Texas Capital Bank is transforming under CEO Rob Holmes: “It was time to graduate” - Dallas Business Journal (2024)

Texas Capital Bank has a new thesis, and with it is planning a massive, long-term strategy overhaul to become a full-service financial institution.

The Dallas-based bank announced Wednesday its new “go-forward” strategy, which includes expanding private wealth and treasury services, adding corporate and business banking efforts, launching a broker-dealer business, moving away from loans as the primary money-maker and doubling its front-end producing workforce.

President and CEO Rob Holmes took the reins of the bank in January and is the first non-founder to lead the company since its origin in 1998. Texas Capital Bancshares Inc., the holding company of Texas Capital Bank, started as a scrappy, entrepreneurial venture to work with community businesses, but has grown into a $35-billion-asset company that Holmes said needed a new plan to match its size.

“The bank has a very strong, rich heritage and great reputation as you've heard in the marketplace, but the bank was too big to earn its cost of capital by just using the loan book,” Holmes said in an interview with Dallas Business Journal. “We graduated from community bank status. We’re too big to have the same strategy. We kept with that strategy too long. It was time to graduate.”

The bank’s blueprint, which includes the addition of corporate and business banking and expansion of other fee-related products, is hefty. Despite the many aspects of the plan, Holmes said his thesis is “elegantly simple," but that doesn't make it easy.

“Most of our clients are using most of these products and services, the departure is just the incremental adjacent products and services,” Holmes said. “They're very logical. We already had the expertise for most of these areas. I’ve added expertise for those we didn't. The routines and cadences and disciplines to make this work are in place.”

Matt Olney, an analyst at Stephens who covers Texas regional banks, said the bank hadn’t been focused on its long-term strategy. He added that Holmes’ plan is ambitious, but expanding products and new leadership is the right move.

The CEO said due diligence and facts led the bank to key markets and products to capitalize upon. In the long-term, Holmes said the bank will be profitable, but it takes a heavy-lift upfront with a large investment. He added risk is one of the bank’s strengths, and it is prepared for the strategy.

“We are going to have negative operating leverage for a little while, but we're going to be profitable,” Holmes said. “We have a lot of capital, we have a lot of liquidity, we have a lot of discipline and accountability.”

Holmes has already implemented several major initiatives in the first half of the year to set Texas Capital Bank’s capital structure on track, including selling its mortgage servicing rights asset of $14 billion, raising $300 million in a Series B preferred stock offering and closing a $2.2 billion credit risk transfer with institutional investors.

Before Holmes and his spate of new hires, the bank had struggled through 2020, marked by C-suite musical chairs, a $5.5 billion merger fall-through, job cuts and credit issues. Holmes said his 2021 projects put the company’s liquidity on track to invest in future growth.

What that growth may look like, though, is not totally predictable. Holmes couldn’t estimate what the size of the balance sheet might be in 2025 — the company’s benchmark for accomplishing its strategy. He said it was too early to judge the profile of its customer base, which will influence the outcome.

“The shareholder value created through temporary, challenging operating margin with this strategy risk-adjusted is very, very, very high,” Holmes said.

The new services across investment banking, treasury management and wealth management are expected to increase fee income to 15-20% of revenue in 2025 from 11% in 2020.

“When (Holmes) came in, he looked at Texas Capital being a bank that had really good clients, but not enough products and services to serve clients,” Olney said. “But I think the goals that they set for the strategy makes sense. Execution now becomes key.”

Texas Capital Bank has created a whole new division — its broker-dealer business TCBI Securities, which it hopes will be approved by year-end. To lead the expanded business, the bank appointed industry veteran Daniel Hoverman as head of investment banking.

The investment banking world is not uncharted territory for Texas Capital Bank. The company already offers swaps, foreign currency and exchange and some advisory services, which it expects will bring in about $39 million in revenue — 4% of its total revenue — this year. The goal is to expand corporate advisory, underwriting and sales and trading, creating a practice that generates 10% of the bank’s total revenue.

In its treasury services, the bank is elevating its technology platforms, dividing teams into narrower specialties and adding to them, as well as expanding distribution channels to amplify operating deposits 1.6 times by 2025.

Texas Capital Bank said its private wealth division is one of the fastest-growing, bank-owned registered investment advisors in the country, with $2.2 billion in managed assets. The division will continue to focus primarily on organic growth, but consider some in-market acquisitions of Texas-based RIAs, a highly fragmented, quickly-consolidating industry across the country.

Though the bank has always had middle-market banking, it has added corporate banking and business banking offerings. Holmes said its clients needed those services, but Texas Capital Bank didn’t have the talent or products to properly satisfy what was needed. Technology will be a major investment across all new lines of business and products the Texas Capital Bank rolls out.

In shifting its main focus from loan growth to spreading across other lines of business, the bank is creating more sustainable earnings.

The bank’s new strategy also outlines the growth of client-facing talent by at least 2.3 times by 2025. Stephens Analyst Olney said the hiring goal is the most surprising part of the new plan and thinks it will be the most challenging part.

Holmes said as the bank increases segmentation across lines of business, it needs more people to handle the workload. He added with these new offerings, such as the boutique investment banking operation — which is still pending regulatory approval — many other banks don’t compete with Texas Capital Bank. The company added it won’t target merger or acquisition growth, it wants individuals with narrow, specific skill sets and can attract talent from other banks through what it has that other banks don’t.

“If you want to preside over a portfolio, this is not where you want to come,” Holmes said. “If you want to be part of building a financial services firm, where the company is headquartered on a super exciting platform that few of our direct competitors have been, then this is where you want to come.”

He added the new team leaders he’s hired will help acquire talent in a competitive landscape. Texas Capital Bank leadership has been kinetic in the last year. The current strategy is attracting new leaders, and the new leaders are influencing strategy.

Texas Capital Bank has shifted half of its operating committee in the last year, including Holmes and other chief leaders across finance, risk, mortgage finance, technology, corporate banking, treasury and, most recently, investment banking. Holmes, who came to Texas Capital Bank from a three-decade tenure at JPMorgan Chase leading teams in corporate client banking and investment banking, has brought with him other heavy hitters in their fields.

“I view this as a natural transition,” Olney said. “As the bank gets larger and larger, I think it needs to become more sophisticated and needs to have more broad experienced executives in more diverse backgrounds.”

Holmes said he’s “never finished” hiring talent, but leader additions will be sequenced over time as the bank grows and executes more of its strategy. Texas Capital Bank is a work in progress, the CEO said.

Holmes said he thinks the company has made strides, and the new strategy puts it on the right track, but now it’s time to deliver.

“It's not a full-service financial institution,” Holmes said. “That's what we're transforming into....We're graduating to a financial services firm, talking about core operating accounts and treasury service solutions, not deposits. We're not leading with the loan book. It'll make the platform safer, more relevant to our clients.

We are dramatically different, but we're not there yet.”