Regional banking firm Texas Capital Bancshares (NASDAQ: TCBI) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 9.4% year on year to $280.5 million. Its non-GAAP profit of $0.92 per share was 3.4% below analysts’ consensus estimates.

Is now the time to buy TCBI? Find out in our full research report (it’s free).

StockStory’s Take

Texas Capital Bank reported first quarter results that missed Wall Street’s revenue and profit expectations, but still showed year-over-year growth in both categories. Management pointed to robust gains in noninterest-bearing deposits, with a 7% sequential increase, and continued success in treasury product fees, which rose 22% year-over-year. CEO Rob Holmes highlighted that the bank’s model of broadening client relationships and offering comprehensive cash management solutions led to a more stable, less rate-sensitive deposit base. CFO Matt Scurlock noted that while investment banking and capital markets activity slowed due to macroeconomic uncertainty, most delayed transactions have not been canceled, but shifted to later in the year.

Looking forward, management’s outlook calls for low double-digit revenue growth for the full year, supported by ongoing expansion in net interest income and fee-based initiatives. The company expects core deposit growth and disciplined risk management to underpin performance even as market volatility persists. Holmes emphasized, "We remain confident in our ability to deliver risk-adjusted returns consistent with our published targets," while Scurlock cautioned that full-year provision expenses and noninterest expenses are expected to remain elevated due to ongoing investments in talent and technology. The bank’s strategic focus remains on acquiring high-quality clients and leveraging its resilient balance sheet to navigate economic and policy shifts.

Key Insights from Management’s Remarks

Management attributed first quarter performance to solid growth in core deposits, resilient net interest margins, and delayed but not lost fee income opportunities as clients responded to market volatility.

• Deposit franchise strength: The bank saw a significant increase in noninterest-bearing deposits, excluding mortgage finance, marking its largest quarterly gain since 2021. This growth was attributed to successful onboarding of new operating relationships and a deliberate focus on primary banking status with clients.

• Treasury product fee momentum: Treasury product fees grew 22% year-over-year, supported by a strategy that emphasizes solution-based banking rather than competing primarily on rate. Management credited this approach for driving sustained above-market growth in cash management products and services.

• Investment banking activity delayed: While investment banking and capital markets pipelines remain robust, management noted that economic and political uncertainty caused a delay in the execution of transactions, rather than cancellations. Most investment banking fees are now weighted toward the back half of the year.

• Credit and capital discipline: The allowance for credit losses increased, reflecting a conservative stance amid heightened macroeconomic risk, including recent tariff actions. Criticized loans declined year-over-year, and capital ratios remain at the high end of the industry, providing flexibility for both client support and share repurchases.

• Talent and platform investment: Increased noninterest expenses were driven by seasonal compensation resets and ongoing investments in fee-generating talent, especially within investment banking and technology upgrades for private wealth and onboarding platforms. These investments are aimed at building long-term client value and improving operational efficiency.

Drivers of Future Performance

Texas Capital Bank’s outlook is shaped by expectations for continued core deposit growth, stable net interest income, and a rebound in fee-based activities as market conditions settle.

• Core deposit growth: Management expects ongoing expansion in noninterest-bearing and interest-bearing deposits as the bank continues to win new primary operating relationships. These deposits are viewed as less rate-sensitive and foundational for future loan and fee growth.

• Fee income rebound: The investment banking and capital markets pipeline remains strong, with most delayed transactions expected to close in the second half of the year if macroeconomic and political uncertainty eases. Treasury product and private wealth fees are also expected to grow as technology upgrades enhance client experience.

• Credit quality and capital flexibility: The bank’s conservative credit reserves and high capital levels are designed to weather potential economic or policy shocks, such as tariffs or interest rate changes. Management indicated that additional actions in derivatives and securities portfolios may be used to manage interest rate risk and preserve margins.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be tracking (1) trends in core deposit and treasury fee growth as indicators of sustained client engagement, (2) the timing and magnitude of delayed investment banking and capital markets transactions as market uncertainty evolves, and (3) the impact of ongoing technology and platform investments on private wealth and onboarding efficiency. We will also watch credit quality metrics and management’s approach to capital deployment as macroeconomic and policy conditions change.

Texas Capital Bank currently trades at $76.48, up from $65.11 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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