Texas Capital Bancshares Q2 2025 Earnings Report

Texas Capital Bancshares EPS Results

• Actual EPS: $1.63
• Consensus EPS: $1.28
• Beat/Miss: Beat by +$0.35
• One Year Ago EPS: $0.80

Texas Capital Bancshares Revenue Results

• Actual Revenue: $307.46 million
• Expected Revenue: $298.90 million
• Beat/Miss: Beat by +$8.56 million
• YoY Revenue Growth: N/A

Texas Capital Bancshares Announcement Details

• Quarter: Q2 2025
• Date: 7/17/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 17, 2025
• Conference Call Time: 9:00AM ET

Texas Capital Bancshares (NASDAQ:TCBI) operates as the bank holding company for Texas Capital Bank, is a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs, and individual customers. The company offers commercial banking; consumer banking; investment banking solutions, including capital markets, mergers and acquisitions, and syndicated finance, as well as financial sponsor coverage, capital solutions, and institutional services; and wealth management services, such as investment management, financial planning, lockbox and insurance, securities-based lending, estate planning, and business succession, as well as philanthropic, trustee and executor, custom credit, and depository services. It also provides deposit accounts, analyzed accounts, commercial card, SBA and business loans, packaged solutions, and merchant services; liquidity and investments, working capital, international trade and payment, and treasury and credit products; and commercial real estate, homebuilder and community, and mortgage finance. In addition, the company offers payables and receivables management; online and mobile banking; term loans and lines of credit, equipment finance and lease, acquisition finance, and asset-based lending; private wealth advisory solutions; and checking and savings accounts, debit and credit cards, and certificates of deposit, as well as ETF and funds management services. Further, it provides financial institution money market accounts and loan syndication products; commercial loans for financing for working capital, organic growth, and acquisitions; real estate term and construction loans; mortgage warehouse lending services; treasury management, trust, and advisory and escrow services; and letters of credit. The company operates in Austin, Dallas, Fort Worth, Houston, and San Antonio metropolitan areas of Texas. Texas Capital Bancshares, Inc. was incorporated in 1996 and is headquartered in Dallas, Texas.

Texas Capital Bancshares Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted Q2 2025 total revenue rose 16% YoY, net income doubled, and ROAA reached 1.02%, approaching the firm’s 1.1% target for 2025.
• Positive Sentiment: Commercial loans expanded 13% YoY and tangible book value per share hit an all-time high of $70.14, while strong capital ratios (TCE/TA 10.04%) were maintained.
• Positive Sentiment: Treasury product fees jumped 37% YoY to a record high and net interest margin widened by 16 basis points, driven by growth in payment services and optimized deposit mix.
• Positive Sentiment: Investment banking and trading revenue surged 43% QoQ despite early-quarter market challenges, supported by new hires and expanded product coverage.
• Neutral Sentiment: The allowance for credit losses rose to a record $334 million (1.79% of LHI ex-mortgage finance) and criticized loans dropped 26% YoY, reflecting a conservative approach to risk management.

Presentation

[Operator]

Good morning, and thank you all for attending the Texas Capital Bancshares Inc. Q2 twenty twenty five Earnings Call. My name is Breeka, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Joycelyn Kukulka, Head of Investor Relations at Texas Capital Bank Shares. Thank you. You may proceed.

[Jocelyn Kukulka, Managing Director at Texas Capital Bancshares]

Good morning, and thank you for joining us for TCBI's Second Quarter twenty twenty five Earnings Conference Call. I'm Jocelyn Kukulka, Head of Investor Relations. Before we begin, please be aware this call will include forward looking statements that are based on our current expectations of future results or events. Forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements. Our forward looking statements are as of the date of this call, and we do not assume any obligation to update or revise them.

[Jocelyn Kukulka, Managing Director at Texas Capital Bancshares]

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 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 texascapitalbank.com. Our speakers for the call today are Rob Holmes, Chairman, President and CEO and Matt Scurlock, CFO.

[Jocelyn Kukulka, Managing Director at Texas Capital Bancshares]

At the conclusion of our prepared remarks, our operator will open up the call for Q and A. I'll now turn over the call to Rob for opening remarks.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

Good morning. Our strong quarterly performance is the result of continued execution on our multi year 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.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 clients 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, 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.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 will be possible without the dedication and hard work of our employees.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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, MD & CFO at Texas Capital Bancshares]

Thanks, Rob, and good morning. Starting on Slide five. Second quarter adjusted total revenue increased $42,300,000 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 $28,900,000 or 10% for the quarter, as a $17,400,000 increase in net interest income was augmented by an $11,500,000 improvement in adjusted non interest revenue. Adjusted total non interest expense decreased $14,100,000 quarter over quarter As first quarter financials are impacted by seasonal payroll and compensation expenses, realized structural efficiencies enabled continued repositioning of the expense base in support of defined capability build.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Taken together, year over year adjusted pre provision net revenue increased 52% or $41,400,000 to $120,500,000 a record level since the announcement of the strategic transformation. This quarter's provision expense of $15,000,000 resulted from continued growth in gross LHI, 13,000,000 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 $2,000,000 to $334,000,000 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 $75,500,000 an increase of 100% compared to adjusted net income to common in Q2 of last year. This continued financial progress coupled with a consistently disciplined multi year share repurchase approach contributed to a 104% increase in quarterly adjusted earnings per share compared to adjusted earnings per share from a year ago.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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 and return accretive loan portfolio expansion, with ending period gross LHI balances excluding mortgage finance growing $387,000,000 or 9% annualized during the quarter. Average commercial loan balances increased 4% or $399,000,000 during the quarter with broad contributions across areas of industry and geographic coverage with ending period balances up approximately $1,400,000,000 or 13% year over year. As expected, real estate loans declined slightly during the quarter, decreasing $159,000,000 including a $53,000,000 reduction in previously criticized assets to the lowest level in over two years.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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 5,300,000,000.0 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 a 10% increase in full year average balances predicated on a $1,900,000,000,000 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 2,800,000,000 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.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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 intentionally more resilient to changes in market rates. In April, we took advantage of significant tariff driven rate volatility to sell two eighty two million dollars 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 $221,000,000 of additional securities yielding 5.6% along with $100,000,000 in forward starting received fixed swaps that will become active on October 1.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

We currently have $1,500,000,000 of received fixed SOFR swaps maturing in the third quarter at a blended receive rate of two ninety two basis points, of which $250,000,000 matured earlier this month. Partially offsetting this reduction, 300,000,000 of previously added forward starting SOFR swaps with a blended receive rate of three eighty eight 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 $17,400,000 increase in net interest income was driven by improvements in funding costs, 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 non interest expense decreased $14,100,000 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.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

The allowance for credit loss including off balance sheet reserves increased to $334,000,000 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 $20,000,000 relative to Q2 of last year. Special mission loans decreased $144,300,000 quarter over quarter, while total criticized loans decreased $222,000,000 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 and I and CRE. The reserve coverage ratio remained strong at 2.9 times non accrual loans, which experienced a modest increase of $20,000,000 this quarter to levels in line with those experienced over the last twelve months.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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, 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 assessor's 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.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

By quarter end, approximately 30% of our mortgage finance loan portfolio had migrated to the enhanced credit structures discussed over the last few quarters, bringing the blended risk weighting to 79%. Our continued client dialogue suggests that another 10% of 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 $21,000,000 at a weighted average price of $65.5 per share or 96% of prior month tangible book value per share. Turning to the full year outlook.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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 non interest 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.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Operator, we'd now like to open up the call for questions. Thank you.

[Operator]

Thank If you change your mind and would like to remove that question, you can do so by pressing star two. 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, Managing Director at Raymond James Financial]

Hey, good morning, everyone. Thanks for taking my questions. Matt or Rob, just wanted to get a better view into kind of the the pipeline for investment banking and trading. I know you've made a fair amount of hires here recently, and we've seen the the deal activity pick up on your LinkedIn page. Just just wanted to get a sense for for where pipelines are and and, you know, how we could expect that to trend.

[Michael Rose, Managing Director at Raymond James Financial]

And then then if you could dovetail that with, you know, the ongoing investments that are gonna be needed to kinda support the growth of that business. I know you've launched on a couple sectors here within research and and things like that. So just just trying to level set, you know, near term expectations. Thanks.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Yeah. Happy to address that, Michael. So, you know, the fact despite the fact that capital markets were essentially closed in April and through the 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 60,000,000 to $65,000,000 in the third quarter, which would be supported by 35,000,000 to $40,000,000 in investment banking fees investment banking fees, excuse me.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

And that expectations for full year non interest income are moving to about $230,000,000 to $240,000,000 On expense side, we 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 gonna move to the mid to high one nineties over the next couple of quarters The size and benefits moves into the low to mid one twenties and then other non interest expense moves above the $70,000,000 number that we've cited for the last few quarters. Both both of those moves are related to the capability build out that you described, Michael, primarily in investment banking coverage and product rollout. It's not just the comp and benefits expense. It's the technology expense, occupancy expense, and the legal necessary to put those initiatives into the market.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 a 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 where they use a an investment banking service or not, which makes them less demanding of rate, which obviously contributed to 42 bps improvement year to date in Nilm, which I think is sector leading.

[Michael Rose, Managing Director at Raymond James Financial]

That's great color. I appreciate all of it. Maybe just one follow-up question. I had probably beaten a dead horse here on the the ROA, but it it seems like it's clearly within, you know, striking distance. I I I know maybe a little bit early, but, you know, just given ongoing momentum, in seizing of investments, positive operating leverage, the above.

[Michael Rose, Managing Director at Raymond James Financial]

I mean, should we expect something higher as as we contemplate, you know, next year? Thanks.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

Look. We didn't we certainly our aspiration is not to achieve one one in stock. I mean, you know us pretty well, Michael. That's 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. What we're certain of is that the strategy works.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

The client acceptance of this strategy in our bankers is actually surprising even to me. I'm super proud of the bankers. The clients we're onboarding, as we said, we wanna 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 a is just a mere stop along the way.

[Michael Rose, Managing Director at Raymond James Financial]

Appreciate it. Thanks for taking my questions.

[Operator]

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

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

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, MD & CFO at Texas Capital Bancshares]

What I'm not sure if there was a beginning part of that question that we may have missed. So the first thing we heard is the restructuring charges to address that. So we 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 that we've been describing really since 2021. So that that's a trend that we hope to continue and think it's become a core competency for the firm.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

And then can you can you ask the second question again?

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

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, does that does that really come down to how investment banking fees trend in the back half of the year?

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Yeah. Good good question. I I really like about 6% full year non interest expense growth. I think mid to high 190s the next two quarters supports $240,000,000 of fee generation as well as the outlook for full year earnings.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

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

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

Doesn't doesn't doesn't affect us whatsoever. As you know, we 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 of a competitive advantage. We have lots of uses for it. We're great stewards of capital.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

As you know, we have a traditional data driven capital allocation model, and we've proven to be good stewards of it. And it the regulatory outlook has no bearing.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Got it. Thanks for taking my questions.

[Operator]

Thank you. We now have a question from Steven Skagen with Piper Sandler.

[Stephen Scouten, MD & Senior Research Analyst at Piper Sandler Companies]

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 some revenue trends that are ahead of schedule or maybe what would take us to the highest end of what is low double digit growth?

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Yeah. We we think at 02/30 of fees, so the low end of the fee guide, we've got enough NII momentum, Steven, to move to the high end of the current guide. And 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% in 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 $3,000,000,000 or 22% year over year, which to Rob's point, we think highlights improved client relevance and a sustained value proposition. Supporting those results, we did have CDs repriced, nine eighty six million of CDs that matured in the quarter at $4.75 and came back on closer to $4.25.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

And we've got another $1.1 that's going to mature this quarter, 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 majority of those CDs to be replaced at current market pricing. We we don't necessarily think that we're gonna 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 we do think there's enough momentum to support an increase in net interest income of roughly $10,000,000 linked quarter. And if you carry that out for the duration of the year, think you can pretty easily deliver the high end of the revenue guide on two thirtieth fees.

[Stephen Scouten, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. That's very helpful and specific. Appreciate that, Matt. I 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 you know, kind of drag from the deposit weighting lessens relative to what it's been in the past?

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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

[Stephen Scouten, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Great. And then maybe just lastly on the expense trends, I know last quarter you had called out about $14,000,000 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 that occurred this quarter?

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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, MD & Senior Research Analyst at Piper Sandler Companies]

Fantastic. Thanks for all the color. Appreciate the time. Great quarter.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

You bet. Thanks.

[Operator]

Thank you. And your next question comes from Matt Olney with Stephens Inc.

[Matt Olney, Managing Director at Stephens Inc]

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 of course into June. I mean you mentioned it was a volatile 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?

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Yes. Thanks, Matt. So I think we've noted on every single call since this management team has been in place that we're trying to create what think is a 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 and 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 are down about 2% year over year.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

I would just add to that that the the the the I see continued growth Activity in the balance sheet form is extremely high for new clients with 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 the reinvestment and the balance sheet continues to slow.

[Matt Olney, Managing Director at Stephens Inc]

Okay. 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 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?

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

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 hasn't changed since the beginning of the year. So we've got a $1,900,000,000,000 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.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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. Okay. Thanks for taking my questions. You bet. Thanks.

[Operator]

Thank you. And your next question comes from Jon Arfstrom with RBC Capital Markets.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Hey, thanks. Good morning.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Hi, Jon.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Hey. Just a couple of cleanups here. Matt Matt, can you comment on the higher NPL balance? Obviously, not concerning, but just curious what was behind that.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

Yes. A couple of C and I credits, not industry specific, no direct impact from tariffs. I'd say just in general on credit, I think we're 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.

[Matt Scurlock, MD & CFO at Texas Capital Bancshares]

We added a couple million dollars to the reserve, which nominally is now at the highest level in the firm's history. And did result in a slight reduction in the ACL coverage ratio, but the the trends to the left of NPA are quite strong. So we saw a 26% reduction in year over year criticized loans, a 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's significantly more conservative than consensus estimates.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 at 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, the and the performance of the credit portfolio.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Yep. Okay. So I'm good. Fair enough on that. Rob, where are you on in your wealth management build out progress?

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

It feels like maybe that's the last leg here. I'm just curious how you feel about that.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

Yep. I feel I feel really good about it. So, you're right. It is the last leg. We're a little behind on that.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 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 you're about to see the first legs of it.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Okay. Alright. Thank you very much. I appreciate it.

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

Thanks, John.

[Operator]

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

[Rob Holmes, Chairman, President & CEO at Texas Capital Bancshares]

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 Ventures. You may now disconnect. Thank you all for your participation, and please enjoy the rest of your

Participants

Executives

• Jocelyn Kukulka, Managing Director
• Rob Holmes, Chairman, President & CEO
• Matt Scurlock, MD & CFO

Analysts

• Michael Rose, Managing Director at Raymond James Financial
• Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)
• Stephen Scouten, MD & Senior Research Analyst at Piper Sandler Companies
• Matt Olney, Managing Director at Stephens Inc
• Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets