Earnings call transcript: Texas Capital Q2 2025 sees strong growth and innovation

Texas Capital Bancshares (TCBI) reported robust financial results for the second quarter of 2025, showcasing significant year-over-year growth in several key metrics. Trading at $83.86, the $3.84 billion market cap bank has shown impressive momentum with a 30% gain over the past six months. According to InvestingPro analysis, while the company demonstrates strong growth potential, it currently trades above its Fair Value, suggesting careful consideration for new positions.

Key Takeaways

• Adjusted total revenue increased by 16% year-over-year.
• Net income for common shareholders doubled from the previous year.
• Earnings per share rose by 104%.
• Strategic expansion in investment banking and trading platforms.
• Continued growth in commercial loans and deposit base.

Company Performance

Texas Capital Bancshares demonstrated strong financial health in Q2 2025, with notable improvements across various metrics. The company’s strategic focus on expanding its investment banking and trading platforms and enhancing its treasury product offerings has contributed to its solid performance. The bank’s commercial loan growth and improved deposit-to-loan ratios reflect effective management and market positioning.

Financial Highlights

• Revenue: Increased by 16% year-over-year.
• Earnings per share: Expanded by 104%.
• Net interest margin: Expanded by 16 basis points.
• Adjusted pre-provision net revenue: Increased by 52% to 120.5 million.
• Return on average assets: Reached 1.02%.

Outlook & Guidance

Texas Capital reaffirmed its guidance for low double-digit revenue growth, with a focus on expanding client relationships. The company anticipates non-interest income of 230 to 240 million and aims for a return on average assets of 1.1% in the second half of 2025. The bank has reduced its non-interest expense growth guidance to mid-to-high single digits, demonstrating a commitment to cost management. Analyst targets range from $75 to $100, with InvestingPro data showing 6 additional key insights about the company’s growth prospects and financial health available to subscribers.

Executive Commentary

CEO Rob Holmes emphasized the company’s strategic focus, stating, "1.1% is just a mere stop along the way." He highlighted the bank’s selective approach to client acquisition, remarking, "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." Holmes expressed optimism about the bank’s future, saying, "We have a long way to go and we’re super excited about it."

Risks and Challenges

• Macroeconomic pressures: A cautious outlook on the broader economic environment could impact growth.
• Interest rate fluctuations: Changes in rates could affect net interest margins and profitability.
• Competitive pressures: Maintaining peer-leading capital ratios and credit reserves requires continual strategic focus.
• Client acquisition: Balancing growth with a selective client approach could pose challenges.

Texas Capital’s strategic initiatives and strong financial performance in Q2 2025 underscore its potential for sustained growth. The bank’s focus on innovation, client relationships, and cost management positions it well in the competitive financial landscape. For deeper insights into TCBI’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro, which provides detailed analysis of the company’s financial health, competitive position, and future outlook.

Full transcript - Texas Capital Bancshares Inc (TCBI) Q2 2025:

Breka, Conference Moderator: Good morning and thank you all for attending the Texas Capital Bancshares, Inc. Q2 2025 earnings call. My name is Breka 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, Jocelyn Kukulka, Head of Investor Relations at Texas Capital Bancshares, Inc.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Thank you.

Breka, Conference Moderator: You may proceed. Good morning and thank you for joining us for Texas Capital Bancshares second quarter 2025 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. Today’s presentation will include certain non-GAAP metrics, including but not limited to adjusted operating metrics, adjusted earnings per share, and return on invested capital. For reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings release and our website.

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

Rob Holmes, Chairman, President and CEO, 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 and significant new client acquisition again resulted in targeted balance sheet expansion consistent with our strategic areas of focus.

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

Earning the right to be our client’s primary operating bank remains a foundational component of our company, with sustained success again displayed by another quarter of peer-leading growth in treasury product fees, which increased 37% year over year to a record high for the firm. Quarterly treasury product fees have now increased in 8 of the last 12 quarters, demonstrating the sustainability of our trajectory and commitment to being a premier payments bank. Early and substantial investments in these products and services have returned the expected outcomes, which as they scale will continue to enhance profitability. In addition to focusing on core operating account growth, our treasury platform is also contributing to expansion in longer duration, less rate-sensitive interest-bearing deposits, again evidenced this quarter by a 16 basis point increase in linked-quarter net interest margin.

Our unique and focused client service models continue to gain scale, making it easier for our clients to bring more of their business to us through tech-enabled connectivity and same-day account opening. Despite portions of the capital markets being essentially closed in April and early May, investment banking and trading income increased 43% quarter over quarter and 4% year over year, led by a rebound in capital markets activity and our steadily growing sales and trading platform. During the quarter, we also continued our equities buildout, further expanding our research coverage to 72 companies, adding key talent in equity capital markets, corporate access, and industry investment banking coverage, while also commencing trading operations near the end of the quarter.

Our breadth of product offerings and integrated client solutions provided by industry experts aligned with client needs continues to be a competitive advantage, driving pipeline growth, which will be further enhanced as these capabilities begin to scale during the second half of the year. As we close out this quarter, I want to take a moment to reflect on how far we have come. Over the past four years, we have executed a bold and deliberate transformation, reshaping our firm into a more agile, diversified, and client-centric institution. Through purposeful actions, scaling value-accretive businesses, enhancing client journeys, and driving operational efficiency, we have built a platform that is resilient, relevant, and positioned to perform through any market or rate cycle. This quarter’s results are a testament to the strength of the platform.

We have delivered solid performance across our businesses, maintain risk discipline, and continue to invest in innovation and talent, all of which engender confidence we will deliver the risk-adjusted returns consistent with our published targets. None of this would be possible without the dedication and hard work of our employees. Their commitment, creativity, and resilience have been the driving force behind our transformation and will ensure our future successes. Thank you again for your continued support and trust. I’ll turn it over to Matt to discuss the financial results.

Matt Scurlock, CFO, Texas Capital Bancshares: Matt, thanks Rob, and good morning. Starting on slide 5, second quarter adjusted total revenue increased $42.3 million or 16% relative to Q2 of last year, supported by 17% growth in net interest income and 11% growth in adjusted fee-based revenue. Linked-quarter adjusted total revenue grew by $28.9 million or 10% for the quarter as a $17.4 million increase in net interest income was augmented by an $11.5 million improvement in adjusted non-interest revenue. Adjusted total non-interest expense decreased $14.1 million 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. Taken together, year over year, adjusted pre-provision net revenue increased 52% or $41.4 million to $120.5 million, a record level since the announcement of the strategic transformation.

This quarter’s provision expense of $15 million resulted from continued growth in gross LHI, $13 million of net charge-offs against previously identified problem credits, and our continued view of the uncertain macroeconomic environment, which remains decidedly more conservative than consensus expectations. The firm’s allowance for credit losses increased $2 million to $334 million, finishing the quarter at 1.79% of LHI when excluding the impact of mortgage finance allowance and related loan balances. As Rob noted, adjusted net income to common was $75.5 million, an increase of 100% compared to adjusted net income to common in Q2 of last year. This continued financial progress, coupled with a consistently 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.

The firm continues to operate from a position of financial strength with balance sheet metrics remaining exceptionally strong. Ending period cash and securities comprise 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. Focused 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 million or 9% annualized during the quarter. Average commercial loan balances increased 4% or $399 million during the quarter with broad contributions across areas of industry and geographic coverage, with ending period balances up approximately $1.4 billion or 13% year over year. As expected, real estate loans declined slightly during the quarter, decreasing $159 million including a $53 million reduction.

Previously criticized assets to the lowest level in over two years despite a modest increase in clients’ new business volume. Should the current rate outlook hold, our expectation remains that payoffs will outpace originations over the duration of the year, causing current quarter trends to continue at a comparable pace. As anticipated, average mortgage finance loans increased 34% linked-quarter to $5.3 billion as seasonal home buying activity hits its annual high during the summer months. We remain cautious on the mortgage outlook for the remainder of 2025 with continued expectation for 10% increase in full year average balances predicated on a $1.9 trillion origination market. As Rob noted, sustained success winning high quality deposit relationships continues to allow for select reduction of higher cost deposits where we are unable to earn an adequate return on the aggregate relationship.

These trends are evidenced in part by our continued ability to effectively grow client interest bearing deposits, which are up $2.8 billion or 19% year over year, while effectively managing deposit betas which increased to 81% in the quarter and maintaining decade low levels of broker deposits. This is also observed in the ratio of average mortgage finance deposits to average mortgage finance loans, which improved at 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 model 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 $282 million of relatively short duration AFS securities with a book yield of 3.1%, reinvesting the proceeds into securities yielding 5.4%, resulting in approximately four month earn back and improvement in rates. Fall protection in addition to the small repositioning, we continue to effectively manage duration in anticipation of upcoming swap maturities, adding $221 million of additional securities yielding 5.6% along with $100 million in forward starting receive fixed swaps that will become active on October 1. We currently have $1.5 billion of receive fixed SOFR swaps maturing in the third quarter at a blended receive rate of 292 basis points, of which $250 million matured earlier this month.

Partially offsetting this reduction, $300 million of previously added forward starting SOFR swaps with a blended receive rate of 388 basis points become active later in the third quarter. We do still anticipate future interest rate derivative or securities actions over the course of 2025 as we look to augment potential rates fall earnings generation at materially better terms than available during our deliberate process through the mid part of last year. Net interest margin expanded 16 basis points this quarter as a $17.4 million increase in net interest income was driven by improvements in funding 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 $14.1 million off a seasonally elevated Q1, while year-over-year adjusted levels were up only $900,000.

As we continue to reposition the expense base in support of consistently defined growth initiatives and areas of focus, the allowance for credit losses including off-balance sheet reserves increased to $334 million, an all-time high for the firm. When excluding the impact of mortgage finance allowance and related loan balances, reserves are 1.79% of total LHI, in the top decile among the peer group and up over $20 million relative to Q2 of last year. Special Mission loans decreased $144.3 million quarter over quarter, while total criticized loans decreased $222 million or 26% year over year. Criticized loans to total LHI decreased to 2.66%, the lowest level since 2022, with broad-based improvements across both CNI and CRE. The reserve coverage ratio remains strong at 2.9 times non-accrual loans, which experienced a modest increase of $20 million this quarter to levels in line with those experienced over the last 12 months.

Despite continued notable portfolio improvements, we remain focused on proactively assessing the credit impact of a wide range of macroeconomic and portfolio specific scenarios. This consistent forward looking approach reinforces our ability to adapt to evolving credit conditions while preserving balance sheet strength and supporting long term value creation. Consistent with prior quarters, capital levels remain at or near the top of the industry. Total regulatory capital remains exceptionally strong relative to both the peer group and our internally assessed risk profile. CET1 finished the quarter at 11.4%, an 18 basis point decline from prior quarter as strong capital generation was offset by robust loan growth. By quarter end, approximately 30% of our mortgage finance 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 million at a weighted average price of $65.50 per share or 96% of prior month tangible book value per share. Turning to the full year outlook, we’re reaffirming our revenue guidance of low double digit % 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 % growth from high single digit % 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 corporate quarterly 1.1% ROAA in the second half of the year. Operator, we’d now like to open up the call for questions. Thank you.

Breka, Conference Moderator: Thank you. If you would like to ask a question, I do remind you to please press STAR followed by one on your telephone keypads. If you change your mind and would like to remove that question, you can do so by pressing STAR two. As a reminder, that is STAR followed by one to ask a question. When speaking, please ensure you pick up your handset before asking your question and that you unmute locally. The first question we have comes from Michael Rose with Raymond James. Please go ahead.

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

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Thanks.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Yeah, happy to address that, Michael. Despite the fact that capital markets were essentially closed in April and through the first part of May, investment banking and trading income did come in above the guide, which was supported by strong capital markets syndication fees and continued growth in sales and trading. Rob noted in his prepared remarks that the continued expansion of and integration of capabilities into existing coverage should support pretty strong fee growth in the back part of the year. The guide currently contemplates that total non-interest income moves to $60 to $65 million in the third quarter, which would be supported by $35 to $40 million in investment banking fees. Expectations for full year non-interest income have moved to about $230 to $240 million.

On the expense side, we’re proud that we continue to find select opportunities to reposition the expense base against what have long been described as areas of focus. We expect expenses are going to move to the mid to high $190 million range over the next couple of quarters as salaries and benefits move into the low to mid-$120 million range and other non-interest expense moves above the $70 million number that we’ve cited for the last few quarters. Both of those moves are related to the capability build out that you described, Michael, primarily in investment banking coverage and product rollout. 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 and CEO, 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. There’s a better client journey, better advice, better dialogue with our clients, a more valuable banking relationship whether they use an investment banking service or not, which makes them less demanding of rate, which obviously contributed to 42 bps improvement year to date in NIM, which I think is sector leading.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: That’s great, caller. I appreciate all of it. Maybe just one follow-up question. Probably seen a dead horse here on the ROA, but it seems like it’s clearly within striking distance. I know maybe a little bit early, but just given ongoing momentum and seasoning of investments, positive operating leverage, all the above. I mean, should we expect something higher as we contemplate next year?

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Thanks. Look, we didn’t. We certainly our aspiration is not to achieve 1:1 in stock. I mean, you know us pretty well, Michael. That was a guidepost along the way of the transformation. We have a long way to go and we’re super excited about it. What we’re certain of is that the strategy works. The client acceptance of this strategy and our bankers is actually surprising even to me. I’m super proud of the bankers, the clients we’re onboarding. As we said, we want to be defined by our clients. We’re proud of all of them. We’ve reallocated a lot of capital to get the right clients onto the platform. 1:1 is just a mere stop along the way.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Appreciate it.

Matt Scurlock, CFO, Texas Capital Bancshares: Thanks for taking my questions.

Breka, Conference Moderator: Thank you. Your next question comes from Woody Lay with KBW. Your line is open.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Any commentary on the restructuring charges in the quarter? 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? I’m not sure if there was a beginning part of that question that we may have missed. The first thing we heard is the restructuring charges. To address that, 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. That’s a trend that we hope to continue and think has become a core competency for the firm. Can you ask the second question again? Yeah.

Just on the guide of sort of mid to high single digits for expense growth, the low end versus the high end. Does that really come down to how investment banking fees trend in the back half of the year? Yeah, good question. I really like about 6% full year non-interest expense growth. I think mid to high $190 million, the next two quarters supports $240 million of fee generation as well as the outlook for full year earnings. Got it. That’s helpful. Maybe last for me on capital and just given the shift in the regulatory tone, how does it impact your view on excess capital and that CET1 target of above 11%?

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

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Got it. Thanks for taking my questions.

Breka, Conference Moderator: Thank you. We now have a question from Stephen Scouten with Piper Sandler.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Hey, good morning.

Matt Scurlock, CFO, Texas Capital Bancshares: Thanks.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Revenue trends were extremely strong in.

Matt Scurlock, CFO, Texas Capital Bancshares: The quarter, which is great. I know the guide is, you know, maybe a fairly wide band here.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: At low double digit % growth.

Matt Scurlock, CFO, Texas Capital Bancshares: I’m curious what would lead you to.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Maybe raise that guidance given what appears.

Matt Scurlock, CFO, Texas Capital Bancshares: To be maybe 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?

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Yeah, we take it $230 million of fees. The low end of the fee guide. We’ve got enough NII momentum, Stephen, 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% interest-bearing deposit beta that we targeted during the second quarter and are now at 81% since the beginning of the easing cycle. Rob and I both noted in our prepared remarks that we’ve done that while effectively growing non-brokered, non-indexed interest-bearing deposits by $3 billion or 22% year over year, which to Rob’s point we think highlights improved client relevance in a sustained value proposition.

Supporting those results, we did have CDs repriced, so $986 million of CDs that matured in the quarter at 4.75% and came back on at closer to 4.25%. We’ve got another $1.1 billion that’s going to mature this quarter at an average rate of 4.62% relative to posted rates of 4.2%. Given the balance sheet momentum and multitude of relationship touch points with those consumers, we expect the majority of those CDs to be replaced at current market pricing. We don’t necessarily think that we’re going to see, other than the CD repricing, additional success passing on marginal decreases in interest-bearing deposit costs up to and until the Fed moves. We do think there’s enough momentum to support an increase in net interest income of roughly $10 million linked quarter.

If you carry that out for the duration of the year, I think you can pretty easily deliver the high end of the revenue guide on $230 million of fees.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Okay, that’s very helpful and specific. Appreciate that, Matt.

Matt Scurlock, CFO, Texas Capital Bancshares: I guess as it pertains to the.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Mortgage finance business and expected yields, if.

Matt Scurlock, CFO, Texas Capital Bancshares: The related deposits stay in this 90% range, would you think that the.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Mortgage finance yields could actually continue to tick up higher as that kind of drag from the deposit weighting lessens relative.

Matt Scurlock, CFO, Texas Capital Bancshares: To what it’s been in the past?

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Yeah, the guide incorporates a cut in September, which would suggest that the mortgage finance yields move down into the mid-430s. Absent a cut, I think you sit relatively flat late quarter. Okay, great. Maybe just lastly on the.

Matt Scurlock, CFO, Texas Capital Bancshares: Expense trends, I know last quarter you.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Called out about $14 million in seasonal uptick that wouldn’t repeat, but obviously didn’t.

Matt Scurlock, CFO, Texas Capital Bancshares: Seemingly relative to that delta.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Lot of other growth. Was there anything that maybe surprised you guys in terms of your ability to?

Matt Scurlock, CFO, Texas Capital Bancshares: Keep expenses lower than would have been.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Expected or anything of note in terms.

Matt Scurlock, CFO, Texas Capital Bancshares: Of larger scale savings that occurred this quarter?

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: 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.

Matt Scurlock, CFO, Texas Capital Bancshares: Fantastic.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Thanks for all the color.

Matt Scurlock, CFO, Texas Capital Bancshares: Appreciate the time.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Great quarter.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: You bet. Thanks.

Breka, Conference Moderator: Thank you. Just a reminder, if you would like to ask any further questions, you can do so by pressing star followed by one on your telephone keypads now. Your next question comes from Matt Olney with Stephens Inc.

Matt Scurlock, CFO, Texas Capital Bancshares: 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. You mentioned it was a volatile quarter from a macro perspective. Just curious, as you move through the quarter, did you see any change of behavior, change in utilization from all your commercial type customers?

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Yeah.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Thanks Matt.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: I think we’ve noted on every single call since this management team’s been in place that we’re trying to create, we think, 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% in CNI, which was partially offset by, we 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. We haven’t seen really any change in line utilization linked quarter and are down about 2% year over year.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: I would just add to that. I see continued growth activity in the balance sheet form is extremely high for new clients, with a demand on loans going forward on bank debt, not just other types of debt. I think you’ll see continued growth.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: As the.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Reinvestment and the balance sheet continues to slow down.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Okay.

Matt Scurlock, CFO, Texas Capital Bancshares: Appreciate the color on that, Rob. 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 getting some market share. Any color you can share on that?

Jocelyn Kukulka, Head of Investor Relations, 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. We’ve got a $1.9 trillion origination market that sits on top of 30-year fixed rate mortgages between 6.8 and 7. If that continues, we expect 10% growth in full year average balances.

Rob Holmes, Chairman, President and CEO, 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.

Matt Scurlock, CFO, Texas Capital Bancshares: Okay, thanks for taking my questions.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: You bet.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Thanks.

Breka, Conference Moderator: Thank you. That is star one to ask a question. Your next question comes from John Armstrong with RBC Capital Markets.

Matt Scurlock, CFO, Texas Capital Bancshares: Hey, thanks. Good morning.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Hi John. Great.

Matt Scurlock, CFO, Texas Capital Bancshares: Just a couple cleanups here.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Matt.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Can you comment on the higher NPL balance?

Matt Scurlock, CFO, Texas Capital Bancshares: Obviously not concerning, just curious what was behind that?

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Yes, a couple of CNI credits, not industry specific, no direct impact from tariffs, I’d say just in general on credit. Really proud of how the team continues to practically manage that portfolio. We would view that as a pretty underappreciated portion of the transformation. There was a minor move up in NPAs, but the ratio is consistent with what we’ve seen over the last few years. We added a couple million dollars 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. The trends to the left of NPA are quite strong. We saw a 26% reduction in year over year criticized loans, 59% reduction in year over year criticized loans related to commercial real estate, which are the lowest level in two years.

Our reserve continues to be underpinned by an economic outlook that’s significantly more conservative than consensus estimates.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: I would just add that I think we’ll continue to perform well in credit because of our client selection as well. Our bankers do a great job at that today, which I think is manifested in the stats that Matt just relayed. We feel really good about where we are reserve levels and the performance of the credit portfolio.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Okay, good.

Matt Scurlock, CFO, Texas Capital Bancshares: Fair enough on that. Rob, where are you at on your

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Wealth management build out progress?

Matt Scurlock, CFO, Texas Capital Bancshares: It feels like maybe that’s the last.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: Just curious how you feel about that.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: I feel really good about it. You’re right, it is the last leg. We’re a little behind on that. We’ve spoken about it. Thanks for bringing it up. We went on to the new platform in the fourth quarter of last year. That’s a dramatically improved client journey. If you look at our allocated portfolios that we put our clients in, we perform as well or better than other wealth managers. It’s not the performance of that, it’s more the client journey and then getting the team on the field, if you will. We think coupled with all the new client onboardings that we’ve had across the commercial space and investment banking, our ability and our TAM in that space is really unbelievable. I think you’ll see great growth in that in the coming quarters and years.

That’s a slow growth business, as you know, but it’s highly durable and we’re really excited about it.

Jocelyn Kukulka, Head of Investor Relations, Texas Capital Bancshares: I think you’re about to see.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: The first legs of it.

Breka, Conference Moderator: Okay.

Matt Scurlock, CFO, Texas Capital Bancshares: All right, thank you very much. I appreciate it.

Rob Holmes, Chairman, President and CEO, Texas Capital Bancshares: Thanks, John.

Breka, Conference Moderator: 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 and CEO, Texas Capital Bancshares: Thanks, everybody, for your interest in the firm, and we look forward to speaking to you next quarter.

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

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