VBTX Q1 Deep Dive: Deposit Remixing, Cost Control, and Cautious Loan Growth Shape Results

Texas-based bank holding company Veritex Holdings (NASDAQGM:VBTX) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 4.2% year on year to $110.2 million. Its non-GAAP profit of $0.54 per share was 5.2% above analysts’ consensus estimates.

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

StockStory’s Take

Veritex Holdings’ first quarter results were well received by the market, as the company delivered revenue growth and exceeded Wall Street’s non-GAAP profit expectations. Management attributed the quarter’s performance to disciplined deposit remixing, tighter expense control, and continued balance sheet strength. CEO Malcolm Holland emphasized initiatives to reduce high-cost funding and increase lower-cost relationship deposits, while also highlighting stable credit metrics and rising tangible book value. Chief Financial Officer Terry Earley noted, “Fee income continues to build momentum across every category. Increased attention to expenses is showing encouraging results, and loan production has increased meaningfully.”

Looking forward, management is focused on maintaining net interest margin (NIM) stability through ongoing deposit repricing efforts and further investments in commercial banking talent, even as loan growth remains muted. The company expects loan production to translate into growth in 2026, while remaining cautious about payoff trends and broader economic uncertainties. Earley cautioned that, although expense discipline remains a priority, some increase is expected due to strategic hiring. Will Holford, Chief Operating Officer, pointed to growing momentum in government-guaranteed lending and fee income, stating, “You don’t see it all yet, but you can feel the momentum. We’re not hanging on one area. Every single area is contributing.”

Key Insights from Management’s Remarks

Management attributed first quarter results to deposit portfolio remixing, cost reductions, and stable credit, while acknowledging continued headwinds from elevated loan payoffs and muted loan growth.

• Deposit Remixing Success: Veritex reduced its reliance on higher-cost brokered and public deposits, replacing them with lower-cost relationship deposits. This shift contributed to a decline in overall deposit costs and helped expand net interest margin, as highlighted by the management team during the call.
• Expense Discipline: Management maintained a strong focus on controlling non-interest expenses, resulting in a lower operating efficiency ratio. While some expense growth is anticipated due to ongoing investments in commercial banker hires, the company does not expect spending to return to previous high levels.
• Muted Loan Growth: Elevated loan payoffs continued to offset strong loan production, resulting in a net decrease in total loans during the quarter. Management views this as an industry-wide challenge and cited a robust loan pipeline that is expected to support growth in 2026.
• Stable Credit Quality: Chief Credit Officer Curtis Anderson noted improvement in criticized and past-due loans, with charge-offs remaining below forecast. The increase in non-performing assets was largely related to two specific loans in retail and office real estate, which are expected to reach resolution by early third quarter.
• Capital Actions and Shareholder Returns: The company increased its quarterly dividend by 10% and repurchased 377,000 shares, with minimal tangible book value dilution. Management remains opportunistic regarding further buybacks, particularly if shares trade below tangible book value.

Drivers of Future Performance

Veritex’s outlook centers on navigating muted loan growth, maintaining NIM stability, and growing fee income through government-guaranteed lending and C&I expansion.

• Loan Growth Dependent on Production and Payoffs: Management expects loan growth to remain flat for the year, with the potential for expansion in 2026 as a substantial loan pipeline converts to funded balances. Elevated payoffs, particularly in commercial real estate, remain a key headwind.
• Net Interest Margin and Deposit Strategy: The company anticipates stable NIM through continued deposit repricing and remixing, even as interest rate uncertainty and repricing of maturing certificates of deposit present risks. A large portion of the deposit book carries short maturities, allowing Veritex to react quickly to rate changes.
• Fee Income and Government Lending Momentum: Management is optimistic about further growth in fee-based income streams, especially from Small Business Administration (SBA) and other government-guaranteed lending. Investments in specialized lending teams and treasury management are expected to diversify revenue and offset lower loan growth.

Catalysts in Upcoming Quarters

In the coming quarters, our team will be watching (1) whether loan growth materializes as the current pipeline is funded and payoffs moderate, (2) the pace of deposit cost declines as CDs reprice and remixing efforts continue, and (3) further growth in fee income, particularly from SBA and government-guaranteed lending. Progress on credit resolution and expense management will also be key signposts.

Veritex Holdings currently trades at $24.30, up from $22.09 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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