Texas Capital Bank (TCBI)

Regional banking firm Texas Capital Bancshares (NASDAQ:TCBI) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 11.6% year on year to $340.4 million. Its non-GAAP profit of $2.18 per share was 22.9% above analysts’ consensus estimates.

Company Overview

Founded during the Texas banking renaissance of the 1990s with an entrepreneurial spirit, Texas Capital Bancshares (NASDAQ:TCBI) is a financial services firm that provides banking, wealth management, and investment banking services to businesses and individuals across Texas and beyond.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Texas Capital Bancshares competes with other regional banks operating in Texas and the Southwest, including Comerica (NYSE:CMA), Prosperity Bancshares (NYSE:PB), and Cullen/Frost Bankers (NYSE:CFR), as well as larger national banks like JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) that have significant Texas operations.

From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions. Unfortunately, Texas Capital Bank’s 2.8% annualized revenue growth over the last five years was tepid. This was below our standards and is a poor baseline for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Texas Capital Bank’s annualized revenue growth of 4.7% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Texas Capital Bank reported year-on-year revenue growth of 11.6%, and its $340.4 million of revenue exceeded Wall Street’s estimates by 4.1%.

Net interest income made up 84.4% of the company’s total revenue during the last five years, meaning Texas Capital Bank barely relies on non-interest income to drive its overall growth.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last four years, Texas Capital Bank’s efficiency ratio has swelled by 3.1 percentage points, going from 66.5% to 63.4%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

In Q3, Texas Capital Bank’s efficiency ratio was 56%, beating analysts’ expectations by 406.5 basis points (100 basis points = 1 percentage point). This result was 99.8 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Texas Capital Bank to rein in some of its expenses as it anticipates an efficiency ratio of 61.8%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Texas Capital Bank’s EPS grew at a remarkable 7.8% compounded annual growth rate over the last five years, higher than its 2.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Texas Capital Bank, its two-year annual EPS growth of 22.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Texas Capital Bank reported adjusted EPS of $2.18, up from negative $1.42 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Texas Capital Bank’s full-year EPS of $6.16 to grow 12.6%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Texas Capital Bank’s TBVPS grew at a solid 7% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 12.4% annually over the last two years from $57.82 to $73.02 per share.

Over the next 12 months, Consensus estimates call for Texas Capital Bank’s TBVPS to grow by 7.5% to $78.48, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Texas Capital Bank has averaged a Tier 1 capital ratio of 11.8%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Texas Capital Bank has averaged an ROE of 7.3%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

It was good to see Texas Capital Bank beat analysts’ revenue and EPS expectations this quarter on better-than-expected net interest income and efficiency ratio. Zooming out, we think this was a very solid print. The stock remained flat at $82.05 immediately after reporting.

Updated: December 4, 2025 at 11:05 PM EST

Before deciding whether to buy Texas Capital Bank or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Texas Capital Bank isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was weak over the last five years. And while its anticipated efficiency ratio over the next year signals it will gain leverage on its fixed costs, the downside is its net interest income growth was weak over the last five years. On top of that, its mediocre ROE lags the market and is a headwind for its stock price.

Texas Capital Bank’s P/B ratio based on the next 12 months is 1.2x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $93.64 on the company (compared to the current share price of $94.02).