Texas Capital Bancshares Reports Record Q3 Adjusted EPS and Revenue

Texas Capital Bancshares (NASDAQ: TCBI ) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary Texas Capital Bancshares reported a strong quarter with record adjusted earnings per share of $2.35, up 8% year over year and 25% quarter over quarter. The company's revenue reached a record $357 million, driven by growth in net interest income and a significant 19% increase in non-interest income, particularly from investment banking and trading. Strategic initiatives include significant investment in client-facing talent and technology, enhancing data capabilities and AI, and opening new offices in major cities to support growth.

Management emphasized disciplined capital management, including a new $200 million share repurchase authorization following the completion of a prior buyback plan. The company anticipates continued momentum into the fourth quarter and 2027, with strategic investments expected to yield faster returns and sustained growth. Full Transcript OPERATOR Statements that are based on our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from these statements.

Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them. Today's presentation will include certain non-GAAP measures, including but not limited to adjusted operating metrics, adjusted earnings per share and return on capital. For reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to the earnings press release and our website. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release, our most recent annual report on Form 10-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, Chief Financial Officer. At the conclusion of our prepared remarks, the operator will open up the call for Q&A. I'll now turn the call over to Rob for opening remarks.

Rob C. Holmes (Texas Capital Chairman, President & Chief Executive Officer) Thank you for joining us today. This was the most complete quarter in the firm's history, a comprehensive reflection of the multitude of strategic actions taken to build a unique platform resilient to changing market conditions and positioned for sustained growth. Enabling this set of outcomes was intentional and is the product of disciplined capital management, thoughtful portfolio construction, careful risk oversight, and a culture motivated to build something enduring that matters for our clients and our shareholders.

Our client-centric approach means we not only engage the market with superior insight and execution, but also maintain a commitment to financial resilience, ensuring our focus remains squarely on our clients' needs, not ours. The multi-year evolution of the firm's operating model means client successes translate into a balance sheet and income statement that are increasingly working in tandem to deliver financial performance regardless of the macro backdrop. The breadth of this quarter's performance is evident in financial results that feature new records achieved across many key metrics.

Quarterly adjusted earnings per share reached a record $2.35, an 8% increase year over year and a 25% increase relative to the previous quarter. Record net interest income and record fees drove record adjusted total revenue of $357 million and record adjusted pre-provision net revenue of $157 million, both of which increased 5% year over year. Finally, adjusted net income to common was $103 million, another record for the firm with firmly established multi-quarter trends and strong pipelines suggesting continued momentum to finish the year.

Non-interest income increased 19% year over year to $82 million, representing 23% of total revenue and supported by 14% year over year growth in our strategic fee income and areas of focus, led by the third consecutive quarter of record income for both investment banking and trading income as well as treasury product fees. Consistent multi-year growth in these critical offerings reflects the evolution toward a more diversified and capital-efficient business model and demonstrates how serving clients across multiple touch points makes Texas Capital a uniquely relevant financial partner.

Investment banking and trading income of $46.7 million grew 13% year over year and 9% linked quarter, supported by higher capital markets and sales and trading revenues. Treasury product fees of $12.9 million, up 16% year over year and 3% linked quarter, grew as we continue to deepen primary operating relationships and serve clients with integrated payment capabilities. Wealth management fees increased 14% year over year to $4.6 million. We remain confident in the trajectory of this offering and see tremendous opportunity to replicate the proven playbook used in payments and investment banking to invest in and grow the private bank platform in 2027.

Underpinning this notable fee growth is sustained new client acquisition driven by our market-leading capability to access the right type of capital for clients across geographic markets and industry verticals. We have invested significantly in our client-facing talent, doubling the number of bankers between 2021 and 2023 and are again aggressively recruiting high-quality professionals to further expand client coverage and deliver product expertise. Our financial outcomes validate this approach. The peer-leading growth we have achieved demonstrates not only that we have earned the right to compete and win in our markets, but that we know how to execute at scale.

This track record of sustained performance across multiple cycles is a foundation upon which we continue to build. Supporting this next phase of growth is a continued evolution of our technology and delivery infrastructure, with specific emphasis on enhancing data capabilities and optimizing process design to unlock the full operational benefits of AI. We reorganized technology leadership and team structure to prioritize product delivery and data infrastructure. The restructuring expenses and legacy software write-offs incurred this quarter reflect our commitment to converting these long-standing investments into measurable productivity gains.

This repositioning enables us to accelerate delivery cycles, improve system stability and scale, and materially enhance our operating model productivity. Our approach demonstrates a disciplined capital allocation strategy whereby we can make technology investments more productive by consolidating around the capabilities that matter most. Finally, during the quarter we exhausted our 2026 buyback authorization, acting opportunistically during periods of market dislocation to repurchase approximately $103 million of common shares at a weighted average price of $96.99 per share.

The board has authorized an additional $200 million share repurchase, which will be prudently leveraged to return capital to our shareholders while also investing in continued organic growth. This quarter underscores that every part of Texas Capital can deliver on its strategic objectives, drive sustained growth and attractive risk-adjusted returns. We are operating from a position of maturity and strength with substantial capital and liquidity, disciplined risk management, and an earnings profile built to perform across market environments.

As we move through the final quarter of 2026, our priorities remain consistent: deepen client adoption across the platform, realize the benefits of our investments, thoughtfully invest against our proven mandate, and deploy capital with a focus on lasting franchise value. Our achievements today give us the confidence and capacity to increase investment and growth, with the foundation from the transformation enabling progressively shorter earn-back periods on each incremental dollar deployed. Our results reflect how far we have come. Our opportunity is to continue to build on that progress and accrete value for our clients and shareholders.

Thank you for your continued interest in and support of Texas Capital. I'll now turn it over to Matt for the details of this quarter's financial results. Matt Scurlock (Chief Financial Officer) Thanks, Rob, and good afternoon. Third quarter total revenue increased $16.3 million, or 5% year over year, to $356.6 million, supported by growth in net interest income and a 19% increase in non-interest income compared to a year ago.

Linked quarter, total revenue increased $21.1 million, or 6%, driven by strong firmwide execution and continued realization of multi-year investments in an increasingly diversified and resilient operating model. Net interest income increased $3.2 million year over year to $275 million, which is a record for the firm. Net interest margin improved 16 basis points linked quarter to 3.44% and remained slightly below the 3.47% reported in the third quarter of last year.

Adjusted non-interest expense declined 2%, or $3.2 million, linked quarter to $199.6 million, reflecting an increasingly productive operating model and a return to more typical levels of legal and professional fees. Non-interest expense of $203.9 million included $4.3 million of restructuring expenses related to the reorganization of tech delivery and the write-off of select legacy software. Pre-provision net revenue increased $2.9 million, or 2% year over year, to $152.7 million. Adjusted PPNR of $157 million increased 5% year over year, marking the ninth consecutive quarter of expansion.

This performance demonstrates the firm's ability to translate investments in areas where we have a unique right to compete and win into attractive, defensible, and growing returns. Provision for credit losses was $17 million, consistent with our expectation for near- to medium-term credit trends and our continued assumption of economic scenarios that are substantially more severe than consensus forecasts. Adjusted net income to common of $102.7 million increased 2% compared to a year ago, while adjusted EPS reached $2.35, up 8% year over year and 25% linked quarter. Both measures represent quarterly profit records for the firm.

Book value per share and tangible book value per share both increased 3% year over year to $75.13 and $75.09, respectively, supported by earnings generation and a reduction in shares outstanding. Both metrics declined modestly linked quarter, reflecting lower AOCI as well as a proactive approach to share repurchases executed within our previously communicated pricing parameters. Period-end commercial loans of $13.4 billion increased $1.5 billion, or 13% year over year, and $422 million, or 13% annualized, linked quarter as targeted client acquisition continues to drive broad-based commercial loan growth.

This marks our 11th consecutive quarter of growth in average commercial loan balances which, when coupled with a disciplined and well-communicated capital allocation framework, results in commercial loans now comprising 56% of total loans compared to 28% at year-end 2020 when adjusting for divested businesses. As communicated throughout the year, commercial real estate payoffs continue to significantly outpace client appetite to finance new projects, with period-end balances decreasing 7% linked quarter to $4.8 billion, down 11% year to date and 16% year over year.

The linked quarter increase in the 10-year rate slowed realized payoff rates in the portfolio, with rate-driven industry stress likely to weigh on fourth quarter transaction volume. Despite the potential for a modest slowdown in payoffs, limited new fundings associated with historically low construction starts over the past 24 months are likely to result in continued downward trajectory for both commitments and funded balances, which we expect to end the year around $4.4 billion.

Average mortgage finance loans of $5.8 billion increased 5% year over year, but declined $540 million, or 9% linked quarter, as the rate environment changed dramatically mid-quarter and the industry reacted to mortgage rates approaching 7% for the first time since the summer of 2024. Period-end mortgage finance loans declined $942 million, or 15% linked quarter, to $5.4 billion, departing from the historical seasonal pattern of higher third quarter balances on both an average and period-end basis. Enhanced credit structures represent 76% of period-end mortgage finance balances, up from 69% at Q2 2026, resulting in a blended risk weight of 48% for the portfolio.

As the portfolio contracted during the third quarter, a modest mix shift occurred whereby more eligible balances were represented in the enhanced credit structure than in prior periods. Over the medium term, we expect the portion of the portfolio that resides in these structures to settle closer to 70%. Total deposits of $27.7 billion at quarter end increased $210 million year over year and decreased $1.2 billion, or 4% linked quarter, as brokered deposits declined $1.6 billion in response to the decline in mortgage finance loans.

Deposits excluding both mortgage finance non-interest-bearing deposits and brokered interest-bearing deposits increased $777 million, or 4% linked quarter, to $22.4 billion. Average commercial non-interest-bearing deposits increased $134 million, or 4% linked quarter, and $250 million, or 7% year over year, to $3.7 billion, with average commercial non-interest-bearing deposits remaining at 13% of total deposits. Average non-interest-bearing mortgage finance deposits of $4.2 billion declined $726 million year over year, bringing the self-funding ratio to 73%.

Given the current outlook and observed seasonality, we expect the mortgage finance self-funding ratio to increase to approximately 85% in the fourth quarter. Average cost of interest-bearing deposits increased 2 basis points linked quarter to 3.40%. Excluding seasonal brokered deposits that will largely roll off in Q4, the cost increased 1 basis point to 3.34%, reflecting our ability to compete on value rather than price. Our modeled earnings-at-risk improved as expected this quarter as market rates moved consistently with our previously communicated preferences for adding duration through the swap book.

Our current and prospective balance sheet positioning reflects a business model deliberately designed to be more resilient to changes in market rates. We place equal emphasis on through-cycle earnings generation and loss-absorbing tangible common equity while maintaining strong capital levels and flexibility. During Q3 we executed $600 million of two-year receive-fixed swaps against one-month SOFR with a weighted average receive rate of 4.16%, managing interest rate sensitivity within our desired range while realizing the higher rates embedded in the forward curve.

Additionally, on the back of historic rate moves in October we executed another $200 million of two-year receive-fixed swaps against one-month SOFR with a weighted average receive rate of 4.72%. While we are comfortable with our near-term positioning across a range of potential interest rate scenarios, we will continue to actively manage the portfolio in support of established business and risk objectives. Adjusted non-interest expense of $199.6 million increased 5% compared with Q3 2025 while declining 2% from last quarter.

The year-over-year increase primarily reflected higher salaries and benefits expense as resources are increasingly aligned to forward revenue generation, while the sequential decline was largely driven by the normalization of legal and professional fees following temporarily elevated levels last quarter. As Rob discussed, we're increasing investment in frontline talent across both banking and fee-generating businesses, translating into faster growth in salaries and benefits expense over the coming quarters.

For the fourth quarter of 2026, we anticipate total non-interest expense of $205 to $210 million comprised of $125 to $130 million of salaries and benefits expense and approximately $80 million of all other non-interest expenses. Non-interest income reached $81.6 million, up 19% year over year and 9% linked quarter. It represents 23% of total revenue, up from 20% a year ago, while combined fees from strategic areas of focus reached another quarterly record at $64.1 million, up 14% year over year and 6% linked quarter.

Investment banking and trading achieved its third consecutive record quarter with fee income of $46.7 million, increasing 13% year over year and 9% linked quarter. All components of the business contributed to this result, with particular strength in advisory, capital markets, and sales and trading. Wealth management and trust fees of $4.6 million increased 14% year over year, as assets under management expanded for the sixth consecutive quarter to $4.8 billion. Treasury product fees of $12.9 million increased 16% year over year as client adoption of the cash management, commercial card, and payments platform continues at a peer-leading pace.

Third quarter other non-interest income included $6 million of gains attributable to several strategically aligned non-marketable equity investments. Total non-interest income is expected to be $70 to $75 million for Q4 with revenue from investment banking and sales and trading contributing approximately $45 to $50 million.