Woodforest National Bank in The Woodlands, Texas, had become too successful at commercial lending.
The $5.8 billion-asset bank, best known for operating hundreds of branches in Walmart stores, hired former CEO Cathy Nash in 2015 to help it
The results of her efforts were astounding. The bank added nearly $2 billion in commercial-and-industrial loans between late 2015 and the third quarter. Noninterest income declined from 81% of revenue to 69% over the same period.
Those acievements have created new challenges for James Dreibelbis, who
Woodforest needs to bring in more deposits — its loan-to-deposit ratio rose from 58% to 87% in the last three years — and curb commercial lending. That process has already begun; Woodforest recently agreed to
Woodforest’s decision to sell the businesses surprised many who follow the bank. Woodforest has emphasized middle-market lending in recent years, hiring dozens of lenders and opening loan production offices in several markets.
Dreibelbis said in an interview that the decision was made because Woodforest lacked the funding to support the pace of growth.
“We will continue to be focused in [commercial lending], but the growth will be a little slower than what we’ve seen in recent years,” Dreibelbis said. “We will be focusing more on cash management services and treasury management ... and taking good care of the relationships we have in place and identifying new key strategic relationships as we move to the future.”
Dreibelbis and Kelly Holmes, Woodforest's chief financial officer, recently discussed the bank's strategy. Here is an edited transcript of the conversation.
What are your top priorities as CEO?
JAMES DREIBELBIS: To continue the vision and the strategic plan that have already been put in place. We have a very successful and large retail business, being the largest provider of in-store banks in Walmarts across the country. We will continue to expand and refine that business model, which has proven to be extremely successful.
We will continue to be focused here in our home market in the Houston area, continuing to grow here. We’ve been very successful with commercial expansion under Cathy’s leadership. We expanded that a few years ago and we will continue to grow, but not as rapidly as in the past.
Where do you see the most opportunity for growth?
DREIBELBIS: We've been very focused on the retail side on the business. We feel like there continues to be opportunities within the small-business piece, so we're going to focus on trying to take care of small business and entrepreneurs across the country. That seems to be an underserved market when it comes to financial services.
We will be focused on trying to provide additional products and services for them. We also think there is a real opportunity on the cash management and treasury management side for our larger commercial customers.
Why did the bank sell two business lines?
KELLY HOLMES: If I go back to the strategic plan we put in place when Cathy joined, it was all about diversifying revenue. We have a great retail franchise and, from a lending perspective, most of our loan origination took place [in our home market], so we really needed somewhat of a regional commercial bank that could deploy our low-cost deposit base ... to diversify revenue. We made about $89 million in net interest income in 2016 — this year we made $214 million.
The growth that took place over the first three years of that plan [lowered risk-based capital from 17% of risk-weighted assets to 11%]. We just have to maintain that 11%. We can’t deploy capital at the same pace. ... From a liquidity perspective, we can’t continue on that path now that we're at an 85% loan-to-deposit ratio. Both [of the businesses being sold] are very scalable and have a lot of horsepower — more than what we could continue to deploy without going out and raising capital.
I was in this very office with Cathy in June talking about the numbers and showing her the growth path, the capital numbers and the liquidity numbers. My suggestion was, did we really need to be in the specialty finance business when it’s so scalable? And the way regulators look at it as a more risky line of business. ... It was a hard decision to make because it’s a very profitable business, but from a balance sheet perspective, that's why we decided to [sell].
We're not really going to grow the overall balance sheet any slower. In fact, we might grow a little faster. It’s just that we had been able to grow loans faster over the last few years because we had lower-earning assets, and our investment portfolios shrunk, so we’ve been able to redeploy assets from those lower-earning assets to loans. Now we will focus on deposit growth.
What is the strategy for adding deposits?
DREIBELBIS: We have a tremendous retail presence in Walmarts around the country, with over 750 branches. We will be opening some additional branches over the next year, which will give us opportunities for more deposits. We have some plans for the future on products and improving and increasing the number of customers across the country.
We're also putting in new systems on the treasury management and cash management side. We enhanced that suite of products to serve our commercial customers better. We're looking forward to expanding in that area as well.
How does Woodforest overcome intense competition for talent?
DREIBELBIS: We're blessed to have unemployment at [record lows], but that certainly does have some impact. We're a unique organization in that we have a very large retail front. The turnover that comes in that particular area is difficult, but we have been successful in hiring some fantastic people. I just got back from a trip to Charlotte to spend some time with our bankers there, and the talent I’m seeing gives me great hope for the future.
We have a tremendous group of bankers and we're able to add some outstanding young people to our organization. We had some struggles in the Houston market in acquiring and retaining quality technology people because of the very competitive market here with the oil-and-gas industry, but we have been successful. Woodforest is a great place to work.
