead. These businesses are differentiated in the market, capital efficient, and provide revenue stability across economic cycles. Focused investment in product capabilities, technology platforms, and talent will drive fee income as a percentage of total revenue higher, further enhancing our return profile and reducing earnings volatility. Transformation over the past several years has fundamentally repositioned Texas Capital as a scalable, high-performing franchise. This positions us in a new phase of consistent execution and compounding returns. The combination of balance sheet growth, operating leverage, and fee income expansion creates multiple paths to enhance profitability and sustainable shareholder value creation.

Our focus is clear: execute with discipline, scale with intention, and deliver consistent superior returns. Our strategy, platform, talent, and momentum position us to achieve these objectives. Thank you for your continued interest in and support of Texas Capital. I'll turn it over to Matt for details on the financial results.

Matt Scurlock: Thanks, Rob, and good morning. Starting on Slide five. Fourth quarter results capped a record year with broad-based improvements across all key metrics. Our increasingly durable business model, uniquely positioned to deliver high-quality client outcomes, is translating into sustainably strong financial performance that we knew was possible when this transformation began. For the second consecutive quarter, adjusted return on average assets exceeded our legacy 1.1% target, reaching 1.2% in Q4. The 2025 delivered 1.25% return on average assets, while full year adjusted ROAA of 1.04% represents a 30 basis point improvement versus 2024. A testament to the strategic repositioning we've executed since September 2021.

Over year quarterly revenue increased 15% to $327.5 million as a resilient net interest margin, strong fee generation, and improved expense productivity supported the second consecutive quarter of pre-provision net revenue at or near all-time highs. Full year adjusted total revenue reached $1.26 billion, the highest in firm history, up 13% year over year. This reflects 14% growth in net interest income to $1.03 billion and 9% growth in adjusted fee-based revenue to $229 million, marking the third consecutive year of record fee income and underscoring the durability, diversification, and scale potential embedded in our current platform.

Full year adjusted noninterest expense increased modestly by 4% to $768.9 million, consistent with our full year guidance, demonstrating our proven ability to effectively support investment and growth capabilities while delivering continued operating model improvements. Quarterly adjusted noninterest expense decreased 2% or $4.2 million to $186.4 million, benefiting from continued expense realignment and regular accrual adjustments that resulted in outperformance relative to the guide. Taken together, full year adjusted PPNR increased $119 million or 32% to $489 million, a record high for the firm. This quarter's provision expense of $11 million resulted from $10.7 million of net charge-offs on a relatively flat linked quarter total loan balance.

With our continued view of the uncertain macroeconomic environment, which remains decidedly more conservative than consensus expectations, full year provision expense as a percentage of average LHI, excluding mortgage finance, came in at 31 basis points, the low end of our prior 2025 full year guidance. Supported by year-over-year improvements in portfolio quality metrics. Adjusted net income to common at $94.6 million for the quarter or $2.8 per share increased 45% year over year. While full year adjusted net income accounted for $313.8 million or $6.8 per share improved 53% over adjusted 2024 levels.

This financial progress continues to be supported by a disciplined capital management program contributed to 13.4% year-over-year growth in tangible book value per share to $75.25, an all-time high for the firm. Our balance sheet metrics continue to reflect both operational strength and financial resilience, with ending period cash balances of 7% of total assets and cash and securities of 22%, in line with year-end targeted ratios. Focus routines on target client acquisition are delivering risk-appropriate and return-accretive loan portfolio expansion. The commercial loan balance is expanding $254 million or 8% annualized during the quarter.

Total gross LHI increased $1.6 billion or 7% year over year to $24.1 billion, with growth driven predominantly by commercial loan balances, increased $1.1 billion or 10% year over year to $12.3 billion. As expected, real estate loans declined $31 million quarter over quarter, as payoffs and paydowns outpaced construction fundings and new term originations in the fourth quarter. The full year average commercial real estate loan balances did increase modestly year over year. Our expectation is for commercial real estate payoffs to continue into 2026, with full year average balances down approximately 10% year over year. Our portfolio composition remains weighted to conservatively leverage multifamily, further characterized by strong sponsorship and high-quality markets.

Average mortgage finance loans increased 8% linked quarter to $5.9 billion driven by strong industry demand, our clients' preference for our offerings, and what is an increasing holistic relationship. And modestly increasing dwell times. Average mortgage finance loans grew 12% for the full year, slightly outpacing guidance. Given unpredictability and rate expectations, we remain cautious on our outlook for average mortgage finance balances going into 2026. Estimates from professional forecasters suggest total market originations to increase by 16% to $2.3 trillion in 2026, compared to our internal estimates of approximately 15% increase in full year average balances should the rate outlook remain intact.

As we contemplate potentially higher volumes in the mortgage finance business, it is important to note the material changes in this offering over the previous few years. In addition to the significant credit risk and capital benefits of the approximately 59% of existing balances now in the well-discussed enhanced credit structures, over 75% of current mortgage warehouse clients are now open with our broker dealer. Nearly all maintain treasury relationships with the firm, which collectively drives significantly improved risk-adjusted returns should the industry realize anticipated 2026 growth. Full year deposit growth of $1.2 billion or 5% was driven predominantly by our continued ability to effectively leverage growth in core relationships, to serve the entirety of our clients' cash management needs.

Partially offset by our continued programmatic reduction in mortgage finance deposits. Trends are evidenced in part by our sustainability to effectively grow client interest-bearing deposits, which when excluding multiyear contraction and index deposits are up $1.7 billion or 10% year over year, while also effectively managing deposit betas, which are 67% cycle to date inclusive of the mid-December cut. The quarter, ending noninterest-bearing deposits excluding mortgage finance increased 8% or $233 million. Average noninterest-bearing deposits excluding mortgage finance remaining flat at 13% of total deposits linked quarter. Period end mortgage finance noninterest-bearing deposit balances decreased $963 million quarter over quarter as escrow balances related to tax payments begin remittance in late November, and run through January.

Before beginning to predictably rebuild over the course of the year. For the quarter, average mortgage finance deposits were 85% of average mortgage finance loans. Down from 90% in the prior quarter and 107% in Q4 of last year. We expect the mortgage finance self-funding ratio to remain near these levels in the first quarter, with potential for further improvement expected during the seasonally strong spring and summer months. The cost of interest-bearing deposits declined 29 basis points linked quarter to 3.47%, and 85 basis points from 2024. Accounting for realized beta on the December cut, we expect cumulative beta to be in the low seventies by the end of the first quarter assuming no Fed actions during Q1.

Our model earnings at risk increased modestly this quarter, with current and prospective balance sheet positioning continuing to reflect the business model that is intentionally more resilient to changes in market rates. Despite short-term rates declining approximately 100 basis points during 2025, we delivered 14% full year net interest income growth, 13% total revenue growth, and a 45 basis point year-over-year increase in net interest margin. This resilience is in part the result of disciplined duration management and acknowledge of our improved ability to deliver returns through cycle. During Q4, $250 million in swaps matured at a 3.4% receive rate. Replace this with $1 billion in receive fixed over swaps executed at 3.41%.

Additional $400 million in swaps at a 3.32% received rate became effective early Q1. Looking ahead, we will continue disciplined use of our securities and swap book appropriately augment rates following generation, embedded in our current business model. Quarterly net interest margin declined nine basis points and net interest income decreased $4.3 million reflecting timing differences related to lower interest rates on our super weighted loan portfolio relative Fed fund driven deposit cost reductions realized in the quarter. The benefit of reduced deposit costs will be more fully reflected in January's financials. Year over year quarterly net interest margin expanded 45 basis points. Driven primarily by favorable deposit betas and structural improvements in portfolio efficiency.

Including a reduction in our mortgage finance self-funding ratio from 107% to 85%. Fourth quarter adjusted noninterest expense increased 8% relative to the same quarter last year. Primarily driven by higher salaries and benefits expense aligned with investment in our areas of focus. As a reminder, first quarter noninterest expense is expected to be elevated due to annual accrual resets and seasonal payroll and compensation expense. Full year adjusted noninterest income grew 8% to $229 million, a record for the firm. Fee income from our areas of focus continues to differentiate our client positioning and strengthen our revenue profile. Treasury product fees again delivered industry-leading growth, increasing 24% for the full year.

This growth reflects robust client acquisition and 12% gross P times V expansion. Both significantly outpacing industry benchmarks and demonstrating our competitive advantage in getting the primary operating relationship with our target clients. Investment banking achieved substantial scale expansion, with transaction volumes across capital markets, capital solutions, and syndications climbing nearly 40% year over year. While average capital markets deal sizes contracted relative to 2024, this material increase in volume underscores our deepening market penetration and the expanding nature of relationships across the target client universe. Total notional bank capital arranged increased 20% this year, positioning us as the number two ranked arranger for traditional middle market loan syndications nationwide.

This ranking reflects our market leadership and a core client segment. and ours. While highlighting our ability to provide client financing solutions that best fit both their balance sheet Texas Capital Securities delivered noteworthy traction as well. With 2025 volume increasing 45% year over year. Together, these results validate our focus on building diversified, scalable revenue streams while deepening our primary operating relationships with middle market and corporate clients. Total allowance for credit loss, including off-balance sheet reserves of $333 million, remains near our all-time high. Which when excluding the impact of mortgage finance allowance and related loan balances were relatively flat linked quarter, at 1.82% of total LHI. The top decile among the peer group.

Net charge-offs for the quarter were $10.7 million or 18 basis points of LHI, related to several previously identified credits in the commercial portfolio. Positive grade migration trends over the first March of the year resulted in an 11% reduction year over year in criticized loans. During the fourth quarter, select commercial real estate multifamily credits migrated from past to special mention. These projects and lease up continue to require ongoing rental concessions to gain or maintain occupancy. Impacting net operating income in spite of material project-specific equity and sponsorship support. Capital levels remain at or near the top of the industry.

CET1 finished the quarter at 12.1% with full year improvement 75 basis points, reflecting strong earnings generation, and disciplined capital management. Tangible common equity to tangible assets increased 58 basis points for the full year. A significant driver of capital strength is our mortgage finance enhanced credit structures. By quarter end, approximately 59% of the mortgage finance loan had migrated into these structures. Bringing the blended risk weighting to 57%. This improvement is equivalent to generating over $275 million of regulatory capital. With client dialogue suggesting an additional five to 10% of funded balances could migrate over the next two quarters. Further enhancing both credit positioning and return on allocated capital.

During the quarter, we purchased approximately 1.4 million shares $125 million at a weighted average price of $86.76 per share. Representing a 117% of prior month's tangible book value. Full year share repurchases totaled 2.25 million shares or $184 million, equivalent to 4.9% of prior year share outstanding. Finally, tangible common equity tangible assets finished at 10.6% ranked first amongst the largest banks in the country. While tangible book value per share increased 13.44% year over year to $75.25. The fifth consecutive record quarter for the firm. Looking ahead to 2026, our outlook reflects continued realized scale from multiyear platform investments. We anticipate total revenue growth in the mid to high single digit range.

Driven by industry-leading client adoption and continued growth our fee income areas of focus. With full year noninterest revenue expected to reach $265 to $290 million, anticipated noninterest expense growth in the mid single digits reflects increased compensation expense tied to improved performance. Target expansion into fine client coverage areas, and platform investments meant to expand upon best-in-class client execution, further enhancing our operating resilience, supporting future enhancements to structural profitability. Given continued economic uncertainty and our commitment to operating from a position of financial resilience, we are moderating our full year provision outlook to 35 to 40 basis points of average LHI excluding mortgage finance.

Taken together, this outlook reflects another year of positive operating leverage and meaningful earnings growth. Operator, we'd like to now open the call for questions. Thank you.

Operator: When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Woody Lay from KBW.

Woody Lay: Good morning, Lucas. One wanted to start on the investment banking and trading outlook and specifically the investment banking pipeline, I believe in 2025, you know, deals kinda got pushed to year end just given some of the tariff volatility over the first half of the year. So how does the pipeline look entering 2026? And how do you think about pacing of investment banking fees relative to the back half of the year?

Rob Holmes: Woody. Let me just give you a little facts on the investment bank performance in '25. We arranged about $30 billion of debt across term loan B, high yield, and private placement. And then on top of that, about $19 billion in lead less indications in the bank market. So we ranged about $49 billion of debt for our clients, which is very impressive. Broad new client penetration and leadership in the segment. IB transaction volume was up about 40%. The fees were much more granular. So people like you and others would suggest that's a healthy, better earning stream. Equities, we participated in more transactions than we had forecasted.

And even though some got pushed, and sales and trading is past $330 billion of notional trades since the opening of the business. That's up about 45% since last year. So there's broad growth. We're starting to see repeat refinancings. Remember, we just really got into this business in earnest, like, three years ago. And so now you're starting to see the repeat of a client that came onto the platform three years ago, which will add to the earnings going forward. I would say that what you are really focused on in terms of things that got pushed was more in the M&A space and equity space.

And we are seeing, and we do expect to see that pull through and pipelines remain very healthy. But it's very broad now. Public finance, best we can tell our public finance desk has grown for a de novo public finance desk faster than any public finance desk that we can find. And the synergies in the investment bank across commercial banking and corporate banking is proved to be very, very strong. Like, just the example, stay on public finance. Have a government, not for profit segment in corporate. Well, before we had Pug Finance, all we could really do lend to them short term and do the treasury. And now we can lend to them short term.

We can do the treasury. We can do financings for them as well in the public markets. So it's working as anticipated. And we remain very, very optimistic and proud of the business.

Matt Scurlock: What did the fee income from treasury wealth and investment banking top? $50 million for the second consecutive quarter which when you compare that to the $47.4 million of total fees for the full year 2020 from those three categories, so it's just how much progress we've made since announcing the transformation. Full year guide for noninterest income is to increase 15 to 25% to $265 million to $290 million which is underpinned by investment banking fees of $160 million to $175 million. And if you just think about Q1 outlook as for stable linked quarter performance.

So total noninterest income is $60 million to $65 million investment banking $35 million to $40 million which to Rob's comment, expectation of continued platform maturity and integration all the hires and capabilities that we've built over the last twelve to eighteen months. Driving positive trajectory both in fee income and investment banking as we move through the year.

Rob Holmes: And I would just add one more first. It didn't happen in the fourth quarter. It happened this quarter, Woody, but we did lead our first sole managed lead left equity deal. Which we think is a first for a Texas-based firm for any period that we've been went back and found. So, really, really excited about the business.

Woody Lay: That's great to hear. That's really, great color. I appreciate that all. Next, I just wanted to hit on capital and a little bit of a two-part question. First, just you were pretty active on the buyback front in the fourth quarter. Was that a reflection of the elevated CRE pay downs freed up some capital. And then the second question is, you know, you reiterated the CET one guide of over 11%. You know, you've been price sensitive on the buyback. Historically, stocks now trading well above where you bought in the fourth quarter. How do you think about additional buybacks from here?

Matt Scurlock: Yeah. We're pushing CET one up 75 basis points to 12.13% while growing loans $1.6 billion or 7%, buying back 5% of the company for 114% of prior month tangible, and billing tangible book value per share by 13.44%. We're obviously pretty pleased with how we utilize shareholders' capital for their benefit in 2025. We're highly focused on doing it again in '26. And to your point, I think we have a lot of options at our disposal. The published strategic objective of being financially resilient to market and rate cycles for us is a core is paramount.

And while we think we have significant capital in excess of internally observers profile Rob said repeatedly that carrying sector leading tangible common to tangible assets is a raw material contributor to our ability to attract the right type of clients. That's gonna benefit the shareholder over time and is advantage that we're currently unwilling to give up. I would say as the profitability continues to improve, the resources available support items on the capital menu also expands. So if you're trading at 1.3 times tangible, take the 2026 and 2027. Consensus estimates for ROE buying back today suggests that your purchasing it book value in two and a half years.

Which could certainly make sense for us given our internal view of forward earnings trajectory and then an ability to generate both book equity and regulatory capital.

Rob Holmes: I think also what if we could to really focus well, I think humbly, we proved it pretty good allocators of capital over these over the past several years. With that Matt just outlined. But we also continue to drive structural improvements in the platform. So if you remember, we talked about the SPEs structure and mortgage finance. We have the majority of our mortgage finance sector clients in that structure now. 77% or over 70% of those clients are open with the dealer. We do treasury with basically a 100% of those clients.

But when you move those clients, the sophisticated best of class clients to the SPE structure, you go from the risk weighting of a 100% down to sub 30% now on average, which clearly is a better model and releases capital. And, we're not gonna we'll forever try to drive efficiencies both in cost, but also capital in the businesses that we have to firm.

Woody Lay: Alright. That's all for me. Thanks for taking my questions. Thanks.

Operator: Thank you. Our next question comes from Michael Rose from Raymond James. Michael, your line is now open. Please go ahead.

Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Maybe just on the expense outlook. I think you mentioned, obviously, some wage inflation clearly and some hiring efforts. Can you just talk about some of the areas where you're looking to kind of incrementally add? Is it on the lender front? Has it continued to build out the capital markets platform to is it all of the above? Just trying to get a better breakdown of how we should think about that mid single digit expense guidance as we move forward.

Matt Scurlock: You bet, Michael. We are highly focused on leveraging the material previous material investments that we've made by expanding capabilities and adding targeted coverage with the 2026 expense guide continue to heavily feature growth in salaries and benefits with select increase in technology. We now have a, we think, a multiyear pattern of effectively improving the productivity of the expense base through the deployment of technology solutions which we anticipate is only gonna accelerate as we more fully adopt AI across the franchise. I would call out this expected seasonality in the expense base, which will increase at a higher percentage this year just given the larger portion of total salaries and benefits that's currently tied to stop.

So the current guide does anticipate Q1 non interest expense between $210 million and $215 million with about $18 million of seasonal comp and benefits, the expense and then another $10 million from the combination of incentive comp reset late quarter merit increases and full quarter impact of late year hires. As you exit Q1, we think about salaries and benefits around $105 million a quarter and then other non interest expense in that $75 million or so a quarter range. And then importantly, the mid single digit expense guide is sufficient to cover the current revenue expectations and the composition inclusive of the fee growth. Do you wanna add on that, Rob? What else can say at the end?

Rob Holmes: I guess the only thing the last thing I would say as we as we change the mix of investment, to a higher mix front office, in terms of expense mix with salaries and benefits. That's been a long journey. We continue to do that. But the revenue synergy today that we get from an incremental front office hire, is dramatically more. So remember, you know, Matt talked about this a lot, Michael. We talked about it with you a lot. When we're building these businesses, we had to build the back, the middle, and front office. The back and middle are substantially complete as we discussed a lot.

So we add somebody to the front line the return on that hire is much greater. Which is reflected in everything that Matt said.

Michael Rose: Great. I appreciate the color. Maybe just as my follow-up. Can you just talk about the opportunities? I know you're not going want to talk about loan growth figures per se, but high single digit commercial loan growth, CRE down a little bit. There's obviously been some market some mergers in and around your markets. Can you just talk about and then you obviously have hired a lot of lenders, right, as you've kind of upgraded the staff. Is there any reason to think that the loan growth LHI momentum again, I'm not asking for a target.

But that wouldn't continue against kind of a more, in theory, favorable backdrop some of the, momentum that you have just on the hiring front that you've made already then just a more conducive loan market? Thanks.

Matt Scurlock: Mike, I think a lot of the trends that you seen in the 2025 should really continue into 'twenty six with strong C and I and more finance growth offsetting contracting commercial real estate balances. So that we noted in the prepared remarks, the guide contemplates a $2.3 trillion mortgage origination market, which sits on top of a 6.3% thirty year fixed rate mortgage. Which for us would drive about a 15% increase in full year average mortgage finance balances. As Rob just noted, it's obviously a completely different mortgage finance offering than the legacy warehouse we've had at TCPI. 59% of these loans are in the enhanced credit structure, which have the average risk weighting of 28%.

80% of these clients are both the dealer, nearly all of them take advantage of our treasury products. We which suggested any realized pickup in one to four family originations is gonna generate significantly higher and more diversified per unit risk adjusted return for us this year. We also think we'll have another record year of client acquisition in the C and I focused offerings, which should be enough to offset continued balance reductions in CRE, which in our view should be pretty expected given multiyear pullback in originations really across all property types. I think all those things together, Michael, would support another year of mid to high single digit growth in gross LHI.

Rob Holmes: Yeah. And, Michael, there

Michael Rose: appreciate it.

Rob Holmes: The reason I said you know, when we first started, I said loan growth doesn't matter. Was is because we knew loan growth would come if we had the right clients left in. And we also knew that I mean, like we just talked about, we ranged you know, $30 billion of term loan B high yield and private placement debt for clients that wasn't bank debt, which helped the client and was a great risk management tool for us. And then also, as we mentioned, we're number two in the country in middle market, lead left bank syndication leads. Well, there's a lot of banks out there that would just kept that exposure.

Which we don't think is the right decision for the client, but it's certainly not the right decision for us from a risk management perspective. So we're not trying to maximize loan growth. We're trying to provide the clients with the right solutions and keep really good credit discipline. And have a great client outcome. So that's why we said what we said before. Loan growth does matter. But it's going to come. In spite of our prudent risk management because of our client acquisition and client selection.

Matt Scurlock: Another way just to think about that client acquisition Michael, is mean, commitments for us in the C and I space. Linked quarter, we're up over 25%. So we continue to drive low double digit growth in C and I balances and our last quarter, think we grew commitments 18, but we grew commitments percent year over year and again those are up to 25% linked quarter. A lot of client activity showing up on platform.

Michael Rose: Okay. So a lot of momentum, to continue. Thanks for all the color, guys. Appreciate

Rob Holmes: Sure.

Operator: Thank you. Our next question is from Casey Haire from Autonomous Research. Your line is now open. Please go ahead.

Jackson Singleton: Hi. Good morning. This is Jackson Singleton on for Casey Hare. I was wondering if you could just provide some more color into recent credit trends and maybe help us kinda understand what factors drove the increased in the provision guide year over year?

Matt Scurlock: Yeah. We did experience modest linked quarter increase in special mention loans, which as we noted in the comments was tied exclusively to a handful of multifamily properties. That are experiencing net income net operating income pressure just given required rental concessions to maintain target occupancy levels? These are extremely high quality sponsors that are in historically strong Texas markets, which we think over time are gonna benefit from the limited new supply and increased level of absorption. I would say, importantly, the ratio of criticized loans to LHI as we exited the year marked the best level since 2021. With really strong credit metrics generally across all categories.

We've we've had a 35 to 40 basis point guide, years ago, moved it to 30 to 35 basis points this year, came in obviously at the low end of the guide and we're certainly a group that wants to operate from a position of financial resilience to felt it prudent to move to 35 to 40, again, consistent with things we've done in the recent past.

Jackson Singleton: Got it. Okay. Thank you for that. And then just for my follow-up, just a NIM question. Can you help us think about the drivers for 1Q and then maybe any sort of range you could help for our modeling?

Matt Scurlock: Yeah. I think two fifty to two fifty five for one q on NII. Flattish margins, so somewhere in the mid threes. That's with one month average SOFR down about 27 basis points. If you think about the mortgage finance business in Q1, stay at the 85% self-funding ratio on $4.8 billion average balance. Again, with 27 basis point reduction in average one month SOFR quarter over quarter, that should push the yield on the mortgage finance business down to three eighty five or three ninety or so. So those are those are probably the factors that I would incorporate. The other comment that I'd I'd make is we're 67% recycled beta inclusive of the December cut.

Once all those pricing actions are passed through the deposit base, you're somewhere in the low seventies, probably by the end of January. For the full year outlook, we've been pretty noting our expectation that straight deposit betas were going to moderate. So any incremental cuts in '26 the guide would incorporate a 60% interest bearing deposit paid up. Which is obviously also what we'd now have in our earnings at risk down 100 scenarios.

Jackson Singleton: Got it. Okay. Great. Thanks for taking my questions.

Matt Scurlock: You bet. Thank you.

Operator: Our next question is from Anthony Elian from JPMorgan.

Anthony Elian: Hey. Hey, Matt. On mortgage finance, I'm curious what specifically drove the sequential increase in 4Q average balances. Was there any pickup in refi activity in, in that business?

Matt Scurlock: Rate rates were lower than had incorporated in the Outlook, which it did drive a pickup in aggregate originations in inclusive of refi. Then you had slightly longer dwell times as well, Tony, which supported those average balances.

Anthony Elian: Okay. And then my follow-up on credit, can you give us more color on what drove the increase in special mention? Know you called out the multifamily credits, but why did this surface now? And do you expect some sort of resolution on those credits? Thank you.

Matt Scurlock: Yeah. You bet. So it's a $100 million. We $205 million $250 million, excuse me, of special mission commercial real estate on a 5 and a half billion dollar portfolio. That we've experienced, I wanna say, $5 million of charge offs on in the last thirty six months. So we like to be proactive in communicating with you guys any potential downgrades or realized downgrades and as I noted in the previous question, simply a handful of Central Texas based multifamily properties where you had significant new product come online. That the market is working to absorb.

Many of these properties offer rental concessions to bring folks into the apartment complex and they had to those for another year longer than they originally anticipated. We grade based on cash flow, Tony, not appraised value. Which is why we sometimes have more sensitivity and downgrades than peers. So that rental concession is pressuring their net operating income and resulted in us moving it to special mention. So we feel very well reserved against these properties. They're clients that we do a lot of business with. Well structured with significant equity. There's no, in our view, pending waive. So if you look further upstream in the credit, scale or the credit grades, watch list was essentially flat.

So there's nothing sitting behind this other than these properties that we've identified.

Rob Holmes: I would say just to say, I think Matt three years ago, was ahead of all the bank peers pointing out that we were gonna have a small wave of provision increase in commercial real estate for a number of factors but we didn't we did not anticipate any real credit problems. We had worked through them. And that's exactly what happened, and I think this is very akin to that. Just to add what Matt said, I mean, we're in the top decile of firms since we started in and reserves added. And we're at an all time high of reserves in the history of the firm at 1.82% excluding mortgage finance.

So just think the percentages are high because the numbers are so small.

Anthony Elian: Great. Thank you.

Operator: Thank you. Our next question comes from Janet Lee from TD Cowen. Line is now open, Janet. Please go ahead.

Janet Lee: Good morning. For to clarify, on NIM, so mid three thirty range for '26. If I were to think about the direction of travel for NIM beyond that point, can you sustain flattish NIM from there given mean despite rates coming down, a potential improvement in self mortgage self-funding ratio. I guess that would looks like you know, considering your $265 to $290 million fee income range for '26. Your NII could be, you know, very low single digit growth to almost mid single digit growth there depending on where that lands. So I wanted to get some color.

Matt Scurlock: Yeah. I think given some pretty good detail on expectations for deposit repricing, self-funding, the only component of the liability base we haven't described as expectations commercial noninterest bearing. Which we continue to experience and anticipate record new client acquisition with a lot of those economics showing up in treasury product fees. Which we've grown over 20% for multiple quarters now and delivered north of 10% growth in p times v for the last five years. We think about their contribution to overall deposit balance portfolio mix to stay around that 13% level. So, obviously, deposits are going to grow, commercial NIV will grow, but their percentage stay relatively static.

Given some good hopefully, some good insights into how we think about the loan portfolio. We'll continue to invest cash flows from the securities book. We added about a billion 1 of securities last year at five and a half percent sold almost $300 million at 3%. So nice sequential picture of 80 basis points of improvement and the securities portfolio yields a nice sequential impact. To margin there. The hedge book today should cost us about $10 million pretax NII. In 2026. We are a little higher than we traditionally wanted to operate. On earnings at risk in a down one hundred. So you will see us selectively add to the swap book moving through 2026.

We're much more active. The spread obviously changes. Depending on the curve, but we're much more active today. When we see the negative spread between two year and one month. So for inside of 30 basis points, which as of yesterday, we were sitting there. So you'll see us add some swaps. I think I think all that together should give you a pretty good sense for how we're thinking about margin moving into 2026.

And then just to reiterate, perhaps counterintuitively, all the all the work that we've done as a firm to reduce our reliance on margin NII as a sole contributor to earnings is perhaps again counterintuitively actually really supporting NII and margin because we're relevant to these clients across a wide range of products and services. They're generally less price sensitive. And then just the final comment there, Janet, I mean, we've we've shown a ability to deliver increasing net interest revenue and PPNR in a wide range of interest rate environments. Including delivering 14% increase in NII, 13% increase in revenue, and 32% increase in PPNR, with rates on average down 100 basis points this year relative to last year.

Rob Holmes: Only thing I'd to reiterate is what Matt said at the end, because I think it's I just wanna make sure everybody got it. I think it's it's a key to the strategy. The clients are less price sensitive on rate when you're adding value a lot of different ways and you're relevant to your client with quality client coverage and proactive ideas and execution on other fronts. Become much less price oriented on deposits. So just wanna make sure like, I think all the lines of business are contributing to that improvement in them.

Janet Lee: Got it. And just one follow-up for me. Appreciate the comments around commercial real estate payoffs and balances coming down 10% year over year. That commentary seems somewhat different from most of the banks that are beginning to see CRE balances inflecting or stabilizing. Is it just a function of your appetite to not grow CRE originate CRE loans as much or your CRE is more tilted towards construction? How what is the underlying factor there?

Matt Scurlock: Honestly, Jan, we're we're somewhat perplexed by that industry trend. I mean, volumes have been at historic lows for multiple years. There's a lot of capital the space. And by the space, meaning financial services where folks are looking to deploy into loan growth. As a primary way to drive earnings. That obviously is gonna push down spread on high quality transactions, which is a shop that's really focused on through cycle return on equity with the right clients. We have no desire to go chase lower spread. So our view is that it's just gonna take a couple of years for the market to chew through the supply that's coming online.

And ultimately to correct and see new originations maybe in 2728. We do not anticipate growth in commercial real estate this year, again, not a byproduct of us devoting less focus, intensity, or resource into space, but mostly just because of the market dynamic where there's just not product coming online.

Rob Holmes: Also, I think it's an indicator of a very healthy commercial real estate portfolio with regularly scheduled payoffs.

Janet Lee: Got it. Thank you.

Operator: Thank you. Our next question comes from Matt Olney from Stephens.

Matt Olney: Hey, thanks. Good morning. Question for Rob. Since you achieved and exceeded those legacy ROAA targets the 2025, I heard you mention the focus now becomes recognizing the full potential of the recent investment. So we'd love to appreciate what this full potential at full scale look like as far as the operating metrics at the bank longer term. Thanks.

Rob Holmes: Matt, great question. Obviously, we're not gonna give multiyear guidance. I'll tell you that the platform is the synergy of the platform the talent we've been able to recruit, the talent we've been able to maintain, the pipelines, and the platforms even working in a better coordinated synergistic way than even I could have hoped for. Supported by a really good investment and historical technology improved operating efficiency, improved operating risk and controls, which I you know, and we talked about the credit portfolio and the discernment there. I feel really, really good about the future. And, we're very optimistic. We look. We've got a lot we got a lot to do.

We're what I would say is the theme of this year is execute and scale. We've got we just gotta execute. We've got all the parts and services we need. We've got the majority of the banker roles filled that we need. We just need to execute. There is so much investment that hasn't reached scale in the platform. But if we could beat these profitability levels, with that investment already in the platform, which is proven will work, with record client acquisition every year. We're we just gotta execute and scale. That's it. Which really derisks totally derisks the investment thesis.

Matt Olney: Okay. Appreciate the, the color, Rob. And then as a follow-up, going back to the capital discussion, we've already talked about the buyback and the enhanced credit structure. It does look like on capital, you have a few instruments that either mature or becomes callable here. Pretty quickly. So we'd love to get your know, preliminary thoughts around these instruments and any plans you may have as far as some of these debt instruments? Thanks.

Matt Scurlock: Thanks, Matt. We've got ton of optionality in the capital base and we'll look to behave accordingly in Q1 when some of these instruments become callable.

Matt Olney: Okay. Appreciate it. Thanks.

Matt Scurlock: Thanks, Matt.

Operator: Our next question comes from Jon Arfstrom from RBC.

Jon Arfstrom: Thanks. Good morning.

Rob Holmes: Good morning, John.

Jon Arfstrom: Hey. Rob, just to follow-up on Olney's question. You'd use the term subscale on some of your businesses. What are the top few areas where you feel like you're the most subscale, where you've already made the investments, where are the opportunities?

Rob Holmes: Seven trading, equity, public finance, treasury, I don't think any of our businesses are at scale yet. Like, not one. Mean, business banking is not at scale. So you know, we're this is just the prefaces of what this firm can do. Matt's gonna get mad at me and we hang up because she he's gonna say I was too optimistic, but there's literally not a business approaching scale. You know, we've we've done our first lead left equity deal. We have one of the best equity teams on this platform. If you look at their historical body of work. Our public finance team I'm super proud of.

Our sales and trading like, it I could keep I'm gonna get in trouble also because I didn't name everybody. I don't I don't know of a sub business on the platform that's at scale. Which I which I which I think is great. And then we've proven to be we're really improving our operating risk and we're really improving our ability to syndicate risk you know, being number two in the country, We're not we don't need to we're in the risk business, but we don't need to take risk and hit returns. Like a lot of pure banks need to do.

Jon Arfstrom: Okay to turn the heat up on that a little bit. That's okay. The other thing I wanted to ask about it's kind of a related, but you guys have this relationship management return hurdle exercise. And I know it's been around for a while, but as the business has evolved and you we just said things were immature, but as the business has matured, how was that evolved and how has that allowed you to maybe keep clients around with less of an ask than maybe you did two or three years ago?

Rob Holmes: Yeah. It's thank you, John. It's I think it's it's evolved to being from a exercise to being part of our culture. So when we commit capital for a client, it's it's the relationship management exercise you talked about is balance sheet committee. The heads with LLPs are on that. The head of risk are on that. Madison's at a lot. Remember, everybody every LOB is fighting for the same amount of finite capital. And so if they're gonna vote to deploy that capital, it's then it's good for the farm, and we have the right current ROE for loan only, but also for the relationship as a whole.

Both in a downgrade scenario with the credit, and when you do that, you have other lines of business signing up to support that client. So over 90% of the loans we've done since we started have other lines of other business tied to it when we onboard it. Treasury is probably the most, about 90%. But you have private wealth signing up to do business with them or private banking. And then when you have a if you have a bank or leave or something, which every bank does, people retire or what have you, you have like, four or five touch points with that client. So the client's been institutionalized. It's not a banker relationship.

It's an institutional relationship. So which I think is makes the client much more valuable in the current state and a go forward state to the firm. And we're bringing more value to the client, so it's a win.

Jon Arfstrom: Okay. You very much, guys.

Rob Holmes: Thank you.

Operator: Currently have no further questions, and I would like to hand back to Rob Holmes for any closing remarks.

Rob Holmes: I just wanna thank all the employees of Texas Capital for another very solid quarter. I look forward to a great '26. Thanks, everyone.

Operator: Thank you. This now concludes today's call. You all for joining. You may now disconnect your lines.