Texas Capital (TCBI) Q3 2026 earnings review
Texas Capital raises its sales plan, but problem loans climb
Texas Capital, the Dallas-based commercial bank, grew lending spreads and fee income even as higher interest rates shrank its real estate and mortgage warehouse loans. Total revenue rose 5% from a year ago to a record $357 million, while profit per share excluding one-offs climbed 8% as share buybacks reduced the share count. Chief executive Rob Holmes raised the full-year revenue outlook, but lifted the expense plan too as the bank steps up banker hiring.
| Total revenue | $356.6M +4.8% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $2.35 +7.8% from a year ago |
| Net interest margin | 3.44% up from 3.28% last quarter |
| Full-year revenue outlook | Raised to high single-digit growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the feared third-quarter lending margin dip never happened, proving the balance sheet handles rate swings well. When home loan rates neared 7%, low-yielding mortgage credit lines shrank and allowed the bank to pay off expensive brokered deposits, lifting the margin instead of compressing it. Two cautions remain: management raised fourth-quarter expenses to fund a new hiring wave, and loans showing early financial stress rose for a fourth straight quarter to $782 million.
The question now is whether hiring more bankers will bring in enough fee revenue to outpace higher pay costs and rising problem loans. Bulls see a mature platform where new bankers generate fees quickly, while bears see a cyclical deal boom masking a steady climb in stressed real estate and corporate credits. The 2027 expense and credit outlook in January will tell.
🐂 Bull Case
Shrinking Warehouse Loans Lifted the Lending Margin
Three months ago, finance chief Matt Scurlock warned that net interest margin — the spread between what the bank earns on loans and pays on deposits — would dip to between 3.20% and 3.25% in the third quarter. Instead, the margin rose 0.16 percentage points from last quarter to 3.44%, and net interest income reached a record $275 million.
A jump in home loan rates toward 7% caused the reversal. Mortgage finance loans — short-term credit lines to home lenders — shrank 9% on average to $5.77 billion, missing the $6.5 billion plan. Because those credit lines earn lower yields (4.16% vs 6.76% on other loans), their drop allowed Texas Capital to shed $1.6 billion of expensive brokered deposits. Total deposit costs still edged up 0.05 percentage points to 2.45%, as Scurlock expects funding costs to rise over time.
What to watch: fourth-quarter net interest margin, which Scurlock plans at 3.45% to 3.50% as average mortgage finance loans drop to $4.5 billion. Hitting that range will confirm the bank can expand its lending spread even as deposit costs climb.
Fee Businesses Keep Setting Records
Chief executive Rob Holmes has spent five years building fee businesses so the Texas commercial bank relies less on interest rates. Both sides of the debate agree fees now drive growth, while bears warn that deal fees can swing wildly between quarters. In the third quarter, non-interest income grew 19% from a year ago to $81.6 million, or 23% of total revenue.
- Investment banking and trading income: $46.7 million, up 13.3% from a year ago and above the $40–45 million plan
- Treasury product fees (cash management and payment services): $12.9 million, up 16.2% from a year ago
- Wealth management and trust fees: $4.6 million, up 14.4% from a year ago on $4.8 billion of client assets
- Non-interest income excluding $6 million of equity investment gains: $75.6 million, up 10.3% from a year ago by our math
Even without the $6 million gain "attributable to several strategically aligned non marketable equity investments", non-interest income beat the $70–75 million outlook. Scurlock raised the full-year fee forecast to $295–300 million, though management gave no update on how much debt it placed into private credit markets outside the bank.
What to watch: fourth-quarter investment banking and trading fees, planned at $45 million to $50 million. Delivering that range without one-off investment gains will show that corporate deal activity is holding up despite higher interest rates.
Commercial Lending And Buybacks Lift Per-Share Profit
Texas Capital is growing its core corporate loan book while returning cash to shareholders. Ending commercial loans rose 12.7% from a year ago to $13.43 billion, adding $422 million during the quarter compared with $68 million in the same period last year. Corporate loans now make up 56% of total loans, up from 49% a year ago.
The lender funded both corporate lending and $103 million of share buybacks while lifting its Common Equity Tier 1 (CET1) ratio — core bank capital as a share of risk-weighted assets — to 12.2%. It did so by moving 76% of mortgage finance loans into enhanced credit structures that carry lower risk weights. Scurlock said that share has peaked and will settle near 70%, so future buybacks under the new $200 million plan must come from earnings.
What to watch: the share count and tangible common equity ratio (currently 9.85% of tangible assets) in the fourth quarter. With the capital relief from loan restructuring finished, buyback pace will show how much capitalcorporate loan growth consumes.
🐻 Bear Case
A New Hiring Wave Raises The Cost Plan
In the third quarter, operating costs excluding one-offs fell 1.6% from last quarter to $199.6 million. Salaries and benefits dropped 2.7 percentage points of revenue to 34.1%, and legal fees returned to normal levels. That cost dip is over, because Holmes is "aggressively recruiting high quality professionals to further expand client coverage and deliver product expertise" across commercial banking, payments, wealth and investment banking.
Scurlock raised the full-year outlook for operating costs excluding one-offs from mid-single-digit growth (around 5%) to a range of 6.6% to 7.2%. For the fourth quarter, management plans total non-interest expense of $205 million to $210 million, with salaries and benefits jumping to $125–130 million from $121.6 million this quarter. Holmes argued that with back-office systems already built, "the time to a dollar of revenue is much quicker" for new bankers today.
What to watch: the full-year 2027 expense and revenue outlook in January. If expected cost growth outpaces revenue growth, the new hiring wave will break the bank's nine-quarter streak of positive operating leverage.
Problem Loans Rose For A Fourth Straight Quarter
"This was the most complete quarter in the firm's history," Holmes said, and the presentation described problem loan trends as "in line with historical experience and provision expectations". Yet criticized loans — credits showing early signs of financial stress — rose 12.4% from last quarter and 47.7% from a year ago to $782.4 million, reaching 3.25% of the loan book.
- Special mention loans (the first warning tier): $526.3 million, up 9.8% from last quarter and more than double the $249.6 million a year ago
- Substandard loans (more severe stress): $256.1 million, up 18.0% from $217.0 million last quarter
- Loans 90 days or more past due and still accruing interest: $53.2 million, up from $0.45 million last quarter
- Net charge-offs (uncollectible loans written off): $14.5 million, or 0.24% of average loans on an annual basis
Scurlock attributed the downgrades to apartment building loans facing cash flow pressure and corporate borrowers hurt by softer consumer demand. While non-accrual loans — credits no longer paying interest — dipped slightly to $122.3 million, the jump in loans 90 days past due and substandard credits shows stress is still building.
What to watch: fourth-quarter criticized loans and whether the $53.2 million of past-due loans move into non-accrual status. Another increase would test the bank's 0.35% to 0.40% credit provision plan.
Higher Rates Squeeze Real Estate And Warehouse Volumes
While corporate lending grew, higher interest rates shrank Texas Capital's other two major loan books. Ending commercial real estate loans dropped 6.6% from last quarter and 15.7% from a year ago to $4.79 billion, because property developers started few new projects over the past two years. Ending mortgage finance loans fell 14.8% from last quarter to $5.44 billion as home mortgage rates climbed toward 7%.
As a result, total loans held for investment fell 3.5% from last quarter to $24.08 billion and were slightly below last year's level. Scurlock cut the full-year average mortgage finance loan outlook from $6.0 billion to $5.5 billion, and expects commercial real estate loans to drop another $387 million by our math to $4.4 billion by year-end.
What to watch: commercial real estate balances in early 2027. Until property construction picks up or mortgage rates fall, corporate lending must do all the work to grow the bank's total loan book.
👓 Other Themes
Tech Restructuring And Stock Exchange Move
Texas Capital took a $4.3 million restructuring charge in the third quarter, lifting communications and technology costs by 1.8 percentage points of revenue from a year ago to 9.0%. Holmes said the bank "reorganized technology leadership and team structure to prioritize product delivery and data infrastructure" and wrote off older software to speed up artificial intelligence projects. Separately, the company moved its stock listing to the newly launched Texas Stock Exchange.
💲 Other KPIs
Tangible book value per share — net worth per share excluding intangible assets — rose 2.8% from $73.02 a year ago, but fell $1.89 from $76.98 last quarter. Higher bond yields reduced the market value of the bank's bond portfolio, widening unrealized bond losses in equity by $152 million, while share buybacks above book value also trimmed the per-share figure.
Interest-free checking deposits from corporate clients — excluding mortgage finance escrow accounts — rose 4% from last quarter and 7% from a year ago. Scurlock said years of selling cash-management and payment services are now bringing in more operating cash, keeping these zero-cost accounts at 13% of total deposits and helping offset higher rates on savings accounts.
The total reserve for bad loans and credit commitments edged up from $333.4 million last quarter and $332.5 million a year ago. As a share of total loans held for investment, the reserve rose 0.05 percentage points from last quarter to 1.39%, and held steady at 1.78% when excluding low-risk mortgage finance loans.
🔮 Guidance
Raised. The bank lifted its full-year sales plan off the $1,257.7 million 2025 base after strong third-quarter fees and lending spreads. Combining $1,016.1 million of sales in the first nine months with the fourth-quarter component targets points to about $1,361 million for the year by our math, or 8.2% growth. The outlook now assumes one 0.25-point Federal Reserve rate hike in December to 4.25%.
Raised. Management increased its full-year cost growth plan off the $768.9 million 2025 base to pay for higher performance bonuses and faster hiring of client-facing bankers. Scurlock specified that the new range equals 6.6% to 7.2% growth for the year.
Raised. It is the second raise this year: the middle of the range moved up $2.5 million last quarter and $17.5 million this quarter, to about 30% growth over 2025. Investment banking fees are now planned to grow 40% for the full year.
Unchanged. The credit loss provision plan remains at 0.35% to 0.40% of average loans outside mortgage finance, compared with 0.31% in 2025. In the third quarter, the annualized ratio ran at 0.36%, right inside the full-year target.
Unchanged. Texas Capital continues to target a Common Equity Tier 1 capital ratio above 11%, well below its 12.2% actual level at the end of September.
New. Scurlock forecast fourth-quarter net interest income of $270 million to $275 million, roughly even with the $275.0 million record in the third quarter and up 1.9% from a year ago at the middle of the range by our math.
New. The lending spread is planned to rise another 0.01 to 0.06 percentage points from the third quarter's 3.44% as lower-yielding mortgage finance loans shrink toward $4.5 billion and temporary brokered deposits roll off.
New. Fourth-quarter fee income is planned at $70 million to $75 million, including $45 million to $50 million from investment banking and trading. At the middle of the range, that is up 20.7% from a year ago by our math, though down from the third quarter's $81.6 million, which included $6 million of equity investment gains.
Raised. On the prior call, management planned about $125 million of salaries and $75 million of other costs per quarter for the second half. The fourth-quarter plan is now $7.5 million higher at the middle of the range — $125–130 million in salaries and $80 million in other expenses — up 11.3% from a year ago by our math.
❓ Key Questions
What are the standalone profits of the fee businesses?
Fee income reached 23% of revenue, and management is raising expenses to hire more investment, wealth and treasury bankers. Without standalone revenue, direct cost and return figures for those units, investors cannot verify how much profit the fee expansion actually adds.
What caused the jump in loans 90 days past due?
Loans 90 days or more past due and still accruing interest jumped from $0.45 million in the second quarter to $53.2 million in the third quarter, while criticized loans hit $782.4 million. Management did not say which borrowers drove the past-due jump or whether they will become non-accrual loans.
Why did management stop reporting off-balance-sheet debt placements?
In the first two quarters of 2026, management highlighted placing $11 billion and $10 billion of client debt outside bank markets and announced a private-credit partnership with Phoenix Merchant Partners. Neither figure was updated this quarter, leaving investors in the dark on private-credit momentum.
What replaces the retired long-term return targets?
Return on average assets Excluding one-offs reached 1.29% this quarter, while return on average tangible common equity was 12.0%, still below the old 12.5% target from 2021. Management has not set new multi-year return targets for the next phase of its hiring cycle.