Texas Capital Bancshares, Inc. Aktie

Hello, everyone, and thank you for joining us today for the TCBI First Quarter 2026 Earnings Conference Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to your host, Jocelyn Kukulka, Head of Investor Relations, to begin. Please go ahead, Jocelyn.

Good morning, and thank you for joining us for TCBI's First Quarter 2026 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 measures, including, but not limited to, adjusted operating metrics, adjusted earnings per share and return on capital. For a 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-K and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at 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.

Good morning. We entered this quarter with clear conviction in our strategy and the disciplined execution required to continue unlocking substantial value for our shareholders and clients. First quarter outcomes reflect our shift in strategic focus to consistent execution and realizing the full potential of our investments. This quarter, we took decisive steps to align our organizational structure with that imperative.

I am pleased to announce strategic executive leadership appointments that further enhance our positioning for growth. Jay Clingman will transition to Head of Private Banking and Family Office following 5 successful years building and scaling our middle market and business banking franchises. Dustin Cosper assumes the role of Head of Commercial Banking, overseeing real estate banking, middle market banking and business banking. This shift positions the firm to drive enhanced client outcomes across private banking and commercial banking through more comprehensive and integrated solutions.

John Cummings has been named Chief Operating Officer, charged with driving sustained operational excellence and further positioning our platform for scale. Matt Scurlock, Texas Capital's Chief Financial Officer, will assume the role of President of Texas Capital Bank, further aligning financial, operational and business leadership across the organization. We have also appointed Jeff Hood as Chief Human Resources Officer to ensure our talent strategy and culture align with our operational and commercial ambitions. He will be joining the firm in early May.

Turning to the quarterly results. Contributions across the firm enabled another quarter of strong financial progress as adjusted quarterly earnings per share increased 72% versus the prior year period to $1.58 per share as total revenue increased 16% year-over-year to $324 million, driven by 8% growth in net interest income and 56% growth in noninterest revenue. Fee income from our areas of focus increased 59% year-over-year, reaching $58.8 million in the quarter, a record for the firm. Notably, all 3 focus areas delivered record quarterly fee income, demonstrating the platform's continued maturity and enhanced cross-functional strength. This is not a single driver story. It reflects embedded momentum across advisory, capital markets, wealth and treasury services, all facilitated by excellent client banking coverage across the platform.

New client acquisition remains a fundamental driver to platform value. Each quarter, the firm onboards clients to generate revenue across multiple service lines, a structural advantage that indeed compounds over time. Investment banking fees of $42.3 million grew 89% year-over-year with broad contributions across syndications, capital markets, and sales and trading, reflecting our unique ability to deliver high-quality client outcomes across a range of product solutions. Treasury product fees of $12.1 million increased 14% as existing clients continue to leverage our differentiated payment capabilities and new clients onboard at an accelerated pace.

Wealth management fees also increased for the third straight quarter, reflecting building momentum that we expect to continue through the year. In total, fee income comprised 21% of total revenue versus 16% a year ago, demonstrating the success of our multiyear shift toward a more diversified, capital-efficient and resilient revenue base. This trajectory directly reflects disciplined client selection and our ability to deepen relationships over time.

Our first quarter capital position highlights both the strength of our platform and the discipline of our capital management approach. Tangible book value per share of $75.67 increased 11% year-over-year, marking an eighth consecutive quarterly record for this important metric. During the quarter, we repurchased approximately $75 million of common shares at a weighted average price of $96.82 per share, demonstrating our confidence in the franchise and our conviction that earnings momentum will continue. Tangible common equity to tangible assets of 9.87% exceeds peer levels and CET1 of 11.99% remains well above our stated target of 11% and internally assessed risk profile.

As previously discussed, we do not manage the firm to an expected economic scenario. We instead regularly evaluate potential macroeconomic impacts on both credit quality and earnings capacity. Detailed reviews over the past few quarters include topics such as private credit, disruption from artificial intelligence and exposure to data center supply chains, all of which confirm our adherence to disciplined client selection and diligent concentration management. Leading up to the recent conflict in the Middle East, we assess the impact of rising commodities pricing on a series of client segments, including commercial clients that rely on commodity inputs such as helium, urea, and aluminum as well as clients whose customers are potentially impacted by rising prices.

While our assessment across these topical areas suggests impacts on specific clients are at this point, tangential, we nonetheless continue to assume a credit posture in the reserve calculation that is increasingly reliant on a downside scenario weighting. We maintain a balance sheet that is intentionally positioned, carry capital and reserves that provide meaningful flexibility and deliver a breadth of products and services that keep the firm relevant to our clients in any environment. That posture is a choice, one we have made consistently and is the reason we approach periods of uncertainty from a position of strength and are front-footed in the market.

Our earnings trajectory is sustainable. Our balance sheet is strong, and our platform is positioned for durable growth. Today, we are pleased to announce the initiation of a quarterly common stock cash dividend, a tangible expression of our confidence in earnings momentum and our commitment to returning capital to shareholders while funding continued organic growth. This dividend reflects a mature platform, the strength of our capital position and management's conviction in the long-term trajectory of the firm. 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 for the quarter.

Thanks, Rob, and good morning. Starting on Slide 4. First quarter total revenue increased $43.5 million or 16% year-over-year, driven by 8% growth in net interest income and a 56% increase in noninterest revenue. Net interest income increased $18.7 million year-over-year to $254.7 million, in line with our January guidance of $250 million to $255 million, which anticipated modest linked quarter decline of $12.7 million, consistent with typical first quarter seasonality.

Net interest margin expanded 24 basis points year-over-year to 3.43% the sixth consecutive quarter of year-over-year expansion and improved 5 basis points relative to the prior quarter. Noninterest expense increased 5% year-over-year to $213.6 million. On an adjusted basis, noninterest expense was $212.2 million, an increase of $9.1 million relative to the first quarter of last year as expense base productivity continues to deliver anticipated revenue growth and incremental new investments aligned directly with defined areas of capability build.

Taken together, pre-provision net revenue increased $33 million or 43% year-over-year to $110.4 million. Adjusted PPNR reached $111.8 million, up $34.4 million or 44%, marking the fifth consecutive quarter of year-over-year expansion. Provision for credit losses of $16 million was stable year-over-year, reflective of anticipated quarterly credit trends and management's continued assumption of economic scenarios materially more severe than consensus estimates. Net income to common was $69.5 million, up $26.7 million or 63% year-over-year, and adjusted net income increased 65% to $70.5 million.

Strong financial performance, coupled with a disciplined multiyear share repurchase program is consistently driving meaningful EPS growth for our shareholders. First quarter earnings per share reached $1.56, which is up 70% year-over-year, with adjusted earnings per share of $1.58, up 72% year-over-year. Book value per share of $75.71 and tangible book value per share of $75.67, both increased 11% year-over-year, representing the eighth consecutive quarter end record high for the firm, while the allowance for credit losses held relatively steady at $331 million or 1.32% of total LHI and 1.81% of total LHI, excluding mortgage finance.

Total LHI of $25.2 billion increased 13% year-over-year and 5% linked quarter, with contributions across both the commercial and mortgage finance portfolios. Period-end commercial loans of $12.5 billion increased $1.2 billion or 10% year-over-year, driven by now consistent contributions across industries and geographies and sustained quarterly increases in target client acquisition. Linked quarter, commercial loans increased $336 million or 3%, representing the ninth consecutive quarter of commercial loan growth and continuing the trajectory of risk-appropriate and return accretive portfolio expansion facilitated by our bankers across business banking, middle market and corporate banking.

Commercial real estate loans of $5.3 billion decreased 9% year-over-year and 2% linked quarter as payoff rates continue to outpace client appetite for capital deployment, with expectations previously provided for full year average CRE balances to decline approximately 10% remaining intact. Despite the expected seasonal linked quarter pullback, average mortgage finance loans increased 32% year-over-year to $5.2 billion, with period-end balances increasing to $7 billion, 33% above average for the quarter and consistent with the annual pattern of origination volumes building at the end of Q1 heading into the spring and summer home buying season.

Enhanced credit structures now represent 67% of period-end mortgage finance balances, up from 59% in Q4 2025, further improving the blended risk weighting of the portfolio to 53%. We anticipate that an incremental 5% could migrate to the enhanced structures over the next several quarters, at which point we should reach the maximum near-term potential for the portfolio. Total deposits of $28.5 billion at quarter end increased 9% year-over-year and 8% linked quarter, with reductions in interest-bearing deposits associated with seasonal tax payments supplemented by modest levels of broker deposits to support the temporary and predictable late Q1 growth in mortgage finance volumes.

Ending period commercial noninterest-bearing deposits increased $76 million or 2% and are now $309 million since Q3 2025, with average commercial noninterest-bearing deposits remaining at 13% of total deposits for the quarter. Average noninterest-bearing mortgage finance deposits of $4.2 billion decreased $288 million year-over-year, bringing the self-funding ratio down to 80% for the quarter as 8 quarters of focused reduction clearly improved both the balance sheet resilience and earnings generation.

We have now established a more balanced deposit base with a complete treasury offering increasingly embedded across our clients' platforms and would expect the mortgage finance self-funding ratio to settle between 70% to 80% in the near to medium term. The majority of mortgage finance noninterest-bearing deposits are compensated through relationship pricing, which results in application of an interest credit to either the client's mortgage finance or commercial loan yield. The compensation attribution is evaluated on a periodic basis and determined that the 60% mortgage finance and 40% commercial split be updated to reflect the evolution of the mortgage finance business, resulting in a 70% mortgage finance and 30% commercial distribution beginning on the first of this year.

Average cost of interest-bearing deposits declined 15 basis points linked quarter and 65 basis points year-over-year to 3.32% as we continue to add value to banking relationships beyond simply price. This is in part evidenced by the 75% cumulative interest-bearing deposit beta realized since the beginning of this easing cycle. During the quarter, we completed a $400 million fixed-to-floating senior notes offering due in 2032, priced at a coupon of 5.301%. Proceeds from the issuance will be used in part to redeem the holding company's $375 million fixed to floating rate subordinated notes in May. Leveraging improved risk-weighting asset positioning associated with the enhanced credit structures to fulfill holding company cash objectives with a lower cost instrument.

Current prospective balance sheet positioning continues to reflect the balance sheet and business model that is intentionally more resilient to changes in market rates. Our modeled earnings at risk improved as expected this quarter as market rates moved consistent with our previously communicated preferences for adding duration to the swap book. During Q1, $350 million in swaps matured with a 3.31% receive rate. These were replaced with $500 million in received fixed SOFR swaps executed at 3.45% with $100 million becoming effective March 1, and the remainder becoming effective on April 1.

Looking ahead, we'll continue to exercise discipline in appropriately augmenting rate fall earnings generation embedded in our business model, but at this point, are comfortable with our near-term positioning across a range of forward interest rate paths. Net interest income of $254.7 million declined $12.7 million linked quarter, primarily related to seasonal mortgage finance dynamics and fewer days in the quarter, which were partially offset by quarter-over-quarter improvements in deposit costs. LHI, excluding mortgage finance yields compressed modestly, consistent with expected SOFR-linked loan repricing.

Adjusted noninterest expense of $212 million increased 5% from Q1 2025, reflecting continued investment in frontline talent across fee income areas of focus and increasing tech-enabled capabilities meant to both improve the client experience while positioning the firm for continued scale. Q1 adjusted salaries and benefits increased $29 million to $137.9 million due to $17 million of seasonal compensation, annual incentive reset, new frontline talent and annual merit-based salary increases. For the remainder of 2026, we continue to anticipate approximately $125 million of salaries and benefits and $75 million of all other noninterest expense, both on a quarterly basis.

As Rob described, noninterest income increased 56% year-over-year and 15% linked quarter, setting several records for the firm. Noninterest income as a percentage of total revenue reached 21% in the quarter, up from 16% in Q1 2025, consistent with our strategic priority to increase noninterest income to revenue through expanded products and services delivered across our platform. Investment banking and trading income of $42.3 million increased 89% year-over-year, supported by broad-based contributions across the platform.

Wealth Management and trust fee income of $4.4 million also represented a record high, increasing 11% year-over-year, supported by assets under management of $4.4 billion, which increased 16% year-over-year from organic net inflows and favorable market conditions. Treasury product fees of $12.1 million, which is a record high as well, increased 14% year-over-year, driven by continued client adoption and the expansion of payment and cash management capabilities that have driven north of 10% growth in gross payment volume in 4 of the last 5 years.

Total noninterest income is expected to be $65 million to $70 million for Q2, with revenue attributed to investment banking, and sales and trading contributing approximately $40 million to $45 million. The total allowance for credit loss, including off-balance sheet reserves of $331 million remains near our all-time high. When excluding the impact of mortgage finance allowance and related loan balance, the allowance was relatively flat linked quarter at 1.81% of total LHI, which is in the top decile among the peer group.

Net charge-offs for the quarter were $17.4 million or 30 basis points of LHI and tied to previously identified credits in the commercial portfolio. During the quarter, previously discussed commercial real estate multifamily credits were further downgraded as projects and lease-up continue to require ongoing rental concessions to gain or maintain occupancy. Despite these net operating income-influenced grade adjustments, material project-specific equity and sponsor support give us confidence in the fundamental portfolio quality moving through the year.

Capital ratios remained strong and well in excess of our internally assessed risk profile with tangible common equity to tangible assets of 9.87% and a CET1 ratio of 11.99%. During the quarter, the firm repurchased approximately 770,000 shares for $74.6 million at a weighted average price of $96.82 per share, representing 127% of prior month tangible book value per share. We remain committed to prudent capital deployment that balances organic growth and tangible book value accretion through share repurchases at levels that we view as attractive relative to the firm's intrinsic value.

Additionally, against the backdrop of more durable and structurally higher levels of earnings generation across the platform, the Board of Directors has approved the initiation of a quarterly common stock dividend of $0.20 per share, providing another tool to effectively manage capital on behalf of our shareholders. For full year 2026, our overall outlook remains unchanged from guidance given in January as we continue to realize scale from multiyear platform investments. Guidance accounts for one additional rate cut in December with a Fed funds rate of 3.5% at year-end.

We anticipate total revenue growth in the mid- to high single-digit range, driven by industry-leading client adoption and continued growth in our fee income areas of focus with full year noninterest revenue expected to reach $265 million to $290 million. Anticipated noninterest expense growth in mid-single digits reflects increased year-over-year compensation expenses tied to improved performance, targeted expansion in defined client coverage areas and sustained platform investments.

Given continued economic uncertainty and our commitment to operating from a position of financial resilience, we reiterate the full year provision outlook of 35 to 40 basis points of average LHI, excluding mortgage finance. This outlook reflects another year of positive operating leverage and sustainable earnings generation.

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

[Operator Instructions] Our first question comes from Woody Lay from Keefe, Bruyette, & Woods.

So the earnings momentum is really great to see. You mentioned some of the uncertainty in the Middle East and feel good about your clients. As it pertains to the investment banking pipeline, I know last year with some of the tariff noise, we saw some timing pushed out to the back half of the year. Do you expect a similar dynamic to happen here if this uncertainty lasts longer in the quarter?

Woody, I'd start by saying that we're really pleased with our track record of finding the right solutions for our clients, which continued this quarter, whether that's bank debt or nonbank debt. So we were the #1 arranger of middle market syndicated credit in the country this quarter, along with arranging over $11 billion of debt outside the bank markets for our clients. We raised over $1 billion on our still new equities platform. So when you think about how we use the investment bank as a differentiator in the market, I think the coverage bankers are really doing a great job of leveraging the product partners to win new relationships, particularly with our target prospects.

And I think that's evidenced in part by over half of the investment banking fees outside of sales and trading that we generated in the last 6 months coming alongside new client acquisition and banking. So these record fee quarters continue to be underpinned by much more granular deal volumes. So these are not a couple of large transactions. These are really durable, consistent approach to delivering service in the market. And we still feel really good about the $40 million to $45 million for the quarter and $160 million to $175 million for the full year.

I'd just add one thing, Woody. Matt, clearly articulated what I think is very good stats. But remember, we're not doing investment banking with a different set of clients. We're doing it -- we're delivering investment banking products to our middle market and corporate clients because of the great relationships our middle market and corporate bankers have with those clients, which gives credibility to the investment bank and bankers when they come into the room, which I think is a differentiated part of this platform.

Got it. That's helpful color. Maybe just shifting over to the mortgage finance business. The period-end loan balances were well above where they have been historically. I know that can be kind of volatile with timing. But just any expectation for average balances as we head into the second quarter?

Yes, there was quite a bit of volatility in Q1 on 30-year fixed rate mortgages. We got as low as about 5.98% in the last quarter -- I'm sorry, in the last week of February and then hit the high point in the last week of March at about 6.64%. If you'll recall, the full year guide about 15% is predicated on $2.3 trillion origination market and an average 6.3%, 30-year fixed rate mortgage, which while there could be some volatility along the way, we still think that's the right number for the full year. That gets you to about a $6 billion full year average warehouse balance.

So we think that's actually the number for Q2 as well, Woody, that you'll have about $6 billion of average mortgage finance volumes. You should end around $7.2 billion, and that comes with about $4.5 billion of average mortgage finance deposits. So that self-funding ratio should push down to around 75%, which should help the yield move from around 3.99%, I think, is where we were this quarter to somewhere around 4.05% in Q2.

And then the last thing I'd note on that, we've clearly completely restructured that business with now 67% of those balances residing in the enhanced credit structure, which is generating a significant amount of capital in that for the loans that are in the structure, it's a weighted average risk weighting of 30%, 53% of the entire portfolio. And then 78% of those clients do things with us in the dealer and 100% of them are on our treasury platform. So incremental volume in the mortgage finance business is significantly more profitable for us now than it's really ever been.

I would just suggest that, that new credit enhanced structure fundamentally changed the firm. It took a business that, by definition, was a subpar loan-only business and moved it in concert with a new product and service platform where we're doing many, many things with those clients, and we're lending to them through an dramatically less risk structure that allows for there to be a higher return and release capital. So we -- it fundamentally changed the way we look at that business. It's more of an industry vertical than a mortgage warehouse.

And just to put a couple of more numbers around that, Woody. I mean, over the last 12 months, we've grown loans by $2.8 billion or 13%. And we've also bought back 6% of the company, $228 million for inside of $87 a share, while actually growing CET1 by 36 basis points. So this has been a critical factor, not just in structurally enhancing profitability, but enabling us to deploy capital in a variety of different ways.

Our next question comes from Casey Haire from Autonomous Research.

This is Jackson Singleton on for Casey Haire. Matt, just wanted to start on NIM. Any color you can give us on the drivers heading into 2Q?

Yes, Jack. Happy to walk through that. So we're really pleased with the ability to generate NII improvement across a range of interest rate environments. And as we've talked about in previous calls, that's really predicated on improved deposit repricing, which for us is a result of being more relevant for clients and just a deliberate move away from historically higher cost funding sources. That said, we have been pretty vocal on previous calls. We think the cost of funding for the industry is going to go higher over time. And our strategy and prospective resource allocation tries to contemplate the mix of businesses and services that we're going to need to earn an acceptable return against that reality.

So we have no additional reduction in deposit costs incorporated in the full year guide. And for Q2, we do anticipate slightly higher interest-bearing deposit volumes, which will be in place -- I'm sorry, interest-bearing deposit costs to support volumes necessary to fund the seasonal predictable and temporary increase in mortgage finance, which we just walked through anticipated growth there. So as you see mortgage finance grow in the second quarter, that's obviously a lower yielding asset. So the yields moving from 3.99% to 4.05% where the yield on all other loans outside the mortgage finance business is around 6.65 %. So that blends the overall loan yields down from 6.04% to, call it, mid- to high 5.90s, which should push the margin down to 3.35%, 3.40% while seeing NII actually increase on the larger balance sheet to $260 million, $265 million.

Got it. Okay. Super helpful. And then just one follow-up for me. How should we think about buybacks going forward, given CET1 is still well above 11%, but your TCE is now around 10%, which is around the soft target. And then you just announced the dividend, obviously. So just any color you can give into how management is thinking about buybacks for the rest of the year?

Yes. We've got $125 million of remaining authorization. We've shown propensity to buy back inside of 1.3x tangible, which is essentially 2- to 3-year out tangible book value per share. I look for us to be constructive around those prices. And then the decisions around buyback or the recently announced dividend, which Rob can talk to, were not influenced by potential changes in the regulatory capital treatment. But just for you, Jack, I mean, that's roughly 100 basis points of potential pickup in reg cap should you actually see these changes go through. So we're confident in our current levels of earnings generation, our capital position, our reserve levels of liquidity, and we're pleased to have another tool at our disposal to effectively allocate capital.

Yes. I would just say, I think we've proved to be pretty good stewards of allocating capital and distribution policy is something that's important to shareholders and us. And the dividend shows great confidence in the platform and our bankers and our earnings and prospects going forward as well as our capital and our risk posture. So we're really, really excited about just having another quiver and ability to add to the distribution policy as we go forward.

[Operator Instructions] Our next question comes from Anthony Elian from JPMorgan.

This is Mike Pietrini on for Tony. So I guess I'll start. I'm curious if you guys could provide any color on what drove the quarter-over-quarter increase in NPAs. Any industry in particular that stood out? Anything you could provide on that would be great.

Yes. Those are a few previously identified credits that we've been reserving for now for multiple quarters. They're continuing to go through work out in a way that we think is going to be maximally beneficial for the firm. So no industry concentration. There's one multi-fam, a couple of corporate credits consistent with our guide of 35 to 40 basis points provision for the year.

Okay. Great. And then just one on expense. How are you guys sort of thinking of the split between comp expense and non-comp expense?

Yes. When you strip out all the seasonal comp and benefit expense from Q1, it's about $17 million and you add back in annual incentive comp accruals, impact of new hires, primarily in the fee income areas of focus and then just a few weeks of merit increases that were processed late March. I think that moves to $125 million in Q2. And then all other noninterest expense, we continue to expect around $75 million.

As a reminder, that's heavily focused on expenses associated with putting new capabilities in the market. So growth in occupancy, marketing and technology expense, which another way to think about that is that's expense in support of revenue. So we like $200 million in Q2 and I think that's probably a pretty good number for Q3 and Q4 as well. And just as a reminder, that's enough to cover the high end of the revenue guide. So if you see revenue, particularly fees come in inside the high end of the guide, you would have some offset to noninterest expense.

Our next question comes from Jared Shaw from Barclays.

With the self-funding ratio guiding lower now, what does that mean for total end of period and average DDA balances as we look at next quarter?

Yes. We like -- in aggregate, we like $4.5 billion of average balances for mortgage finance for next quarter, and then you'll see that drift a little bit higher towards the end of the quarter. But the self-funding ratio, we think at this point, we've essentially rightsized our deposits in that particular segment with almost all of those clients having an appropriate treasury relationships. So Jared, I wouldn't anticipate the self-funding ratio really moving much lower. I think somewhere between 70% and 80% is probably the right way to think about it over the rest of this year.

Okay. All right. And I think you went through the NII guide or outlook for second quarter, was that $260 million to $265 million? Did I catch that right?

You got it. You got it right. $260 million to $265 million, margin of 3.35% to 3.40%.

Our next question comes from David Chiaverini from Jefferies.

Max on for David. Just a quick question around C&I and the pipelines. I know you attributed a lot of the growth to actual new client growth rather than just high utilization. So I was kind of hoping you'd talk around new client growth versus high utilization lines for fiscal year 2026.

Yes. Utilization is up 1% linked quarter. It's down 2% year-over-year. We continue to sit around that 45% level. The majority of the growth continues to come from new client acquisition. Commitments are up $2.8 billion, almost 15% year-over-year. And I think the important thing to remember on that, we noted earlier in the Q&A, is that when we're acquiring these clients through the banking verticals are doing our things with them. They're generating investment banking fees quite often at the outset of the relationship. Over 90% of them are doing treasury business with us, which is why you're seeing continued pickup in year-over-year treasury product fees. So the incremental profitability associated with new client acquisition in C&I is significant.

And to Matt's point earlier, when you arrange $11 billion of debt for clients that's not bank debt or Term Loan B and high yield and private credit and close to $1 billion of equity, new clients aren't showing up through loan growth. They're showing up in other ways at the firm.

Got it. I appreciate it. Just a quick follow-up. Going to CRE loans, paydowns decreased again this quarter. Any color you can add to that? Any specifics that you expect for CRE declines for the rest of the year?

I still think average balances are down at least 10%. So that's $5.7 billion average last year, I think it's down at least 10% you could see $100 million come off in each of the next 3 quarters. Credit availability in that space just dramatically outstrips demand. We are fairly focused on multifamily and industrial, have a great set of clients and the starts in those spaces are at the lowest levels in 10 years. So the reduction in those balances is nothing other than a reflection of our clients just transacting less and us having plenty of opportunities to deploy capital elsewhere, so not chasing lower yields on the marginal client.

Our next question comes from Matt Olney from Stephens.

Most of my questions have been addressed. Just want to go back to capital. And I appreciate the commentary around the common dividend and the buyback. I'm just curious on the -- as far as M&A, where does M&A rank as far as the capital priority list this year?

Nothing has changed there. It's part of the menu on the strategy continuum. We continue to look at opportunistic alternatives in M&A, whether it's whole bank or otherwise, and we will continue to do that. So the great news, you're going to get tired of hearing me say it. The great news is we don't have to do anything. Our M&A transaction was a transformation, and we still have a ton of synergies, both cost and revenue that we can exploit and that will benefit the shareholders for a long period to come. So we're really, really excited about being in the position that we're in and not having to do something strategically to achieve our goals.

[Operator Instructions] Our next question comes from Jon Arfstrom from RBC.

A few follow-ups. Matt, you flagged technology spending is one of the drivers that you're focused on. Can you just talk a little bit about where you're spending in terms of tech and what some of the projects are that you have going there?

Yes. I mean, John, we hope at this point, we've got a track record externally of effectively investing in a technology platform that yields either new products that generate revenue with the target clients or drive real structural efficiencies. And the mandate here is no different. So we continue to look aggressively at ways to automate, digitize, eliminate processes that can improve the client experience, improve the employee experience and decrease operating risk. So if we think about the year-over-year increase in tech spend, some of that is just capitalized project portfolio that should have the outcome of reducing expense or showing increase in revenue elsewhere on the platform. And then we are quite focused on figuring out ways internally to leverage AI. So you see some of that come through in the tech expenses as well.

Yes, John, I'll tell you like I grew a little frustrated a short period back about our progress with AI. And then we realized if you do AI really, really well, you got to have a great data platform. We luckily have been building that for the past 5 years. It's called Big Sky. You heard us talk about it. We're in the cloud. It's a modern tech infrastructure. We have over 250 internal APIs that you need for AI. So we're -- we have all the things that we need. And then in the past short period of time, we've made up a lot of ground. We have a secure -- our own secure multi-LLM AI platform called Ranger. It's available to most of our employees. It was built by our tech team. About 80% of employees have access to that, have used it in the last 4 weeks. So it's widely used and widely adopted.

And then we have kind of a 3-pronged strategy on the AI. Number one, we have firm-wide agents. Right now, they're in production for loan ops and fraud. We'll have credit agents to do portfolio reviews, et cetera, here pretty soon in the next quarter, great adoption by the credit team there. And we have over 170 processes that we're mapping for firm-wide agents as well. And what I mean by that is every company has process mapping, but they're done vertically, not horizontally. So they're done risk, tech, ops, frontline product, service, but they're not done as a continuum like you onboard a loan across the entirety of the platform of origination, approval, onboard, monitoring, et cetera. So we've got about 170-plus processes that we'll look at either digitizing or improving or applying AI on top of that process mapping.

We also have Agent Builder, where we have about 64 employees on that who have created 280 agents that they want to use. We're tracking those agents. So if there's 8 employees that have all created the same agent, we'll create a better agent, retire the 7 and leave the single one and use it across the firm for adoption. And then lastly, we're selectively deploying third-party solutions. So an AI solution for certain things that we'll use as well. So we think that's the right way to move forward, and we're really, really excited about it, and we have the right embedded governance and risk management into every stage of development and deployment, which I think is important.

Yes. Okay. Good. That's very helpful. One question on the promotions, and congrats, Matt, on that. But the Private Banking and Family Office title, it says leading wealth capabilities as well. Is that the first time I see Private Banking and Family Office named in any of your kind of titles or documents. What's the plan there? And does that include wealth management, kind of where do you think you are in terms of the time line for growing that business?

So that business was a legacy business here. However, like most things we found the infrastructure and it was really, really poor. So we had to go to a new custody. We had to improve the digital journey of clients. We had to do -- we had to restructure service. We had to change a lot of different things. Now that's in really, really good shape. We have one of the highest rated high-yield savings digital accounts in America. So we know how to digitally improve client journeys. Now our client journey on our private bank platform is as good as money center bank. I suggest you go try it. We can onboard you, Jon, if you want.

Our custody works right now. Our portfolios have always done really, really well competitively. I mean, or better than competition for like, like-risk portfolio. But now with the right infrastructure and the right client journey, we think we can really put weight behind that business and grow it. Just like -- remember, our bankers are already calling all these clients, these managers of these companies and the brands already won their trust and confidence. So just like a middle market banker that's the point of the spear for investment banking, now they can do the same thing for wealth and with much more confidence.

Jay has run a wealth business before here in Texas. And so it's something that he's familiar with and knows well, and he knows our clients, and he can partner really, really well with Dustin, who used to report to Jay at running commercial real estate, and they can really partner on that with growing that business across the platform. So it's something we're really, really excited about. The family office, we're just excited about. That is new as of 6 months ago -- maybe 6 months ago. We hired someone from a money center bank who ran that business on the West Coast to come here. There's more family offices in Texas than any other state in the country and more in Dallas than any other city in Texas. And so we think that's a real key component in differentiating both for the private bank as well as investment banking and treasury.

Okay. And then just one last one for me. On the dividend, I like that decision. But I'm just kind of curious how heavily debated was that at the Board level? Or do you think that was just a relatively easy decision and rational in terms of the life cycle of the company?

Well, the good news, Jon, is the Board has complete confidence in this management team and the people that work here. We've created a lot of credibility at the Board level, just like I hope we have in the investor level. We certainly have with the regulators by doing exactly what we said we'd do over a long period of time, both in the short and long run. New employees here in our bankers, middle and back office have delivered exactly what we said. And so when you have these conversations, it's on the backdrop of a lot of confidence and a lot of proven performance that gives them the confidence to fully support the dividend. And I would say that it was an important decision, but it was not labored.

We currently have no further questions. So I'd like to hand back to Chairman and CEO, Rob, for some closing remarks.

Just want to say thank you to everybody for dialing in and look forward to next quarter.

This concludes today's call. We thank everyone for joining. You may now disconnect your line.

Hello, everyone, and thank you for joining the Texas Capital Bancshares Inc. Full Year and Q4 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions]

I will now hand over to Jocelyn Kukulka from Texas Capital Bank to begin. Please go ahead.

Good morning, and thank you for joining us for TCBI's Fourth 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 measures, including, but not limited to, adjusted operating metrics, adjusted earnings per share and return on capital. For a 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-K and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at 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.

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 2 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 $6.80, record adjusted pre-provision net revenue of $489 million, record fee income from strategic areas of focus of $192 million.

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 that 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 at 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.

The transformation over the past several years has fundamentally repositioned Texas Capital as a scalable, high-performing franchise. This positions us in a new phase, consistent execution and compounding returns. The combination of balance sheet growth, operating leverage and fee income expansion creates multiple paths to enhanced 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.

Thanks, Rob, and good morning. Starting on Slide 5. 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 second half of 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 of 2021. Year-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.

Taking 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 of $94.6 million for the quarter or $2.08 per share, increased 45% year-over-year, while full year adjusted net income to common of $313.8 million or $6.80 per share improved 53% over adjusted 2024 levels. This financial progress continues to be supported by a disciplined capital management program, which 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.

Focused routines on target client acquisition are delivering risk-appropriate and return accretive loan portfolio expansion, with commercial loan balances 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, which increased to $1.1 billion or 10% year-over-year to $12.3 billion. As expected, real estate loans declined $301 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 leveraged 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 and nearly all maintained 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. These trends are evidenced in part by our sustainability to effectively grow client interest-bearing deposits, which, when excluding multiyear contraction in 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.

During the quarter, ending noninterest-bearing deposits, excluding mortgage finance, increased 8% to $233 million, with 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 Q4 of 2024. Accounting for a realized beta on the December cut, we expect cumulative beta to be in the low 70s by the end of the first quarter, assuming no Fed actions during Q1.

Our modeled 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, replaced this with $1 billion in received fixed SOFR swaps executed at 3.41%, becoming effective in Q4, an additional $400 million in swaps at a 3.32% receive rate became effective in early Q1. Looking ahead, we will continue disciplined use of our securities and swap book to appropriately augment rates fall earnings generation embedded in our current business model.

Quarterly net interest margin declined 9 basis points and net interest income decreased $4.3 million, reflecting timing differences related to lower interest rates on our SOFR-weighted loan portfolio relative to 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, and 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 PxV expansion, both significantly outpacing industry benchmarks and demonstrating our competitive advantage in gaining 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 size is 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 arrange increased 20% this year, positioning us as the #2 ranked arranger for traditional middle-market loan syndications nationwide. This ranking reflects our market leadership in a core client segment, while highlighting our ability to provide client financing solutions that best fit both their balance sheet and ours. 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.

The 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, in 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 3 quarters 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. As projects in 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 sponsor support. Capital levels remain at or near the top of the industry. CET1 finished the quarter at 12.1%, with full year improvement of 75 basis points, reflecting strong earnings generation and disciplined capital management. Tangible common equity and 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 portfolio 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 5% to 10% of funded balances could migrate over the next 2 quarters, further enhancing both credit positioning and return on allocated capital.

During the quarter, we repurchased approximately 1.4 million shares for $125 million at a weighted average price of $86.76 per share, representing 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 to 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 in our fee income areas of focus with full year noninterest revenue expected to reach $265 million to $290 million. Anticipated noninterest expense growth in the mid-single digits reflects increased compensation expense tied to improved performance, targeted expansion in defined client coverage areas, and platform investments meant to expand upon best-in-class client execution, further enhancing our operating resilience and 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 Instructions] Our first question comes from Woody Lay from KBW.

Wanted to start on the investment banking and trading outlook and specifically the investment banking pipeline. I believe, in 2025, deals kind of 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?

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 and lead left syndications 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. IV transaction volume was up about 40%. The fees were much more granular. So people like you and others would suggest that's healthy, better earnings stream.

Equities, we participated in more transactions than we had forecasted even though some got pushed and Sales and Trading has passed $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 3 years ago. And so now you're starting to see the repeat of a client that came onto the platform 3 years ago, which will add to the earnings going forward.

I would say that what you're 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 is -- 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 has proved to be very, very strong.

Like just an example, stay on public finance we have a government not-for-profit segment in corporate. Well, before we have had public finance, all we can really do is 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.

Woody, 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 3 categories. So 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 is for stable linked quarter performance, so total noninterest income, $60 million to $65 million investment banking, $35 million to $40 million, which to Rob's comment, expectation of continued platform maturity and then the integration of all the hires and capabilities that we've built over the last 12 to 18 months, driving positive trajectory, both in fee income and investment banking as we move through the year.

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 went back and found. So really, really excited about the business.

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 2-part question. First, just you were pretty active on the buyback front in the fourth quarter. Was that a reflection of the elevated CRE paydowns freed up some capital?

And then the second question is, you reiterated the CET1 guide of over 11%. You've been price sensitive on the buyback historically, stock's now trading well above where you bought in the fourth quarter. How do you think about additional buybacks from here?

Yes, Woody, pushing CET1 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 building 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 financial resilient market and rate cycles for us is, of course, paramount. And while we think we have significant capital in excess of internally observed risk profile, Rob said repeatedly that carrying sector-leading tangible common and tangible assets is a real material contributor to our ability to attract the right type of clients. That's going to benefit the shareholder over time, and is an advantage that we're currently unwilling to give up.

Would say is the profitability continues to improve the resources available to support items on the capital menu also expands. So if you're trading at 1.3x tangible take the 2026 and 2027 consensus estimates for ROE, buying back today suggests that you're purchasing at book value in 2.5 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.

I think also, Woody, we continue to really focus -- well, I think humbly, we proved we're pretty good allocators of capital over these -- over the past several years that Matt just outlined, but we also continue to drive structural improvements in the platform. So if you remember, we talked about the SPE structure in 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 100% of those clients, but when you move those clients, the sophisticated best-in-class clients to the SPE structure, you go from the risk weighting of 100%, down to sub-30% now on average, which clearly is a better model and releases capital. And we're not going to -- we'll, forever, try to drive efficiencies both in cost, but also capital in the businesses that we have at the firm.

Our next question comes from Michael Rose from Raymond James.

Maybe just on the expense outlook. I think you mentioned obviously some wage inflation, clearly, in some hiring efforts. Can you just talk about some of the areas where you're looking to kind of incrementally add? Is it -- is it on the lender front, is 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 guide as we move forward.

You bet, Michael, we are highly focused on leveraging the material previously -- 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 going to 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 the stock. So the current guide does anticipate Q1 noninterest expense between $210 million and $215 million, with about 18 of seasonal comp and benefits 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 $125 million a quarter and then other noninterest 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. Anything you want to add on that, Robert.

I guess the only thing -- the last thing I would say is 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, Matt talked about this a lot, Mike, we talked about it with you a lot when we're building these businesses, we had to build the back, middle and front office. So back and the middle are substantially complete as we discussed a lot. So we add somebody to the front line, the return on that higher is much greater, which is reflected in everything that Matt said.

Great. I appreciate the color. Maybe just as my follow-up. Can you just talk about the opportunities? I know you're not going to 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? And then just a more conducive loan market.

Mike, I think a lot of the trends that you've seen in the second half of 2025 should really continue into '26 with strong C&I and mortgage finance growth offsetting contracting commercial real estate balances. So that we noted in the prepared remarks, the guide contemplates the $2.3 trillion mortgage origination market, which sits on top of a 6.3% 30-year fixed rate mortgage, which for us, would drive about a 15% increase in full year average mortgage finance balances.

As Rob just noted, this is obviously a completely different mortgage finance offering in the legacy warehouse we've had at TCBI. 59% of these loans are in the enhanced credit structure, which had the average risk weighting of 28%. 80% of these clients are both the dealer and then nearly all of them take advantage of our treasury product suite, which suggested any realized pickup in 1 to 4 family originations is going to 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&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 mid- to high single-digit growth in gross LHI.

Yes. And Michael, the reason I said -- when we first started, and I said loan growth doesn't matter was 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 raised $30 billion of Term Loan B high-yield 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 #2 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.

Another way just to think about that client acquisition, Michael, is I mean, commitments for us in the C&I space linked quarter were up over 25%. So we continue to drive low double-digit growth in C&I balances. And our last quarter, I think we grew commitment 18% -- but we grew commitments 18% year-over-year and again, of 25% linked quarter. So a lot of client activity showing up on platform.

Okay. So a lot of momentum to continue.

Our next question is from Casey Haire from Autonomous Research.

This is Jackson Singleton on for Casey Haire. I was wondering if you could just provide some more color into recent credit trends, and maybe help us kind of understand what factors drove the increase in the provision guide year-over-year?

Yes, we did experience modest linked quarter increase in special mentioned 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 going to 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 had a 35 to 40 basis point guide 2 years ago, moved it to 30 to 35 basis points this year, came in obviously at the low end of the guidance, and we're certainly a group that wants to operate from a position of financial resilience. We still felt it prudent to move to 35% to 40%, again, consistent with things we've done in the recent past.

Got it. Okay. 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?

Yes. I think 2.50% to 2.55% for 1Q on NII, flattish margins, so somewhere in the mid-3s. 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 3.85% or 3.90% or so. So those are probably the factors that I would incorporate.

The other comment that I'd make is we're at 67% through cycle beta inclusive of the December cut, once all those pricing actions are passed through the deposit base you're somewhere in the low 70s, probably by the end of January. For the full year outlook, we've been pretty consistent in noting our expectation that interest-bearing deposit betas were going to moderate. So any incremental cuts in '26, the guide would incorporate a 60% interest-bearing deposit beta, which is obviously also what we now have in our earnings at risk down 100 scenarios.

Our next question is from Anthony Elian from JPMorgan.

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 that business?

Rates were lower than we had incorporated in the outlook, which did drive a pickup in aggregate originations inclusive of refi. And you had slightly longer dwell times as well, Tony, which supported those average balances.

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

Yes. You bet. So it's $100 million. So we have $250 million, excuse me, of special mention commercial real estate on a $5.5 billion portfolio that we've experienced, I want to say, $5 million of charge-offs on in the last 36 months. So we'd 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 sustain 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 the 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 wave. So if you look further upstream in the credit scales or the credit grades, watch list was essentially flat. So there's nothing sitting behind this other than these properties that we've identified.

I would say just to say, I think back 3 years ago was ahead of all the bank peers pointing out that we were going to have a small wave of provision increase in commercial real estate for a number of factors, but we did not anticipate any real credit problems, and we had worked through them, and that's exactly what happened. And I think this is very akin to that, just to add to what Matt said, I mean, we're in the top decile of firms since we started in 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 it's just -- I think the percentages are high because the numbers are so small.

Our next question comes from Janet Lee from TD Cowen.

To clarify on NIM, so mid-3.30% range for first quarter of '26. If I were to think about the direction of travel for NIM beyond that point, can you sustain flattish NIM from there given -- I mean, despite rates coming down given a potential improvement in self-mortgage, self-funding ratio. I guess that would -- looks like considering your $265 million to $290 million fee income range for '26, your NII could be very low single-digit growth to almost mid-single-digit growth there, depending on where that lands. So I wanted to get some color.

Yes, I think given pretty good detail on expectations for deposit repricing, self-funding. The only component of the liability base we haven't described as expectations for 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 deliver north of 10% growth in PxV for the last 5 years. We think about their contribution to overall deposit balance portfolio mix to stay around that 13% level, Janet. So obviously, deposits are going to grow. Commercial NIB 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 $1.1 billion of securities last year at 5.5%, sold almost $300 million at 3%. It's a nice sequential picture of 80 basis points of improvement in 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 100. 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, and we see the negative spread between 2-year and 1-month SOFR inside of 30 basis points, which, as of yesterday, we were sitting there. So you'll see us add some swaps.

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 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, but they're generally less price sensitive.

And then just the final comment there, Janet. I mean, we've shown an ability to deliver increasing net interest income, revenue and PPNR and 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.

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

Got it. And just one follow-up for me. I 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?

Honestly, Janet, 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 in 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 going to 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 going to 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 '27, '28. We do not anticipate growth in commercial real estate this year, again, not a byproduct of us devoting less focus, intensity and resource into the space, but mostly just because of the market dynamic where there's just not a product coming online.

I also think it's indicator of a very healthy commercial real estate portfolio with regularly scheduled payoffs.

Our next question comes from Matt Olney from Stephens.

Question for Rob. Since you achieved and exceeded those legacy ROAA targets in the back half of 2025, I heard you mention the focus now becomes recognizing the full potential of the recent investments. So I would love to appreciate what this full potential at full scale looks like as far as the operating metrics at the bank longer term.

Matt, great question. Obviously, we're not going to 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 platform is 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 -- and we talked about the credit portfolio and the discernment there, I feel really, really good about the future, and we're very optimistic.

Look, we've got a lot to do. What I would say is the theme of this year is execute and scale. We just got to execute. We've got all the products 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 bid 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 got to execute and scale. That's it, which really derisks, totally derisks the investment thesis.

Okay. Appreciate 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 I would love to get your preliminary thoughts around these instruments and any plans you may have as far as some of these debt instruments.

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

Our next question comes from Jon Arfstrom from RBC.

Rob, just to follow-up on Olney's question. You used the term subscale in 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?

Sales and Trading, Equity, Public Finance, Treasury, I don't think any of our businesses are at scale yet, like not one. I mean business banking is not at scale. So this is just the precis of what this firm can do. Matt is going to get mad at me when we hang up because he does say I was too optimistic, but there's literally not a business approaching scale. 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 I can keep -- I'm going to get in trouble also because I didn't name everybody.

I don't know of a sub business on the platform that's at scale, 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 being #2 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 peer banks need to do.

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 related, but you guys had this relationship management return hurdle exercise. And I know it's been around for a while, but as the business has evolved, and we just said things were immature, but as the business has matured, how has that evolved? And how has that allowed you to maybe keep clients around with less of an ask than maybe you did 2 or 3 years ago?

Yes. Thank you, Jon. It's I think it's evolved to being from an exercise to being part of our culture. So when we commit capital for a client, it's the relationship management exercise you talked about is balance sheet committee. The heads with LOBs are on that, the head of risk are on that. Matt attends it a lot. Remember, every LOB is fighting for the same amount of finite capital. And so if they're going to vote to deploy that capital, it's -- then it's good for the firm, and we have the right current ROE for loan only, but also for the relationship as a whole, both in a downgrade scenario of 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 new business with them or private banking. And then when you have a -- if you have a banker leave or something, which every bank does, people retire or what have you, you have like 4 or 5 touch points with that client. So the client has been institutionalized. It's not a banker relationship, it's institutional relationship, 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-win.

We currently have no further questions. And I would like to hand back to Rob Holmes for any closing remarks.

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

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

Good afternoon. Thank you for attending the Texas Capital Bancshares Q3 2025 Earnings Call. My name is Matt, and I'll be the moderator for today's call. [Operator Instructions]. I would like to pass the conference over to our host, Jocelyn Kukulka, Head of Investor Relations. Joce, please go ahead.

Good morning, and thank you for joining us for TCBI's Third 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 at 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 invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our 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-K and subsequent filings with the SEC.

We will refer to slides during today's presentation, which can be found along with the press release in the Investor Relations section of our website at 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, our operator will open up the call for Q&A. I'll now turn over the call to Rob for his opening remarks.

In September of 2021, we announced a detailed and historically ambitious 4-year plan to transform Texas Capital into Texas' first full-service financial services firm worthy of banking the best clients in our markets. We said at the time that the magnitude and time line associated with this wholesale rebuilding of the firm was the result of an immense opportunity to create something of unique and durable value. And that achievement of our vision would be defined by a series of specific and important measures of strategic and financial successes.

Despite the many expected and unforeseen challenges, we've been steadfast in our strategic objectives, transparent with necessary improvements to our business model and unwavering in our commitment to deliver a differentiated offering for our clients and results for our shareholders. Thanks to the resolute work of our team, I am incredibly pleased to report third quarter results, which confirm delivery of the remaining goal described at the beginning of our transformation in September of 2021, achievement of a 1.3% return on average assets, well above the communicated target of 1.1%.

These results mark an important milestone in our financial acknowledgment of the continued intensity in which we deliver distinct value to our clients through our wholly differentiated and increasingly scalable platform. When we began this transformation in 2021, we noted specifically the material gaps in our balance sheet and business model that require resolution to facilitate consistently high-quality client outcomes, acceptable risk-adjusted returns and ultimately, enhanced franchise value.

A critical early component of earning the right to bank the best clients in our markets was moving away from the legacy approach of relying on leverage to deliver financial performance. And instead, building a platform characterized by its resilience to market and rate cycles. Since that September 2021 announcement, we've added 247 basis points of tangible common equity, the most of any bank of the country with over $20 billion in assets and finished the third quarter with tangible common equity to tangible assets of 10.25%, an all-time high for the firm.

This exceptionally strong capital position, coupled with liquid assets of 24%, continues to allow for consistent and proactive market-facing posture as we are now distinctly capable of supporting the diverse and broad needs of our clients in any operating environment. Prior to our transformation, existing operational silos resulted in limited scalability and disjoined market coverage. After developing well-defined and disciplined organizational routines early in the transformation, the extensive investments made across the franchise to deliver a higher quality operating model is facilitating the intended results.

Our now cohesive platform enabled the entire company to effectively contribute to a third quarter that was the best in the firm's history, featuring record revenue of $340 million, record pre-provision net revenue of $150 million, record net income to common of $101 million, record earnings per share of $2.18 and record tangible book value per share of $73.2.

As we also described in 2021, the foundation of our transformation is the deliberate evolution of our Treasury Solutions platform. The firm is no longer overly reliant on disconnected, high-cost, high-beta national deposit verticals. Index deposits now comprise only 6% of average total deposits and are down nearly $10 billion from 2020. This dramatic rebuilding of our funding base is in large part attributable to our best-in-class payments offering, which enables us to successfully compete for when and serve as the primary operating relationship for the best clients in our markets. Our firm now provides faster, more seamless client onboarding than the major money center banks and ongoing frictionless client journeys that match or exceed theirs with high-touch, local service and local decisioning.

This sustained focus resulted in an industry-leading 91% increase in treasury product fees over the past 4 years. The strength of our balance sheet, breadth of our product offerings and quality of our talent now ensure our clients never outgrow the services we can provide for them. Historically, our relatively low client revelance was in part a result of a narrow product offering leading to overdependence on loan growth to drive earnings. We now approach the market based on our clients' needs, not our own, with tailored offerings for each stage of their life cycles and double the number of client-facing professionals providing advice, not just capital.

This cultural and structural shift is driving material success with targeted clients and prospects of all sizes. The firm is now a top 5 Texas-based originator of SBA loans, evidencing our commitment and ability to effectively serve small businesses. We now have industry-specific coverage aligned with businesses that comprise 100% of the addressable Texas economy. And we built the first full-service investment bank in the state, achieving one of the most successful launches in history. This unique and sustainable competitive positioning results in over 90% of the new client choosing Texas Capital for additional products and services alongside traditional bank debt, signaling our increasing relevance and supporting the largest organic noninterest income growth rate of any bank of the country with more than $20 billion in assets over the last 4 years.

Strong execution across each area noted for improvement is supported by a highly disciplined and analytically rigorous capital allocation process focused solely on driving long-term shareholder value. We have and continue to bias capital towards franchise accretive client segments, evidenced by our commercial loan growth when excluding PPP loans and the divestiture of the premium finance sub of $5.3 billion or nearly 80% since 2020. And in times of market dislocation, we repurchased 12% of shares outstanding at a weighted average price of $59 per share.

Taken together, we accomplished the most successful bank transformation in the last 20 years and are increasingly the first call for the premier clients in each of the markets we serve. And digital decisions along the journey have positioned us to deliver attractive through cycle shareholder returns with both higher quality earnings and a lower cost of capital as we continue to scale high-value businesses through increased client adoption, improved client journeys and realized operational efficiencies, all timeless objectives we intend to remain focused on and consistent with creating lasting value.

None of this would be possible without the incredible commitment, creativity and professionalism demonstrated by the Texas Capital employees. Your belief in a long-term vision of the firm, perseverance in the face of at times intense skepticism and continued dedication to driving positive outcomes for our clients is the leading force behind the transformation. It is truly remarkable to see the talent on this platform and the culture we are defining with our actions every day. I look forward to continuing to partner with each of you as we never stop working to build something special for our clients who deserve nothing less.

Thank you for your continued interest in and support of our firm.

I'll turn it over to Matt for details on the financial results.

Thanks, Rob, and good afternoon. Third quarter total revenue increased $35.4 million or 12% relative to Q3 adjusted total revenue last year. supported by 13% growth in net interest income and 6% growth in fee-based revenue. Linked quarter adjusted total revenue increased 10% or $31 million as continued balance sheet momentum resulted in an $18.4 million increase in net interest income. Broad contributions across investment banking drove a $12.6 million improvement in adjusted noninterest revenue.

Total noninterest expense increased just $1.7 million compared to adjusted noninterest expense in Q2. As previously realized structural efficiencies continue to enable repositioning of the expense base in support of defined capability build. Taken together, year-over-year adjusted preprovision net revenue increased 30% or $34.9 million to $149.8 million, an all-time record for the firm.

This quarter's provision expense of $12 million resulted from modest growth in gross LHI, $13.7 million of net charge-offs and our continued view of the uncertain economic environment, which remains decidedly more conservative than consensus expectations, partially offset by the notable multi-quarter improvement in portfolio credit quality. The firm's allowance for credit loss finished the quarter at $333 million or 1.79% of LHI when excluding the impact of mortgage finance allowance and related loan balances, which is the highest level relative to criticized loans since 2014.

As Rob noted, our record quarterly net income to common of $100.9 million represents a 36% increase compared to adjusted net income to common in Q3 last year. This continued financial progress, coupled with a consistently disciplined multiyear share repurchase approach contributed to a 37% increase in quarterly 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.

Focus routines on target client acquisition are delivering risk-appropriate and return accretive loan portfolio expansion. With any period growth LHI balances excluding mortgage finance, growing approximately $100 million during the quarter and total commitments, excluding mortgage finance, up $577 million or 8.2% annualized. Average commercial loan balances increased 3% or $317 million during the quarter, featuring broad contributions across areas of industry and geographic coverage, with ending period balances of approximately $1 billion or 9% year-over-year.

As expected, real estate loans were flat quarter-over-quarter, including payoffs and paydowns of criticized assets. Despite a modest increase in real estate clients new business volume, our expectation remains that payoffs will outpace originations over the duration of the year. resulting in lower fourth quarter ending balances. As anticipated, average mortgage finance loans increased 3% linked quarter to $5.5 billion as seasonal home buyer activity hits its annual high during the third quarter with ending period balances of $6.1 billion, reflecting initial pull-through from the late quarter reduction in mortgage rates. We continue to expect full year average balances to increase approximately 10%, which is predicated on a $1.9 trillion origination market.

As noted on previous calls, sustained success winning high-quality deposit relationships continues to allow for the 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 sustained ability to effectively grow client interest-bearing deposits, which when excluding multiyear contraction and index deposits are up $3.3 billion or 22% year-over-year while also effectively managing deposit betas, which are 70% cycle to date accounting for the late September rate cut.

This impact is also observed with the structural reduction in the ratio of average mortgage finance deposits to average mortgage financial loans, which remained at 90% this quarter, down significantly from 116% in Q3 of last year. The result of which continues to positively affect margin while also improving liquidity value. We expect this ratio to decline to roughly 85% during the fourth quarter as loan volumes come off their seasonal peak and deposit balances predictably declined with the remittance of property tax and insurance payments.

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. This is most readily depicted by our 13% increase in year-to-date net interest income, 12% increase in year-to-date adjusted total revenue, and 31 basis point increase in quarterly net interest margin despite short-term rates being approximately 100 basis points lower over the first 9 months of this year.

We continue to effectively manage duration against this backdrop. As previously executed swaps that have matured over the last few quarters were only partially replaced with both additional securities and new forward starting received fixed swaps. During the third quarter, approximately $1.5 billion in swaps matured at roughly 2.95% receive rate, while another 250 matured on October 1 at 3.25%. Based on purchases made earlier in the year through early October, a series of received fixed SOFR swaps have recently or will become active. $200 million became active on August 1 at a blended receive rate of 3.94%, and $100 million became effective September 1 at a rate of 3.76%, $200 million became effective October 1 at a blended rate of 3.58%, $100 million becomes effective on November 1 at 3.55%, and another $100 million becomes effective December 1 at a receive rate of 3.32%.

We do still anticipate future interest rate derivative or securities actions over the remainder of the year. 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 12 basis points this quarter to 3.47% and supported by increased loan yields, growth in loans and previously noted improvements in deposit pricing. The 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 was flat linked quarter at 1.79% of total LHI and the top decile among the peer group.

Ending period reserves as a multiple of nonaccrual loans increased to 3.5x, benefiting from steady allowance levels and a $17.5 million reduction in previously identified problem credits. Positive grade migration trends continued across the portfolio, with total criticized loans down $108 million or 17% in the quarter and $368 million or 41% year-over-year. Criticized loans to total LHI finished the quarter at 2.19%, the lowest level since 2022, with watch list loans also declining to multiyear lows.

Despite continued notable portfolio improvements, we remain focused on proactively assessing the credit impact of a wide range of macroeconomic and portfolio-specific scenarios. Intended is regular assessment of loans to nondepository financial institutions, which 80% are loans to mortgage credit intermediaries within our well-described and long-held mortgage finance business. This is in part characterized by short dwell times, robust monitoring and direct collateral access. The remaining portion, which equates to 8% of our total September 30 loan balances is comprised of high-quality asset managers or finance companies covered within our designated industry verticals with which we often have direct operating relationships supported by multiple product touch points, heavily structured credit agreements and utilization of in-house field examiners when applicable.

As of September 30, 99.7% of these credits were rated in our past category with only $23 million in special mention. 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 12.4% and a 69 basis point increase from prior quarter with strong capital generation, again augmented by a reduction in risk weightings associated with enhanced credit structures in the mortgage finance portfolio.

By quarter end, approximately 54% of the mortgage finance loan portfolio had migrated to the enhanced credit structures, bringing the blended risk weighting to 62%. Our continued client dialogues suggest another 10% to 15% of funded mortgage loan balances could migrate into the structure over the next 2 quarters, further improving both our credit positioning and return on allocated capital.

Turning to our full year 2025 outlook. We're reaffirming our revenue guidance of low double-digit percent growth, reflecting confidence in the durability of our diversified earnings platform and ability to drive consistent client engagement across a range of market conditions. Importantly, our guidance is unchanged, this now including 225 basis point rate cuts over the remainder of the year, 1 in October and 1 in December, with the forward curve assuming an rate of 3.75% at year-end. Given continued success effectively matching our expense base with stated firm-wide priorities, we are decreasing our noninterest expense outlook to mid-single-digit percent growth from mid- to high single percent growth previously communicated. This reduction is driven by sustained realization of structural efficiencies, partially offset by continued platform build-out, including modest growth in nonsales and benefit-related expense associated with putting new capabilities into the market.

The full year provision outlook remains 30 to 35 basis points of loans held for investment, excluding mortgage finance, which should enable the preservation of industry-leading coverage ratios while effectively supporting our clients' growth needs.

Taken together, this outlook suggests continued earnings momentum on the back of what clearly a historic quarter for our firm.

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

[Operator Instructions]

First question is from the line of Michael Rose with Raymond James.

Just kind of start with, if I could pick anything apart in this quarter. It seems like maybe the the loan [Technical Difficulty] the period end was a little bit lower on [indiscernible] than the average. Just wondering if there's paydowns because it does look like the -- you guys had pretty nice growth in commitments. I think they were 11% or so Q-on-Q. So I know you [Technical Difficulty] fourth quarter, so with here kind of the puts and takes and any sort of forward outlook you might have.

Yes. You bet, Michael. You broke up a little bit. So if you have a follow on, feel free to go and ask. I think at this point, our track record suggests we are uniquely differentiated in our ability to effectively access the right type of capital for our clients. And our focus is squarely on providing the right solution for them, not on where it ultimately shows up in our financials. So that backdrop, we were highly active this quarter in terms of capital distribution with really strong client acquisition trends across the entirety of the platform.

So as you noted, for those clients that are best served in the bank markets, we continue to be an industry leader C&I commitments for the quarter increased by $576 million or 11% annualized, up 12.6%, $2.4 billion year-over-year. According to middle-market league tables and Q3, we arranged access to more syndicated bank debt than anyone in the country other than JPMorgan. So we noted in the prepared remarks that full year client growth continues to be broad-based across corporate, middle market and business banking in the last 4 years, trying to assure we have a platform and solution set that's tailored for each stage of our clients' life cycle.

For clients whose capital needs are best met outside of the banked markets. We delivered a highly successful debt capital markets transactions and high-yield term loan B and private credit this quarter. with importantly, an increased volume of repeat clients, which supports a more granular, repeatable and we certainly think higher quality fee base.

And then finally, after clearing the first trade on the last day of the last quarter, equity capital markets business participated in a series of IPOs this quarter, which provides yet another capability for clients looking to access capital. So as we think about our ability to support clients when you combine record high capital levels for the firm, which, in most cases, is industry-leading and then improved capabilities across the firm, that should drive really strong revenue growth in terms of -- related with finding capital for our clients whether our balance sheet is the best spot forward or not.

I really appreciate the color. That's really helpful, Matt. Maybe just as my follow-up, just as you think about investment banking and trading line item, obviously, really good results. I know you guys have kind of talked about $50 million a quarter run rate at some point. Can you just update maybe some expectations there? And then would you expect any near-term headwinds maybe from the government shutdown as [indiscernible] or things like that?

Yes. I'll talk about the outlook. Michael and [indiscernible] talked about the investment banking business in general. So obviously, the Q3 fees were on the high end of the guide, which is from the fourth consecutive quarter for us in TS reporting a year-over-year growth in excess of 20%. We did have a record investment banking quarter that despite some meaningfully sized transactions, it was really characterized by the volume of client interactions, the breadth of the capabilities that they chose to utilize, and then as I mentioned, the increased granularity and repeatability of those fees. We're nearing full year fee income guide to $230 million to $235 million, with expectations for fourth quarter noninterest income of $60 million to $65 million on the back of $35 million to $40 million again in the investment banking business.

I don't really have anything to add, Matt, other than it is a much healthier earnings in the Investment Bank. As Matt mentioned, it's much broader in terms of product and clients, it's much more granular and it's much more repeatable. And now the whole platform is working in unison, debt, equity, M&A, sales, trading, rates, FX all of it. And most clients use more than one of those products at a.

Time. So we're really, really encouraged about the business, really happy with the team we have on the platform, and I think they've proved it to be a highly valuable client accretive practice. I don't know of a de novo investment bank that's grown as fast as we have become profitable as quickly as we did, across the entirety of the platform. So from sales and trading, doing close to $300 billion of notional trades to date and they have crossed it today. As a matter of fact, we'll see. So we're really excited about the quality of earnings.

Next question is from the line of Woody Lay with KBW.

I wanted to start on NII. I appreciate the comment about how despite a 125 basis point reduction in short-term rates, you were able to increase NII 13% year-to-date. So in light of the September cut and kind of the expected additional cuts from here, how do you think about your ability to continue to grow NII with that backdrop? .

Yes. The other stats that we quoted related to that year-to-date performance, revenue and PPNR up 12% and 35%, respectively, with a 100 basis point reduction in short-term rates. So I think for us, that experience suggests it's really less about the absolute level of rates, and it's more about the timing. So as you know, it does take us a quarter or 2 for the balance sheet to fully reprice after a series with implied force, and therefore, our guidance suggesting that's going to hurt again in October and December.

So against that backdrop, we think about 4Q net interest income is $255 million to $260 million with net interest margin around 3.3%. As you know, our variable loan portfolio will absorb those changes in rates before we can effectively reprice deposits. We continue to really pleased with the ability to increasingly compete in deposit space based on the value that we had and not just price. So we noted in the prepared remarks that cycle-to-date beta of 70% included those September cuts, which after repricing the deposit base over the last few weeks should get current levels back to about that 80% interest-bearing deposit beta that we experienced through Q2.

Also consistent with previous quarters, the guide contemplates only 60% interest-bearing deposit beta across the next 2 cuts, which reflects at least our expectation for increased liquidity costs as folks look to more aggressively extend credit and then sustained composition of commercial noninterest-bearing -- average commercial non-interest bearing at about 13% of total deposits.

I would just add that we were before, highly commoditized as a bank. And now people bank with us for a lot more reasons than price of liabilities or capital, which allows us to demand more, and I think it's a direct reflection of the quality of product, service and advice that we deliver to our clients.

Got it. That's helpful color. And next, I kind of -- I wanted to move to credit. -- dating back to 2021, it's been a remarkable transformation. It's easy for us to see from an earnings standpoint, a capital standpoint because we can see the numbers. But I know that there's been a credit transformation as well. And it seems like some time to market, unfairly punishes you based on some of the legacy that predate your leadership. So I'd love to just hear about the credit transformation dating back to 2021?

We kind of take it and you take the specifics. Look, I think this quarter, criticized loans down $38 million or 41% that Matt discussed is on par with strategy, right? We're really, really aggressive when it comes to client solutioning and we're very, very conservative as it relates to risk, whether it's credit risk, operating risk, market risk, whatever risk you want to contemplate, we think client selection is the #1 mitigant. And I think that client selection if you're making the right clients, they do the right things, even when there's a problem. And most of the time, more of than not versus adverse client selection, you're not having those problems.

And that's -- I think that really manifests itself here recently with a lot of banks being caught without collateral or without the proper underwriting and diligence by their teams. And, as you know, that did not happen here. So I'm really pleased with the intensity of the risk platform, how they proactively manage the loan book, but also our bankers. Our bankers are very focused on client selection as it relates to risk, just as much as they are on treasury or other parts of the platform. So I think it's foundational to what we've built and goes along with being well capitalized.

The only thing I would add to that, Woody, is that the metrics that picking portfolio health coverage today are certainly as strong as they've been since we started the transformation, but in a lot of cases, as strong as they've been in over a decade. So Rob generally demands constant monitoring and multiple portfolio or scenario specific stresses every quarter, and we today really see no systemic or industry-specific themes in the credit book, most of what's remaining in criticized is idiosyncratic in nature?

Next question is from the line of Matt Olney with Stephens.

First off, great to see all the green check marks on Slide 4 great execution. As far as capital I think the presentation knows that the risk-weighted assets at the bank now in the top quintile of the peer group and that TC ratio in the top quartile I think from our side, we're trying to weigh if this capital could be a deployment opportunity in the next few years for you? Or do you feel like having this excess capital gives you a competitive advantage as you add new customers, which could suggest you want to continue to maintain these capital ratios close to current levels?

Thanks, Matt. I appreciate the question. I think it's more than fair. And if I repeat myself from previous calls, forgive me. But as you know, we have a very disciplined capital menu that we follow literally every day. And the first is in fast organic growth with new clients and there's an abundance of demand in the new organic growth with new and deepening clients. Then the vendors investing in the platform, products and services.

I would argue we built the most broad relevant product platform and banking in the last 10 years with all of our capabilities, done a pretty good job with that, getting a return. Then you move on to -- not in the conventional capital menu, but I look at bond repositioning and loan portfolio acquisition that we did in the third quarter of last year. And then we move to distribution policy. We're not going to do a dividend, but we bought back 12% of the company at an average price of $59 per share below book value, all below book value.

And then you get to M&A, which is we sold a company for $3.5 billion, which really was the foundational component that made this turnaround possible. So I think -- and by the way, we did that before other banks tried and failed. So I think we've proved to be really good stewards of capital, including the expense capital. We took out $270 million of NIE and put that back plus more and rebuilding the platform that's achieving these returns.

So the last thing on that capital menu would be [indiscernible]. And until you get to profitability, that was read on the menu. We look at it. We study it. We focus on it. We're ready for it, but it was read on the capital menu. Now maybe it's yellow because we have the earnings, but we need the currency. We're super focused on tangible book value per share. That's paramount to us. That's gone up 40% since the beginning of the transformation. I think the average bank is 30% or 31%.

So while doing a transformation, we outperformed, and I would just hope that we get the benefit of the doubt that we can outperform going forward, and we'll be good stewards and be highly sensitive to red, yellow and book value.

But Matt, let me add 1 quick thing because you mentioned it. It is absolutely benefit go-to-market with clients. You cannot deny it. I have the CEO of one of the fastest-growing companies of specific industry here today at launch with me, and we talked about back. And they do -- we were on the cover of their debt deal. They do treasury with us. They do their corporate card with us. And we talked about how well capitalized we were and how comfortable they were with us because of that. So it is undoubtedly a competitive position in the market.

Okay. Got it. And then I guess just following up on that, some of your commentary, Rob, on the M&A front. As you think about kind of what's what you're building and then what you prefer to build organically versus acquire? Are there certain businesses that kind of lend itself more towards M&A, for example, depository versus investment banking or wealth management. I guess what is your -- what would the M&A focus be if and when that comes to pass?

I think that I think you should assume that we look at everything out of discipline fintech, depository, well, you name it. We also recognize that our best return would be realizing the revenue and cost synergies of the transformation. I mean, we have so many costs that we don't have to add to to realize revenues and earnings and return already embedded in the platform.

Matt just talked about our new equities business. We don't have a return on that yet. Our new corporate cards, 16th largest transaction volume card in the country, and we don't have a return on that yet. But they are also -- I mean they're doing so well, and we fully expect to get a super return in the near term. So we have a lot of revenue and expense synergies that we can realize without doing M&A.

Next question is from the line of Brett Rabatin with Hovde Group. .

I wanted to ask about the expense guide. You obviously trended a little bit for the full year and obviously, for 4Q relative to maybe prior expectations. But it does suggest -- kind of mid-single digit does suggest a little growth in the fourth quarter. Can you maybe talk about the fourth quarter in terms of expenses and then just as you guys think about it, the build. I know you're really efficient at this point, but the build that might happen in '26 with additional initiatives?

Let me take that, Brett. We do expect noninterest expense of about $195 million in the fourth quarter as salaries and benefits move into the low 120s and then other noninterest expense drifts above $70 million due to higher occupancy, marketing costs and primary legal and professional that's associated with putting new capabilities into market. That puts you at about $778 million for the full year, which is right on top of the now revised lower expense guide of mid-single digit.

It's probably too early to talk about expectations for 2026. But to Rob's commentary, we do think we have a track record of effectively positioning the expense base against the most productive sources directly aligned with the strategic objectives so that thing you should expect to continue.

Okay. That's helpful. And then the other question I had was just given the solid improvement in criticized assets, I thought it was interesting, Rob, you kind of sounded like during your prepared comments that maybe you're a little more cautious or conservative relative to the macro environment expectations. Any color on that and what that might mean and how you're thinking about the go forward?

No, I think that, that's -- if you ask anybody that works here or knows me, I am highly paranoid. And so we are always looking at downside scenarios, doing tabletop exercises, trying to understand -- I mean -- like as you know, we've talked about before, we're doing table tops on tariffs 6 months before Trump was elected because he was talking about it during his campaign. We didn't even know if he'd be elected. .

So we try to look around corners best we can. We don't always get it right. We're not perfect, but that's why we focus so much on it. So it's nothing more than a conservative posture and stance that is kind of how we run the business.

Next question is from the line of Ben Gerlinger with Citi.

With respect to the mortgage finance, I know quarter-to-quarter, it can have volatilities with the home selling season and equity levels and all that. But over the last couple of years, you guys have made tremendous strides on both sides of that silo, I guess, you could say, of the business. When you think about just the yield, we think full year, so you can encapsulate peak to trough. What would be an appropriate yield or what you guys might think for next year?

Yes. Too early, Brett, on next year guide. I think you're safe from the fourth quarter, which is what we're giving guidance today to think about mortgage finance at about 3.8%, and that's with an 87% self-funding ratio and 2 Fed cuts. .

S Right. No, I got you. That's fair. It seems like you guys obviously going to oscillate, but I would assume probably 4-plus full year.

As you know, Brett, we alluded to it in the discussion on NII and margin, it takes a couple of months for the reduction in deposit cost to flow through to yield. So if you think about the third quarter yield of 4.32%, down to a $3.80 in a seasonally slow quarter, that's about as punitive impact to the mortgage finance yield, as you could see. We're still talking about an aggregate NIM of [indiscernible] which gets back to some of the earlier commentary on the improved defensibility of the revenue profile despite what's happening with short-term interest rates.

Got you. Okay. Fair enough. And then with the kind of core loan yield, it was up 14 bps linked quarter. Was that -- so is something you use idiosyncratic in there? Or is it just kind of hedging and the new production being added?

It was primarily new production. There was about $3 million pickup in linked quarter fees that flowed into loan yield. But that's been honestly been steadily building for the last year or so as our transaction volumes increase. So again, if we think about 50 basis points coming out between now and the end of the year, that could push that LHI yield inclusive of mortgage finance down to, call it, 6 or so. And then we totally gave [indiscernible] we have clear guidance on the hedge profile as we could in the prepared remarks. .

Yes, I've got to read the transcript on that one. knows too much, but I appreciate all the color.

Yes, we can't say it again. .

Next question is from the line of Janet Lee with TD Securities.

Is there mortgage finance self-funding ratio, I appreciate the table that you guys included there. It looks like that 85% self-funding ratio for the fourth quarter has to do with some seasonality factors. If I were to look into just over an intermediate term, is there a structural opportunity to reduce that further as you get more client deposits? Or is this is 85%-ish level, the right level for you guys?

Great question. Janet, I'll hit that question specifically. And Rob, you can please talk about the business, which is an important 1 for us. I mean that's how funding ratio peaked at 148% for us. So the impact on this quarter's margin of the year-over-year change in self-funding ratio is 12 basis points. So it's been incredibly impactful for us to effectively drive relevance with primarily depositors in the commercial bank, which has enabled us to lessen reliance on those mortgage finance deposits. .

So as I think we've said maybe for the past 3 or 4 calls, we're going to continue to focus a lot of resources, a lot of investment on continuing to expand the treasury and deposit law with commercial clients. And to the extent that we continue to grow that at $3 billion or 20-plus percent year-over-year, it will give us opportunities to lessen reliance on those mortgage finance deposits. So it's absolutely a trend that we hope to continue. It both improves the margin, the data profile as well as importantly for us, the quality of our liquidity base, which is something that we focus a lot on internally.

And our relevance to our clients.

I mean quarterly treasury fees have grown 91% since the beginning of the transformation. So we're pretty good at it. What I would just say is the mortgage business remains very, very important to the firm. But it's wholly different than it was when we started. So think of it as an industry vertical, not just a place to win money. We're doing whole loan trading, TBA spec pool trading. We're doing hedging. We're doing some of our largest treasury service operating accounts or with mortgage clients.

If you look at it as a segment or sector like health care,or TMT or energy, it's a very profitable, very good business. We're bringing it down to RWA in the business. We're increasing the [indiscernible] in the business and our diversity of revenue coming from that segment is very broad. So it's way more than just the yield in the warehouse, even though that's still a big part of the income statement.

Got it. And just on the -- your commentary on expenses line around reflecting maturation of the platform. Should I maybe I'm reading into this too much, but does that mean that you have enough people and businesses in place without you needing to like hire a lot more talent into your company as you have in the past few years? Or how should I interpret that commentary?

I think you should look at doing a transformation with the expense discipline we've had over the last 4 years and last year, keeping NIE flat while dramatically improving the earnings base of the franchise, and now, we'll do it in a very careful way. But are we looking to add talent to the platform? Absolutely. Do we need to add the operating risk and controls in the accounting and the compliance and everything behind that talent? No, we don't. That's there.

So the incremental head count that we add now is very small on the margin versus what we were doing before. Before, we would have to add talent. We had to build a whole infrastructure behind that talent from the front to the middle to the back office. And I think that's what most people missed. Now we're through that process. Now the incremental head count that we add to the front office, not middling back, we're focused on front. We are excited about adding and our clients are looking for us to add it, and we'll do it in a very disciplined way.

Next question is from the line of Anthony Elian with JPMorgan.

Matt, can you go over the maturities of CDs in 4Q, what rates they're recurring at and the posted rates you've seen recently?

$765 million matures in 4Q at a weighted average rate of 4.22% posted rates are currently at 4% you would obviously see those step down, Tony, if the Fed realizes the forward curve. .

That's clear. And then, Rob, Slide 4, it's clear all the progress you've made -- the company has made over the past several years, including achieving your ROA target. So I'm wondering what happens now, right? Is it just purely about execution, some incremental hires. Should we expect new targets at some point to get announced?

Great question. Look, I think it was -- I don't think a lot of public companies give 4-year guidance. And we recognize in the middle of the transformation in a wholesale change literally touching the entirety of the platform, how important that was for a number of reasons. One, for you all to have some to anchor on our progress; two, to earn credibility, et cetera. So this was never the end, the 1/1 quite the contrary. This is a milestone. We're really excited about the future.

I don't know if -- I don't contemplate giving long-term guidance again, but we'll see. Certainly, I think we've been the most transparent management team in banking since we started this. If you go back and look at my September 1, 2021 call, and we'll continue to be very, very transparent. But I think that realizing the revenue and cost synergies that we discussed in the markets that we are with the capital that we have and the talent on the platform and our investment in technology and ops is just spread exciting, and that alone will keep us really, really busy for a long time. The demand by new clients and current clients on the platform is quite extraordinary.

Next question is from the line of Jon Arfstrom with RBC.

Congrats on hitting or exceeding the 1/1 hurdle, I think that's notable. Just Rob, on the client selection topic, are you seeing anything from any kind of market disruption from the recent Texas consolidation? There have been a lot of bank deals, I'm not sure if those banks have your clients, but are there more clients in motion right now?

That's a great question. So we are so front-footed an end market that we were already calling on all the prospects of clients that may be at a competitor bank anyway. So when we hear of an announcement of a transaction and we look at which clients we're calling on in terms of prospects. And we focus like, hey, there may be a disruption in the market, you should be doing something different. Usually, we shouldn't be doing something different. We're already calling on those clients and prospects and frankly, winning those clients and prospects, and some of those banks have sold not really interested in those prospects. .

So -- because we just -- I don't want to be negative at all whatsoever. But we're calling on all the high-quality clients and prospects in our markets already. Now I will say on disruption in the market through M&A in the past, we've had a lot of great talent like a lot of great talent from banks that have been acquired.

The commitment question came up earlier in the call, up 11% annualized. What does that signal to you? Do you feel like demand for credit is accelerating? Is this increase from existing clients or new clients or something else?

I would say it's more timing than than signaling anything else. Again, we're not concerned about when high-quality clients and prospects borrow, but to be there when. So I think it's more of a timing thing than anything else, Jon.

The only thing to add to that, Jon, as we mentioned in the comments, it's really important is that 2 years ago, 3 years ago, all of the fees in the Investment Bank were basically generated by new client acquisitions, and you are -- which is different than anyone else in the market. You are just now starting to see repeat business flow through the investment bank and contribute to fees, which is why we've made such a point on the call to emphasize the repeatability and increasingly granular nature of that line item, which obviously signaled a lot of client receptivity and adoption, but also suggest continued growth in those categories alongside a continuing higher floor of revenue.

Yes. That sounds good. I appreciate the granularity comment. I'll leave it there. .

There are no additional questions waiting at this time. So I'll pass the call back to Rob Holmes, Chairman and CEO, for any closing remarks.

Just -- I don't usually do this, but I'll do it this time. I want to thank all the employees listening for other dedication and focus. It's been a long 4 years. And I hope you're very, very proud. Thanks all. .

That concludes the call. Thank you for joining. You may now disconnect your lines.

Good morning, and thank you all for attending the Texas Capital Bancshares, Inc. Q2 2025 Earnings Call. My name is Rica, and I will be your moderator for today. [Operator Instructions]

I would now like to pass the conference over to your host, Jocelyn Kukulka, Head of Investor Relations at Texas Capital Bancshares. Thank you. You may proceed.

Good morning, and thank you for joining us for TCBI's Second Quarter 2025 Earnings Conference Call. 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 a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings release and our website.

Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual report on Form 10-K and subsequent filings with the SEC. We will refer to slides during today's presentation, which can be found, along with the press release, in the Investor Relations section of our website, at texascapitalbank.com.

Our speakers for the call today are Rob Holmes, Chairman, President and CEO; and Matt Scurlock, CFO. At the conclusion of our prepared remarks, our operator will open up the call for Q&A.

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

Good morning. Our strong quarterly performance is the result of continued execution on our multiyear road map, which is delivering structurally higher and more sustainable earnings across a broad set of products and services, with an operating model that is only beginning to deliver on its potential for future scale. Year-over-year quarterly earnings growth accelerated materially during the quarter, with adjusted total revenue increasing 16%, adjusted net income to common up 100%, adjusted earnings per share expanding 104%, and adjusted return on average assets of 1.02%, nearing the 1.1 goal we set out for 2025.

Our now multi-quarter trends of significant new client acquisition again resulted in targeted balance sheet expansion, consistent with our strategic areas of focus. Commercial loans grew 5% linked quarter and are up 13% year-over-year as we continue to effectively compete for and win holistic client relationships, which define the firm and for whom we can be relevant over the duration of their personal and business life cycles. This growth did not come at the expense of our peer-leading capital ratios as the firm continues to build tangible common equity to tangible assets, finishing the quarter at 10.04%, alongside tangible book value per share of $70.14, an all-time high for the firm.

Significant investments and 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 and treasury product fees, which increased 37% year-over-year to a record high for the firm.

Quarterly treasury product fees have now increased 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 system interest-bearing deposits, again evidenced this quarter by a 16 basis point increase in linked quarter net interest margin. Our unique and focused client service models continue to gain scale, making it easier for our clients to bring more of their business to us through tech-enabled connectivity and same-day account opening.

Despite portions of the capital markets being essentially closed in April and early May, investment banking and trading income increased 43% quarter-over-quarter and 4% year-over-year, led by a rebound in capital markets activity and our steadily growing sales and trading platform.

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

As we close out this quarter, I want to take a moment to reflect on how far we have come. Over the past 4 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 a 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. Their commitment, creativity and resilience have been a 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?

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 noninterest revenue.

Adjusted total noninterest expense decreased $14.1 million quarter-over-quarter. As first quarter financials are impacted by seasonal payroll and compensation expenses, realized structural efficiencies enabled continued repositioning of the expense base and support of defined capability build. Taken together, year-over-year, adjusted preprovision net revenue increased 52% or $41.4 million to $120.5 million, a record level since the announcement of the strategic transformation.

This quarter's provision expense of $15 million resulted from continued growth in gross LHI, $13 million of net charge-offs against previously identified problem credits and our continued view of the uncertain macroeconomic environment, which remains decidedly more conservative than consensus expectations. The firm's allowance for credit loss increased $2 million to $334 million, finishing the quarter at 1.79% of LHI when excluding the impact of mortgage finance allowance and related loan balances.

As Rob noted, adjusted net income to common was $75.5 million, an increase of 100% compared to adjusted net income of common in Q2 of last year. This continued financial progress, coupled with a consistently disciplined multiyear 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 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 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 in previously criticized assets to the lowest level in over 2 years. Despite a modest increase in client 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 buyer 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 a 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 financial loans, which improved 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 $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 4-month earn-back and improvement in rates fall protection.

In addition to the small repositioning, we continue to effectively manage duration in anticipation of upcoming swap maturities, adding $221 million of additional securities yielding 5.6%, along with $100 million in forward-starting received fixed swaps that will become active on October 1.

We currently have $1.5 billion of received fixed SOFR 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 [ pros ] through the mid part of last year.

Net interest margin expanded 16 basis points this quarter as the $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 noninterest expense decreased $14.1 million of seasonally elevated Q1, while year-over-year adjusted levels were up only $900,000 as we continue to reposition the expense base in support of consistently defined growth initiatives and areas of focus.

The allowance for credit loss, including off-balance sheet reserves increased to $334 million, an all-time high for the firm. While excluding the impact of mortgage finance allowance and related loan balances, reserves are 1.79% of total LHI and the top decile among the peer group and up over $20 million relative to Q2 of last year.

Special mission loans decreased $144.3 million quarter-over-quarter, while total criticized loans decreased $222 million or 26% year-over-year. Criticized loans of total LHI decreased to 2.66%, the lowest level since 2022, with broad-based improvements across both C&I and CRE. The reserve coverage ratio remains strong at 2.9x nonaccrual 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 assess risk profile. CET1 finished the quarter at 11.45%, an 18 basis point decline from prior quarter, as strong capital generation was offset by robust loan growth. By quarter end, approximately 30% of our mortgage finance 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 suggested 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 months tangible book value per share.

Turning to the full year outlook. We're reaffirming our revenue guidance of low double-digit percent growth, reflecting confidence in the durability of our diversified earnings platform and ability to drive consistent client engagement across a range of market conditions. We are decreasing our noninterest expense outlook to mid- to high single-digit percent growth from high single-digit percent growth previously. This reduction is driven by sustained realization of structural efficiencies, partially offset by continued platform build-out, including non-salaries and benefits-related costs associated with putting new capabilities into the market.

The full year provision expense outlook remains 30 to 35 basis points of loans held for investment, excluding mortgage finance, which should enable the preservation of industry-leading coverage levels while effectively supporting our clients' growth needs. Taken together, this outlook suggests continued earnings momentum and achievement of quarterly 1.1% ROAA in the second half of the year.

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

[Operator Instructions] The first question we have comes from Michael Rose with Raymond James.

Matt or Rob, I 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 wanted to get a sense for where pipelines are and how we could expect that to trend? And then if you could 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 of sectors here within research and things like that. So just trying to level set near-term expectations.

Yes, happy to address that, Michael. So the fact -- 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 the continued growth in sales and trading.

Rob noted in his prepared remarks that the continued expansion of an integration of capabilities into our existing coverage should support pretty strong fee growth in the back part of the year. So the guide currently contemplates that total noninterest income moves to $60 million to $65 million in the third quarter, which will be supported by $35 million to $40 million in investment banking fees, excuse me. And that expectations for full year noninterest income [ will move ] to about $230 million to $240 million.

On expense side, we're proud that we continue to find select opportunities to reposition the expense base against what has long been described as areas of focus. And we expect expenses are going to move to the mid- to high [ 1 90s ] over the next couple of quarters as sizes and benefits moves into the low to [ mid-1 20s ]. And then other noninterest expense moves above the $70 million number that we've cited for the last few quarters. Both of those moves are related to the capability build-out that you described, Michael, primarily in investment banking coverage and product rollout. And it's not just the comp and benefits expense, it's the technology expense, occupancy expense and the legal necessary to put those initiatives into the market.

I would just add one thing, which would be -- I think it's really, really important to note how the platform, including investment banking affects NIM as well. So there's just a high -- there's a better client journey, better advice, better dialogue with our clients. It's a more valuable banking relationship where 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.

That's great color. I appreciate all of it. Maybe just one follow-up question. I had probably been a dead [indiscernible] 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 of the above. I mean, should we expect something higher as we contemplate next year?

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, 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, the client acceptance of this strategy and our bankers is actually surprising even to me. I'm super proud of the bankers, the clients were onboarding. As we said, we want to be defined by our clients. We're proud of all of them. We've reallocated a lot of capital to get the right clients onto the platform and [ 1 1 ] is just a mirror stop along the way.

Your next question comes from Woody Lay with Keefe, Bruyette, & Woods.

I wanted to touch on expenses in the updated guide. Just 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?

Woody, 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. And so that's a trend that we hope to continue and think has become a core competency for the firm.

I think -- can you ask the second question again?

Yes. And 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?

Yes. Good question. I really like about 6% full year noninterest expense growth. I think mid- to high [ 1 90s ] in the next 2 quarters supports $240 million of fee generation as well as the outlook for full year earnings.

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

Don'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 in the last 3 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. As you know, we have a traditional data-driven capital allocation model, and we've proven to be good stewards of it. And the regulatory outlook has no bearing.

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

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

Yes. We think at [ 2 30 ] of fees, so the low end of the fee guide, we've got enough NII momentum, Stephen, to move to the high end of the current guide.

Maybe to walk through that a bit, as Rob alluded to, for us, NII really begins with deposit repricing, which we were clearly able to push past that 70% 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 nonbrokered, non-indexed interest-bearing deposits by $3 billion 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 reprice of [ $986 million ] of CDs that matured in the quarter at [ 4 75 ] and came back on a closer to [ 4 25 ], and we've got another [ billion one ] 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 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. But we do think there's enough momentum to support an increase in net interest income of roughly $10 million linked quarter. And if you carry that out for the duration of the year, I think you could pretty easily deliver the high end of the revenue guide on [ 2 30 ] of fees.

Okay. That's very helpful and specific. I 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 kind of drag from the deposit weighting lessons relative to what it's been in the past?

Yes, the guide incorporates a cut in September, which would suggest that mortgage finance yields moved out into the [ mid-4 30s. ] Absent a cut, I think you said relatively flat linked quarter.

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

No. 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 build the platform with the ability to scale with efficiency.

[Operator Instructions] And your next question comes from Matt Olney with Stephens Inc.

Good growth on the commercial lending front. I'm curious what you saw from your commercial customer behavior from April and then, of course, end of 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 in behavior, change utilization from all your commercial-type customers?

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, we 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&I, which was partially offset by, we think, well telegraphed payoffs in CRE, of which about 1/3 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.

I would just add to that, that I see continued growth -- activity in the balance sheet for them is extremely high for new clients with the demand on loans going forward on bank debt, not just other types of debt. And I think you'll see continued growth as the reinvestment and the balance sheet continues to slow.

Okay. Appreciate the color on that, Rob. And then I guess going back to the [ March ] finance commentary. I'm a little bit surprised you're maintain 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?

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 $1.9 trillion origination market that sits on top of 30 or fixed rate mortgages between 6 8 and 7. And if that continues, we expect 10% growth in full year average balances.

I think it's important to note also, we're not trying to gain market share in that sector. We're trying to bank the select view what we think are the best clients in that sector and no more.

[Operator Instructions] And your next question comes from Jon Arfstrom with RBC Capital Markets.

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

Yes, a couple of C&I credits, not industry-specific, no direct impact from tariffs. I'd say just in general, on credit, I think we're really proud of how the team continues to practically manage that portfolio. I think we would do that as a pretty underappreciated portion of the transformation.

So there was a minor move up in NPAs, but the ratio is consistent with what we've seen over the last few years. We added a couple of million dollars to reserve, which nominally is now at the highest level in the firm's history. And it results in a slight reduction in the ACL coverage ratio, but the trends to the left of NPA are quite strong. 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 2 years. And then our reserve continues to be underpinned by an economic outlook that's significantly more conservative than consensus estimates.

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 has manifested in the stats that, that just relayed. And we feel really good about where we are, our reserve levels and the performance of the credit portfolio.

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

Yes, I feel really good about it. So -- you're right. It is the last leg. We're a little behind on that. We've spoken about it. Thanks for bringing it up. We went on to the new platform in the fourth quarter of last year. That's a dramatically improved client journey.

If you look at our allocated portfolios that we put our clients in, we perform as well or better than other wealth managers. So it's not the performance of that. It's more the client journey and then getting the team on the field, if you will. We think, coupled with all the new client onboardings that we've had across the commercial space and investment banking, our ability and our TAM in that space is really unbelievable. I think you'll see great growth in that in the coming quarters and years. That's a slow growth business, as you know, but it's highly durable, and we're really excited about it. And I think you're about to see the first legs of it.

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

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

Thank you all for dialing in and 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.