Texas Capital Bancshares, Inc. (TCBI) Earnings

Management highlights

### Strategic Leadership & Team Updates - Appointed Mo Jameis as Chief Digital and Information Officer, who joined in early July 2026 with over 20 years of financial services technology leadership experience. Jameis reports directly to the CEO and serves on the operating council, tasked with strengthening the firm's technology platform, driving innovation, and advancing the company's digital strategy. ### Core Financial Performance Highlights - Adjusted EPS grew 15% year-over-year to $1.88; reported EPS was $1.83. Adjusted total revenue increased 8% year-over-year, with adjusted net income to common rising 9% to $82.7 million. - Tangible book value per share increased 10% year-over-year to $76.98, marking the ninth consecutive quarterly record for this metric. - The firm repurchased $24 million of common shares at a weighted average price of $97.63 per share and declared its inaugural common stock cash dividend, demonstrating management confidence in the franchise's earnings momentum. ### Balance Sheet & Deposit Strategy Updates - Total deposits reached $28.9 billion at quarter end, up 11% year-over-year and 1% linked quarter. Commercial non-interest-bearing deposits increased 7% linked quarter, and have grown 18% since Q3 2025. - The mortgage finance self-funding ratio reached 71% in Q2, up from lower levels over nine quarters of focused improvement, and management expects this ratio to settle between 70% and 75% in the near to medium term, improving balance sheet resilience and earnings generation. - The firm executed $400 million in two-year received fixed SOFR swaps at 3.87% in Q2, maintaining its target interest rate sensitivity and aligning positioning with expected forward curve rate movements. Management is now comfortable with near-term balance sheet positioning across a range of rate scenarios. ### Credit Quality & Capital Management - The total allowance for credit loss (including off-balance sheet reserves) remains near all-time highs at $333 million, with the allowance on non-mortgage loans holding at 1.78% of total loans (in the top decile of peer banks). Net charge-offs totaled $16.1 million (26 basis points of average loans), split evenly between previously identified C&I and CRE problem credits. Criticized loan increases are mostly driven by temporary special mention grade migration for multifamily CRE credits facing cash flow pressure, and a small number of C&I credits facing macro-driven margin pressure. - Capital ratios remain strong: CET1 ratio is 12.07%, and tangible common equity to tangible assets is 9.87%, both well above internal and regulatory requirements. Mortgage finance credit structure optimization has delivered a 113 basis point CET1 benefit since Q4 2024, enabling sustained loan growth, capital return, and improved risk-adjusted returns. ### Strategic Direction - Management is executing a deliberate strategic evolution toward more durable, less rate-sensitive, diversified fee-based revenue streams to deepen client relationships and build structural advantages that compound franchise value over time. The firm prioritizes disciplined credit underwriting and balanced portfolio management alongside fee growth.

Guidance

- Full year 2026 overall performance outlook remains unchanged from January guidance, and now incorporates one December Fed rate hike with a year-end Fed funds rate upper limit of 4%. - Full year total revenue growth is expected to land in the mid to high single-digit range, driven by strong client adoption and continued growth of focused fee income segments. - Full year non-interest revenue guidance range is updated to $270 to $290 million, a modest upward revision to the lower bound of the prior range. - Q3 2026 total non-interest income is expected to be between $70 and $75 million, with investment banking and sales & trading contributing $40 to $45 million. - For the remainder of 2026, quarterly adjusted non-interest expense is projected to be ~$125 million for salaries and benefits, and ~$75 million for all other non-interest expense, resulting in full year non-interest expense growth in the mid-single digits. - Full year provision for credit losses is expected to be 35 to 40 basis points of average loans, excluding mortgage finance, a range that management reaffirms. - Commercial real estate balances are projected to decline ~12% year-over-year on a four-year average, ending 2026 at approximately $4.6 billion. - The share of mortgage finance held in enhanced credit structures is expected to hold around 70% for the remainder of 2026. - Management expects Q3 2026 net interest margin to decline to the low to mid 320s, which it identifies as the 2026 trough, with margin expected to increase in Q4 2026 as seasonal mortgage finance balances and brokered deposit levels decline. Overall full year loan growth is projected to land in the mid to high single digits, with CNI growing ~10% year-over-year and mortgage finance growing ~15% year-over-year.

Segment performance

TCBI reports revenue broken out across net interest income and non-interest income, with the latter split into three core fee-focused segments: 1) Net Interest Income: $260.4 million in Q2 2026, up 3% year-over-year, representing 78% of total revenue. Period-end total commercial loans were $13 billion, up 10% year-over-year; C&I (CNI) loans grew 4% linked quarter, marking the 10th consecutive quarter of growth, while commercial real estate (CRE) loans decreased 3% linked quarter to $5.1 billion, down 9% year-over-year. Average mortgage finance loans increased 18% year-over-year to $6.3 billion, with enhanced credit structures now representing 69% of the portfolio. 2) Investment Banking & Trading: $42.8 million in non-interest income, up 34% year-over-year, accounting for 57% of total non-interest income and 12.5% of total revenue. 3) Wealth Management & Trust: $5.1 million in fees, up 38% year-over-year, representing 7% of total non-interest income and 1.5% of total revenue, with assets under management growing 15% year-over-year to $4.8 billion. 4) Treasury Products: $12.5 million in fees, up 8% year-over-year, representing 17% of total non-interest income and 3.6% of total revenue. Aggregate non-interest income reached $75.1 million in Q2 2026, up 34% year-over-year, representing 22% of total revenue (up from 18% in Q2 2025).

Risks & headwinds

- Sustained industry-wide overcapacity in CRE lending has led to originations being at decade lows, with supply continuing to dramatically outpace demand in the near term, resulting in ongoing balance declines. Management has ruled out chasing low-quality CRE originations to offset this trend, prioritizing risk-adjusted returns over balance sheet growth targets. - Irrational competitive pricing and loose credit structure is present across both CRE and C&I lending, which the firm chooses not to participate in, though it expects to gain relationship share over time as clients return for more prudent, sustainable credit structures. - Multifamily CRE borrowers continue to face cash flow pressure from extended rental concessions needed to maintain occupancy, leading to temporary grade migration of criticized loans. A small number of C&I borrowers also face macro-driven demand and operating margin pressure that impacts credit classifications. - Long-term structural trends point to gradually increasing industry-wide deposit costs, as deposits have become more commoditized over the past 20 years, a trend that management expects to continue. - Forward-looking financial results are subject to known and unknown risks and uncertainties that could cause actual outcomes to differ materially from management guidance, including unexpected interest rate movements, changes to macroeconomic conditions, and credit quality deterioration.

Analyst Q&A

• Q: What is driving the slight quarterly margin decline, and what should we expect for Q3 margin? /

  A: Margin dynamics were in line with expectations. The 6 basis point linked quarter increase in interest-bearing deposit costs was almost entirely driven by temporary brokered deposits used to fund seasonal mortgage finance growth; excluding this impact, costs rose just 1 basis point. For Q3, the larger share of lower-yielding mortgage finance assets will push blended margin to a temporary trough in the low to mid 320s, with loan yields expected to stay relatively flat overall. Q3 net interest income is projected between $265 and $270 million. The mortgage self-funding ratio will hold around 71%.

• Q: The slight increase in criticized loans this quarter – is this a sign of worsening credit risk? /

  A: The small increase in criticized loans came almost entirely from higher special mention classifications, partially offset by reductions in substandard loans. The largest driver is multifamily CRE, where temporary cash flow pressure from rental concessions leads to grade migration, even for deals with solid sponsor equity. The small number of C&I special mention credits also reflect isolated macro-driven margin pressure. This expected migration was already incorporated into the full-year 35-40 basis point provision guidance, which management still feels comfortable with.

• Q: What is driving strong Q2 investment banking performance, and how does the Q3 pipeline look? /

  A: Q2 results saw broad-based contributions from syndications, capital solutions, M&A, and sales & trading, with 33% of non-trading investment banking fees coming from new client relationships from the commercial and corporate bank, aligning with the firm's cross-sell strategy. All year-to-date closed M&A deals have been for privately held, Texas-based family-owned firms, a core target market. Management is highly confident Q2 investment banking and sales & trading will hit the $40-45 million guidance range, noting the business has become more predictable, with more repeatable, granular revenue as the platform matures.

• Q: Management has grown non-interest income to 22% of total revenue – what is the long-term target for fee revenue share? /

  A: When the strategic shift started, management targeted 15-20% fee share, which the firm has already exceeded at 22%. Management sees significant room for further growth, with peer banks with similar mature platforms often carrying fee share above 30%. Strong client adoption across all fee segments continues, with Q2 seeing record treasury service client onboarding, so management expects fee share to continue rising directionally over time.

• Q: What is the strategic motivation for the new partnership with Phoenix Merchant Partners, and what is its expected impact? /

  A: The firm already places ~$29 billion annually of non-bank debt (institutional high-yield and private credit) for clients, operating as a capital-agnostic solutions provider rather than prioritizing bank balance sheet lending. The partnership allows TCBI to optionally participate in the private credit deals it originates for clients, while continuing to capture fee revenue from investment banking and treasury services regardless of whether TCBI holds the loan. This expands the firm's total addressable opportunity for client relationships without forcing it to chase risky balance sheet growth.