Texas Capital Bancshares (TCBI) Q3 2026 earnings call transcript

Good afternoon, and thank you for joining us for Texas Capital's third-quarter, 2026 earnings conference call. I'm Jocelyn Kolkotka, 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 data this call, and we do not assume any obligation to update or revise them. Today's presentation will include certain non-gap measures, including but not limited to, adjusted operating metrics, adjusted earnings per share, and return on capital. For reconciliation of these and other non-gap measures to the corresponding gap 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 10K 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 Texas Capital. com. Our speakers for the call today are Rob Holmes, Chairman, President, and CEO, and Matt Skrilock, 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. 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 discipline 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 client's needs, not ours. The multi-year evolution of the firm's operating model means client successes translate into a balance sheet 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 debt 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 and our strategic fee income 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 making and trading income of $46.7 million grew 13% year over year and 9% link quarter, supported by higher capital markets in sales and trading revenues.

Treasury product fees of $12.9 million, up 16% year over year and 3% link 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 of legacy software write-offs and current this quarter reflect our commitment to converting these longstanding 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 is 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, discipline 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 earnback 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 and support of Texas Capital. I'll now turn it over for Matt for the details of this quarter's financial results.

Thanks for having a good afternoon. Third quarter total revenue increase of 16.3 million or 5% year over year to 356.6 million. Supported by growth and net interest income in a 19% increase in non-instrumented income compared to a year ago. Late quarter total revenue increased 21.1 million or 6%, driven by strong firmware 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. The 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 on interest expense declined 2% or 3.2 million week order 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 PP&R of 157 million increase 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 with 17 million consists of expectation for near to medium-term credit trends and our continued assumption of economic scenarios that are substantially more severe than consensus forecasts. Adjusted that income to common of 102.7 million increase 2% compared to a year ago, while adjusted EPS reached $2.35, up 8% year over year and 25% link quarter.

Both measures represent quarterly profit records for the firm. Both value per share and tangible $2.95 respectively. Supported by earnings generation and a reduction in shares outstanding. Both metrics decline modestly link quarter reflecting lower AOCI as well as a proactive approach to share repurchases executed within our previously communicated pricing parameters. Perioding commercial loans of 13.4 billion increase 1.5 billion or 13% year over year and 422 million or 13% annualized link quarter. As targeted client acquisition continues to drive broad-based commercial loan growth. This marks our 11th consecutive quarter of growth and 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% a year in 2020 when adjusting for divested businesses.

As communicated throughout the year, commercial real estate payoffs continued significantly outpaced client appetite to finance new projects. With period imbalances decreasing 7% link quarter to 4.8 billion down 11% year to date and 16% year over year.

The late 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 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 financial loans of 5.8 billion increased 5% year over year but declined 540 million or 9% link quarter. As 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 of mortgage financial loans declined 9 or 42 million or 15% link quarter to 5.4 billion departing from the historical seasonal pattern of higher third quarter rate balances on both an average and period end basis. Enhanced credit structures represent 76% of period and 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 a portion of the portfolio that resides in these structures to settle closer to 70%.

Total deposits of 27.7 billion at quarter and increased 210 million year-over-year and decreased 1.2 billion or 4% link quarter. As broker deposits declined 1.6 billion in response to the decline in mortgage finance loans. Deposits excluding both mortgage finance on edge-sparing deposits and brokerage-sparing deposits increased 777 million or 4% link quarter to 22.4 billion. Average commercial knowledge-sparing deposits increased 134 million or 4% link quarter and 250 million or 7% year-over-year to 3.7 billion, with average commercial knowledge-sparing deposits remaining at 13% of total deposits. Average on interest-sparing 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 costs of interest-sparing deposits increased two basis points linked quarter to 3.4%. Excluding seasonal broker deposits that will largely roll off in Q4, the cost increased to one 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 execute 600 million of two-year received fixed swaps against one month's 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 the historic rate moves in October, we execute another 200 million of two-year received fixed swaps against one month's 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 a portfolio in support of established business and risk objectives. Adjusting on 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 are 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 expense. Non-enchant come reach 81.6 million of 19% year-over-year and 9% link 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% link quarter.

Investment making and trading achieved its third consecutive record quarter with the income of 46.7 increasing 13% year-over-year and 9% link quarter. All components of the business contributed to this result with particular strength and advisory capital markets and sales and trading. Wealth management trust fees of 4.6 million increase 14% year-over-year is assets under management expanded for the sixth consecutive quarter to 4.8 billion. Treasury product fees of 12.9 million increase 16% year-over-year is 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 per Q4, with revenue from investment banking and sales and trading contributing approximately 45 to 50 million.

Total allowance for credit losses including off balance sheet reserves increased to 335.8 million, while the ratio of total ACL to loans held for investment increased to 1.39%. Reflecting a modest reserve build consistent with full-year expectations. When excluding the impact of mortgage finance allowance and related loan balances, the ratio was flat link quarter at 1.78%, which remains in the top decile of the peer group. Net charge loss for the quarter of 14.5 million or 24 basis points of average L. H. I. down 10% from 16.1 million last quarter. Net charge loss for primarily related to proofs identified C&I credits across a diversified set of clients with exposure to consumer demand. Criticized loan trends are generally evolving as anticipated.

The select commercial real estate multi-family credits remain impacted by cash flow-related pressures and macroeconomic pressure on consumer demand and operating margins are driving select grade migrations in C&I. Capital ratios remain strong and well in excess of our internally assessed with profile. With tangible common equity, tangible assets of 9.85% and a CT1 ratio of 12.2%. Cash and securities remain in line with target levels at 23% of assets and the loan to deposit ratio is stable at 87%.

During the quarter, we purchased approximately 1.05 million shares at a weight average price of $96.99 a share, representing 126% of the prior month's tangible book value per share, exhausting our authorization. The board approved a new $200 million repurchase plan, which we'll manage prudently and opportunistically consistent with our historical approach to capital management. For full year 2026, our performance outlook is modestly improved from guidance given in January. Our rate outlook is based on the current market forward curve and assumes an additional 25 basis points increase in December, bringing the upper bound of the federal funds target range to 4.25% a year end. We now anticipate adjusted total revenue growth in the high single digits compared to the dusted total revenue of 1.26 billion in 2025, driven by sustained client adoption and continued peer leading growth and our fee income areas of focus.

Full year non-interest income is expected to reach 295 to 300 million, which is also a modest increase in the previously provided guidance. We anticipate non-interest expense growth in the mid to high single digits compared with 768.9 million in 2025, reflecting higher performance related to compensation and accelerated targeted frontline hiring across banking, payments, wealth, and investment banking. In the midst of persistent economic uncertainty, our commitment to operating from position of financial resilience is unwavering. We iterate the full year provision outlook of 35 to 40 basis points of average LHI, excluding mortgage finance. Taking together, this outlook supports another year of positive operating leverage. As we invest in the next phase of growth from a foundation of financial strength.

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

Yeah, thanks Matt. I mean, we're pleased with the third executive quarter, a record fee income. It carries a focus on pipeline supporting 70 to 75 million of estimated for which sits on top 45 to 50 million dollars in investment banking and trading fees. 300 million, 40% your investment banking is out noticeably.

You know this, Matt, we're not focused on specific product distribution, but the platform to uniquely solve comes from our clients, which is why the metrics that we most frequently emphasize are things like 40% of investment banking fees, excluding M&A from new banking relationships, three, and then all in the, we try to call that stuff out mostly because we think it matters a great deal in trying to assess the forward earnings profile of the firm and emphasizes your ability and other businesses that we've said quite a bit that at some point will be large enough in investment banking where what's happening in the broader market will more directly dictate our ability to deliver fees. We're not quite there yet.

We've seen a lot of momentum across every area of the platform and both optimistic for Q4 and excited about what's coming in 27.

Hey, Matt, it's Rob. I'll take that. So as you said, one of the goals we first got here was to redistribute the mix of our employee base. Frankly, we had way too many back in middle office and very few front office bankers to deliver the platform we got here. We spent the last five years doing just that both in terms of headcount and dollars invested increasing towards the front line. We are going to, given the strength of the platform in every line of business and the consistent performance and our views of the future and the client responses, we are going to invest in the front office again. We have been investing very deliberately and carefully, but now we invest the time to dollar of revenue is much quicker.

The return is much faster. Remember when we were doing it earlier, we had to build the back of the middle office and risk control, compliance, technology and everything that came with it. Now we're adding front line bankers and the return is much, much faster. So we're excited about the brand that talent we're able to attract and we're going to do it across the entirety of the platform, as Matt said in his remarks, from commercial banking to corporate banking to investment banking to wealth and all the products and services treasury and beyond. So every one of the parts of the firm that are client facing is performing well and we're excited about the opportunity to invest.

You asked about where we are in the cycle and I'd say we're early days. Embedded, Matt embedded in that 4Q expense number is us beginning to realize our onboard new talent. So we pushed up the full year expense number, including Q4 to 205 to 210, puts the full year growth at 6.6 to 7.2% just to be as precise as possible. And that obviously has much higher fees than we originally guided to and notably more frontline talent. If we underachieve on fees or adding talent, then expense number will be lower. If fees outperform or and or we have the opportunity to add even more high performing, high quality talent, then you could see that expense number trend to the higher end.

Definitely. Maybe the best way to start on that is to work through the components of the deposit base and then we can talk a little bit about how we're approaching managing the balance sheet as rates move higher. So to start, we just continue to effectively grow really high quality deposits that are with $850 million of growth in commercial interest bearing or 20 million dollars of growth in commercial non-interest bearing roughly $1.2 billion of high quality deposit growth relative to $7 million of which enables us to continue this multi-year journey of reducing deposits that we view as higher cost or lower liquidity value, which obviously benefits our cost of funds which while higher in aggregate than some other banks is definitely consistent with peer when you look at it against like deposit categories and then in our view we think much more valuable because it's almost always tied to a broader operating relationship where we're proactively helping our clients manage their liquidity and then we have been very consistent and vocal in our view that the cost of liquidity is going to move structurally.

We believe that having 80% is appropriate up beta to use for risk-driven interest rate modeling but our actual expectation is that betas are going to trend closer to 60% or so and every 10% of beta drives about 1% of interest rate risk. So another way to think about that is that a 60% beta incorporated in the guidance are disclosed, IRR sensitivity and up 103.7 versus the 1.7, 3.7 versus 1.7% using an 80 beta and then you're acutely aware how we position the broker deposits to support that temporary and predictable increase in mortgage finance and that accounted for six basis points of total in-spray and deposit costing Q3. That likely goes to zero in Q4 as broker deposits on average and ending both lands below 200 million dollars.

So excluding broker our cost of interest rate and deposits was flat June to September. So I've been able to effectively realize the value in the deposit base. That then sets up how you think through just broad balance sheet and margin management and we're pretty proud of how that's at this quarter. Against a rate factor outfit was dramatically different than was contemplated on the call in July. So as that curve steepens a couple things happen that are unique to our balance sheet.

So if you start with mortgage finance the tenure moved about 50 basis points higher during the quarter which pushed mortgage finance loan volumes down 11% relative to our guide on the 2Q call. And there was obviously a time where like that type of move in mortgage finance would have been pretty catastrophic for Texas capital but we completely changed the way that we manage that business by dramatically narrowing the client base positioning our capital behind those where we can earn the best return moving away from a marginally business and to one where we have a complete relationship very similar to the platform. 83% of those clients are active in our dealer 100% of them do treasury business with us.

We've also dramatically contracted our exposure there. It was almost 40% total loans when Rob arrived in the third quarter of 2020 and it's consistently been down around 20% over the previous few quarters. And then finally we've clearly adjusted the risk weighting, attached to those by migrating 70 dollars into enhanced credit sub 50% this quarter. So in an environment with that average balance the mortgage finance is down 700 million dollars relative to our expectations. Our actual margin increased because of a small composition of a lower yielding asset and then we're able to deliver sufficient value to those clients across degenerating businesses to deliver the right revenue profile. And then we have a lot of capital that's created that enabled us to buy back shares at levels that are as low as we've seen all year.

And then just the last thing I note on the balance sheet and happy to take any follow-up questions on topics I know it's an important one is 95% of our loans are naturally variable rate and tied to the one month portion of the curve. So when the curve steepens it's an opportunity for us to selectively utilize swaps to realize the hikes that are embedded in that right outlook which reduces our interest rate risk today and then supports earnings and capital to decline. Those are generally going to be two-year swaps which means any unrealized loss or associated reduction in tangible book values can be recovered pretty quickly. And because we're operating with best-in-class tangible common equity tangible asset ratios we got a lot of capacity to repurchase shares at any AOCI related discount going to reverse and to your applause on that Janet and answer anything else you want to know about margin or balance sheet.

No Woody it's simple maturity the platform you know more stability our bankers have been in front of our clients longer the brand is is is a created a great deal we have credibility in the markets we've got really tough deals done we're good on the easy deals we've brought very unique deals to market you know bonds sub 500 million into the high yield space when people said you couldn't get it done our bankers are good and and the markets recognizing it it's nothing like adding an inordinate amount of bankers already or anything else this is simply the strategy working and maturing.

I'll just laugh and how you put the question look the strategy is the same we didn't compromise in hiring you know two or three years ago we went to market it took more explaining and it took you know maybe a longer courtship if you will but we didn't ever compromise otherwise you couldn't be doing what we're doing today. The people that remained on the platform from earlier have contributed greatly I'm looking at a lot of them in the room today and the new hires are obviously working out very very very well so there was no compromise even working with a with a with a worse brand today it's different today people call us today we have thousands of people applying for you know 40 spots in the junior program and so and by the way the world if you hadn't noticed is kind of coming to North Texas and Dallas and so that's making it easier to going forward in my mind so we're really excited about this next year goals and that they'll act with great integrity and always put the client first.

And Woody the investment banker has got a set of treasury. There we go.

A little too early to think about balances for next year the sequential pickup died in the structure was actually just driven by lower industry volumes which disproportionately go to the largest providers which are often those that for us reside in that structure. As industry volumes contract that the self-funding ratio is likely to stay around that 80 to 85 for at least the next quarters 85% Michael's a great way to model that for you four and then just in general on mortgage financials give you some ways you can think about modeling and then to 27 just in terms of balances so that that change in 10 year over the last 90 days pushed our full year outlook from 2.3 trillion dollar origination market which sat on top of a 6.3 percent 30 year fix driving six billion dollars in full-year average balances to now a two trillion dollar origination market on a 6.55 percent 30 year fix which to get there you actually need 30 year fix rate mortgages to come down a little bit from where they are today and get closer to seven which makes our full year outlook go from around six billion to around five and a fourth quarter and get down to about four and a half billion so we went through Janet's question great links to describe the impact that that has on the balance sheet and it impacts pretty significantly Michael how we think about hedging and how we think about positioning tangible common equity in terms of deployment through the buyback and then I think the only other part of your question was the enhanced credit structure how much further do we have to go on that and I wouldn't expect that percentage to go up anymore okay that's that's helpful maybe just one other question for me god I was just going to switch topics but if you got more to say go for it no I think that the link order pickup is not because it's significant new significant number of new clients are migrating to the structure it's because industry volumes are flowing to the clients that we already have in the structure so that's that's a good number for you to think understood thanks for that maybe just one follow up separately really good I know you guys don't guide to long growth or anything like that but really good to see kind of the the pickup and commercial loans you know just as we think about the the CRE balance is what one do you guys think that that bottoms I know it's it's kind of persisted a little bit longer than maybe you thought earlier in the in the year but just trying to make a better sense for one that had wind you know you know kind of uh in flux thanks I'm left math take that but before I just comment on the loan growth I mean that we've got pretty sustained uh loan growth and C&I for a long long time and you know the total exposure to C&I loans have gone from you know high 20s I think what I got here to now 56% so long growth has never been a problem it's it's we've we're we're lending to the right client through the right client selection and and uh there is a high demand on the balance sheet but we'll be continue to be very very discerning so anyway with that math yeah the commercial real estate balances like we'll actually finish the quarter slightly here then the revised guidance at late quarter move in the 10 year delayed some pending transactions but the trend is definitely your end or 4.4 billion which would put the full year average around five billion that I would just reiterate comments that we made on the last call that we're really pleased with the quality and the depth of the client relationships that we serve in that sector and we are built to support their plans through aside 24 months they just haven't been particularly active then we just don't need to chase non-relationship growth at the typical low risk adjusted returns in order to hit a balance sheet so I think that the trend is down countervailing forces with potentially the higher rates which makes transactions more difficult to get done but I think that the balance sheet trends with growth in CNI and modest reduction in CRE are going to be with us for a little while appreciate the color I'll step back thanks guys your next call comes from the line of Jared Shaw with Barclays Capital your line is now open please go ahead hey good afternoon thanks you know I guess any any color or commentary around what you're hearing from your energy customers is there any noticeable uptick there in energy or related industries look at the energy CEOs I speak with frequently they're they're they're not really happy about the high price of energy they're worried about you know demanded etc and so I think they remain very cautious it's a different it's a different view than when one there would be intuitive you know given the the rise in the in the price okay so you're not seeing you're not seeing them looking in a little more here with with uh forward pricing staying higher no okay thanks and then any any color on on the migration and criticizing classified that that you can provide yeah Jared I mean as you know we're addressing the portfolio for many potential industry geographic that's a specific weakness and today don't really have anything this point to other than just select instances of coming to man which is pushing up shall mention criticized levels uh just total loans didn't didn't move higher link quarter but still well within our historical experience and LHI or criticized LHI has been between three and four percent and net charge off ratios continue to sit 20 to 25 basis points with provision between 35 and 40 basis points and the only other thing I would note on credit is that we we're still very reliant on economic assumptions that is notably more severe than the consensus outlook to feel pretty well positioned I would just add to that we have you know for six years we've taken more provisions than peer provision rate excluding mortgage finance is still highest appear we're we've stayed within our credit costs for six guidance for six years we've experienced provision all six of those years and work through it exactly as intended and expected and so this is no different and we stand by the credit cost guidance that we gave okay all right thank you your next question comes from the line of david kyavarini with jeffree's your line is now open please go ahead hi thanks for taking the questions wanted to ask on the deposit side nice growth and average non-interest bearing deposits excluding the mortgage finance at seven percent year over year can you talk about the drivers of this and how do pipelines look there in the outlook oh ego first i did we've had mid teams year over year growth and treasury product fees for as long as for four or twenty two i think as long as i've been one of us can remember and said eventually as people bring more of their operating business to you of course advising them on the best way to manage their liquidity which doesn't always mean keeping it but over time if you're just getting more and more of their operating deposits it's not just going to show up as fees it will begin to show up as growth in commercial non-interest bearing you've seen that steadily over the last year to what it would expect that the percentage of total deposits are comprised of commercial non-interest bearing to stay around this 13 percent or so level which suggests you are going to see growth moving into 27 and if you're onboarding the right clients those clients continue to grow as well thanks for that and sticking with deposits can you talk about just the competitiveness given how active the texas market has been are you seeing increased competitiveness or kind of stable competitiveness i would i characterize the texas market has always been very very competitive you know there all the most these banks have already had frontline people here but i will say that there are some irrational banks uh doing some pretty irrational things but you know that that's the beauty and the power of our platform what you know we pick certain like matt talked about commercial real estate we want to bank the clients there are already clients with us that book will grow when they when they go perform new development we're not out to get more wallet share and so when those clients um act we will be we'll be by them but we don't need to do irrational very large holes for sub standard rates to achieve low growth targets for a balance sheet and you're seeing that in the market or not going to participate in it so you do see some some irrational actors but the competition has been very strong for a long time and it continues to be very helpful thank you your next call comes from the line of anthony ellian with jp morgan your line is now open please go ahead thank you matt on your earlier comments you gave us some color on four q n i i and nim what's driving the sequential declines in both of those metrics uh relative to three q or are there any one timers we should back out now that the margin would suggest you're gonna have growth you know from three forty four to three forty five to three fifty in part because you're gonna have lower mortgage finance balances a small portion of balance sheet slightly lower yielding earning so margin up and then n i i relatively flat two seventy two seventy thank you and then on the buyback how are you thinking about balancing how aggressive you'll be with deploying the new two hundred million giving your seat you want is above 12 percent your tcs around 10 with your earlier comments around investing in the franchise and hiring talent thank you so cc one's up six basis points relative to last year with 13 percent growth in c and i and we purchased three hundred and twenty five million dollars or seven half percent a company at ninety two dollars except so we we're really pleased with the ability to manage the buyback appropriately the equally if not more important than the cc one performance is that tangible common equitable assets for us it's flat relative to q one at nine eighty five and remains top quartile versus peers we've also been really vocal tony that that is a incredibly important metric for us and an environment with rates and earnings up and size and stock earn and anticipated capital level give us a lot of options add forward earnings per share tangible book value per share and pretty active under one three one point three times tangible which we're obviously under today probably pretty good think about it moving forward and then we don't we don't view investing in the franchise imagining the capital bases in conflict with each other we'll continue to put that to work on the behalf of the shareholders very very well said i would add that the t c that ta is is secrecy to us it's it's a non-negotiable it allows us to be proactive in the market it allows us to have flexibility on buyback it allows us to do our things i would we're not going to sacrifice that to over over a term period of time to activate any one action on the balance sheet okay one more for me so on the planned investments you had a press release a few weeks ago that you're opening offices in new york los angeles in chicago outside of recruiting talent that you discussed earlier i'm curious if we should expect more of this nationwide expansion within increased physical footprint and ultimately what this could mean for expenses beyond forq thank you great question look that those offices were opened because we already have employees there and they're and it's it's a it's a good sized group of employees we believe we need to be in office you to understand our risk appetite our go-to-market strategies we need to be the same firm we do not believe and work from home and and um you know one off bankers in the market we need to create scale where we are so these these activities weren't about we wanted to be in illinois or california is where we found talent and we wanted them to be together and go to market as one firm and then as you know in new york we distribute a lot of debt inequity and you know last year we distributed more debt equity than assets of the bank and there's a lot of those investors in new york so there's different pockets of talent we wanted it's not about being the geographic regions but we do have a lot of clients as geographic regions through our industry verticals but it's it wasn't about that it was about talent that we had in those markets come together so to answer your question don't mention any expenses for more leases understood thank you you bet your next question comes from the line of john arfstrom with rbc capital markets your line is now open please go ahead hey thanks good afternoon um john it rob can you you talk you mentioned technology can you talk about some of the changes your referencing and what you're ditching or restructuring and what's new and different in terms of you know what you want that you didn't have before and is this competitive advantage type stuff or just trying to keep up with some of your competitors no it's it's thanks for the question i won't i won't go talk as long as i want to about this but we're really really excited about this we had a great technology team before they were great with platforms they were great getting us up and running very grateful for their time here left on very good terms and today we have a brand new leader and leadership over the entirety of the platform that is simply better suited to advance the new technology that we want to deploy today we've made good quality efforts in client journeys as well as ai and the changes we made and the talent we brought on board will absolutely propel those efforts and we're really really excited about it this is not this is not incremental change and the change actually uh is concurrent with the or change that matt talked about with uh and how we in how we go to market and and how we build products and services uh in the bank um kind of rhymes with the question i asked you last quarter on incorporation but can you just touch briefly on the change and you're listening to the texas stock exchange any tangible benefits and anything you give up by making that move we give up nothing uh we're gonna we're gonna change it txcp uh in the coming week so uh be sure and note that um the transfer to texas has gone smoothly uh they have a great uh trade matching engine and technology um and they also have a really good uh shared listing construct which allows us to benefit from their profits uh by by being traded on that exchange and uh we're excited to be on it and as well as our ETFs and we had the first two securities ever listed on a texas change in the history of the state and uh the exchange has done well they have over a hundred billion dollars of market cap on the exchange to date uh with a pipeline with more the way it's pretty exciting all right thank you thank you we have reached the end of the q and a session i will now turn the call back to rob homes for closing remarks i just want to thank all the employees texas capital for a great quarter and look forward to the floor thank you this concludes today's call thank you for attending you may now disconnect