Texas Capital Bancshares (NASDAQ:TCBI) reported higher second-quarter earnings and record fee income as executives said the Dallas-based bank continued to benefit from client acquisition, growth in commercial lending and a broader push into capital-efficient revenue sources.
Chairman, President and CEO Rob Holmes said adjusted earnings per share rose 15% from the prior-year period to $1.88. He attributed the gain to “consistent and focused execution” of the company’s strategy, including record results in wealth management, treasury product fees and investment banking, along with the strongest quarter for commercial and industrial loan growth since the second quarter of last year.
Fee Income Reaches Record Levels
Texas Capital reported non-interest income of $75.1 million, up 39% year over year according to Holmes and up 34% compared with prior-year adjusted non-interest income according to Scurlock. Non-interest income represented about 22% of total revenue, compared with 18% a year earlier.
Holmes said fee income from the company’s areas of focus rose 28% year over year to $60.5 million, a record for the firm. He said the performance reflected momentum in advisory, sales and trading, wealth management and treasury services.
- Investment banking fees were $42.8 million, up 34% year over year.
- Treasury product fees were $12.5 million, up 8% year over year.
- Wealth management fees were $5.1 million, up 38% year over year, while assets under management rose 15% to $4.8 billion.
Holmes said the company’s fee businesses are “differentiated in the market, capital efficient, and provide revenue stability through economic cycles.” He also said the growth in fees was not a substitute for disciplined credit underwriting, but part of an intentional move toward “more durable, complete, and less rate-sensitive revenue sources.”
During the question-and-answer session, Holmes said investment banking results reflected broad contributions from syndications, capital solutions, M&A and sales and trading. He said 33% of investment banking fees outside of trading came from new relationships through the commercial or corporate bank, and that all closed M&A transactions year to date involved selling lower middle market, privately held, Texas-based, family-owned companies.
Loan Growth Led by Commercial Banking
Scurlock said period-end commercial loans totaled $13 billion, up $1.2 billion, or 10%, from a year earlier. Commercial loans increased $507 million, or 4%, from the prior quarter, marking the 10th consecutive quarter of commercial loan growth.
Commercial real estate loans declined 3% from the prior quarter to $5.1 billion and were down 9% year over year. Scurlock said commercial real estate payoff rates continued to outpace client appetite to finance new projects. He said the company expects full-year average CRE balances to decline about 12%.
Holmes said Texas Capital is at a “decade low in originations” from its highest-quality commercial real estate clients and does not intend to expand that client base. He said the company is not forced to participate in what he described as “irrational behavior” in the market.
Average mortgage finance loans rose 18% year over year to $6.3 billion, supported by normal second-quarter seasonality, rate-driven mortgage volume increases late in the first quarter and enhanced product offerings. Scurlock said enhanced credit structures represented 69% of period-end mortgage finance balances, up from 67% in the first quarter, and that the company expects the level to remain around 70% for the rest of the year.
Deposits, Margin and Capital Position
Total deposits were $28.9 billion at quarter end, up $2.8 billion, or 11%, year over year and up $395 million, or 1%, from the prior quarter. Scurlock said growth in commercial client deposits was supplemented by modest brokered deposits to support temporary second-quarter growth in mortgage finance volumes.
Average commercial non-interest-bearing deposits remained 13% of total deposits. Average non-interest-bearing mortgage finance deposits declined $316 million year over year to $4.5 billion, resulting in a 71% self-funding ratio for the quarter. Scurlock said Texas Capital expects the mortgage finance self-funding ratio to settle between 70% and 75% in the near to medium term.
Net interest income increased $7 million year over year to $260.4 million and rose $5.7 million from the prior quarter. In response to an analyst question, Scurlock said third-quarter net interest income is expected to rise to $265 million to $270 million, while net interest margin could temporarily decline into the low-to-mid 3.20% range due to a heavier mix of lower-yielding mortgage finance assets and match funding through brokered deposits.
Texas Capital’s tangible book value per share rose 10% year over year to $76.98, marking the ninth consecutive quarterly record for the metric. The company repurchased approximately 239,000 shares during the quarter for $23.6 million at a weighted average price of $97.63 per share and also declared and paid its inaugural common stock cash dividend.
Scurlock said capital ratios remained “strong and well in excess” of the company’s internally assessed risk profile, with tangible common equity to tangible assets of 9.87% and a common equity tier 1 ratio of 12.07%. Holmes said the company is comfortable carrying capital above its stated guide of more than 11% CET1, adding that the strong capital position helps the company win business with clients.
Credit Trends and Expense Outlook
The provision for credit losses was $18 million, up $3 million from a year earlier. Scurlock said the provision was consistent with expected quarterly credit trends and management’s use of economic scenarios that are more severe than consensus estimates.
Net charge-offs were $16.1 million, or 26 basis points of average loans held for investment, and were evenly split between previously identified C&I and commercial real estate credits. Scurlock said criticized loans were generally evolving as anticipated, with reductions in substandard loans mostly offset by increases in special mention loans tied to multifamily commercial real estate pressures and select C&I borrowers facing demand or margin pressure.
Adjusted non-interest expense was $202.8 million, up 7% year over year. Scurlock said the increase reflected investments in client-facing talent, technology-enabled capabilities and temporary legal and professional fees tied to revenue initiatives and legacy problem credit resolution. He said the company continues to expect approximately $125 million in quarterly salaries and benefits and about $75 million in other quarterly non-interest expense for the remainder of 2026.
Guidance Reaffirmed
Scurlock said Texas Capital’s full-year 2026 performance outlook remains unchanged from guidance issued in January, with the updated assumption of one rate hike in December and a federal funds rate upper limit of 4% at year-end. The company expects total revenue growth in the mid-to-high single-digit range, driven by client adoption and growth in fee income areas of focus.
Full-year non-interest revenue is now expected to reach $270 million to $290 million, reflecting a modest increase to the lower end of the prior range. Texas Capital also reiterated its full-year provision outlook of 35 to 40 basis points of average loans held for investment, excluding mortgage finance.
Holmes also noted the appointment of Mo Jamous as chief digital and information officer in early July, saying Jamous will help strengthen the company’s platform, drive innovation and advance its technology strategy.
About Texas Capital Bancshares (NASDAQ:TCBI)
Texas Capital Bancshares, Inc is a bank holding company headquartered in Dallas, Texas, operating through its wholly owned subsidiary, Texas Capital Bank. The company specializes in providing commercial banking services to middle-market companies, entrepreneurs, professional service firms, real estate developers, and not-for-profit organizations. Its broad range of offerings includes commercial lending, treasury and cash management, real estate finance, equipment finance, and energy lending, all designed to address the unique financial needs of businesses navigating growth and market challenges.
In addition to its core commercial banking capabilities, Texas Capital Bancshares delivers private banking and wealth management services for business owners and high-net-worth individuals.
