The first call that Rob Holmes received about the CEO job at Texas Capital Bancshares came shortly after the Dallas-based company abandoned a proposed merger with another Texas bank.
It was May 2020, and Texas Capital was not only not going to move forward with the $5.5 billion deal to merge with Independent Bank Group in McKinney, Texas, but the chief executive of Texas Capital had abruptly stepped down when the deal collapsed. So the company was looking for a successor.
Holmes, who at the time was the global head of corporate client banking and specialized industries at JPMorgan Chase, wasn’t interested. Then came a second call from someone else.
And then a third.
Holmes agreed to talk with the chairman of Texas Capital. That call lasted three hours.
“I really didn’t know anything about Texas Capital Bank,” said Holmes, a 57-year-old Dallas native who spent 31 years at JPMorgan. “But I think all those people knew I’d run this very complex, global business, so they were thinking, Why not go home to Texas and do something special in your home state?”
Doing “something special” quickly came to mean launching a top-to-bottom transformation of the $31.1 billion-asset company that, in Holmes’s opinion, had an incredibly proud heritage, but was “going through a really hard time.”
The formerly fast-growing enterprise had run into trouble with bad loans and expenses that were outpacing revenues. It was also struggling with low fee income, lagging profitability and business line segmentation and the cloud of the busted merger.
Holmes, who came on board in January 2021, moved quickly to chart a new course for the ailing company. In his first nine months, Texas Capital improved its capital ratio, wound down a noncore lending segment, started assembling an operating committee and began a massive recruitment effort to lure new talent by attracting people from other large and regional banks and companies.
After months of planning, a highly anticipated strategy overhaul was released in September 2021. It was, indeed, the outline of a complete transformation of a company, and it was based on a four-year timetable. By 2025, the company expects to meet critical profitability and hiring targets.
The objective: to recast Texas Capital into the flagship financial services firm in the Lone Star State.
“What we mean by being the ‘flagship’ firm is being financially resilient, dependable, proactive, in-market and client-focused,” Holmes said. “When you’re the flagship, you’re banking the best clients. And if we’re banking the best clients, then we’ll be the best financial institution in the state.”
But so much change in so little time has raised some eyebrows, and while the company says that it is on track to meet its targets, there are questions about how much patience investors will show.
The company has said that expense growth will continue to outpace revenue growth until at least the fourth quarter of this year or the first quarter of 2023. Meanwhile, its stock price has been languishing.
“In general, people are pleased with the early success” in hiring, commercial loan growth, treasury management, better capital ratios and the management team that Holmes has assembled, said Peter Winter, an analyst at Wedbush Securities. “But at some point you’ve got to start putting up results.”
‘We kind of lost our way’
Texas Capital was founded in December 1998 by a group of businesspeople who saw an opportunity to create what had largely disappeared during the Texas banking crash of the late 1980s: an independent bank focused on middle-market corporate clients eager to do business with a local bank.
A month later, the group had raised about $80 million of equity capital, which at the time was believed to be the largest initial capitalization in U.S. banking history. One founder, Jody Grant, who led Texas American Bancshares for three years before it failed in 1989, became Texas Capital’s first CEO.
The company, which went public in 2003, focused on making loans to businesses in the state’s major metropolitan markets — Dallas, Fort Worth, Houston, Austin and San Antonio. It hired experienced bankers who built specialized groups such as mortgage finance, builder finance, lender finance, energy, real estate and private wealth management. By the end of 2012, it had crossed $10 billion of assets.
When co-founder Keith Cargill took over as CEO in 2014, the company experienced a growth spurt. By late 2016, total assets were $21.7 billion — more than double what they had been just four years prior.
The bank opened its first retail branch in 2018. That same year, its workforce climbed to 1,600. While the bank was “a darling for a long time,” its growth was based on one product, and that was loans, said Texas Capital Chairman Larry Helm, who joined the company’s board in 2006.
“We made good loans for a long time and credit costs were never a factor, but we hit a patch right before the pandemic and we began to have some credit issues,” Helm said. “We kind of lost our way.”
By 2019, the company had evolved from being solely focused on commercial lending in Texas to operating a national mortgage warehouse that some critics said was too big for the bank. It was also grappling with deteriorating energy loans and leveraged loans and did not have enough capital to support growth.
At year-end, Texas Capital and Independent Bank Group announced an agreement to merge into a “superregional” entity. The combination would have created a bank with about $48 billion of assets.
But instead of closing in mid-2020, the deal was called off, Cargill stepped down and Helm took over the day-to-day CEO duties. In a press release, Helm blamed the unwinding of the deal on the “unprecedented impact” of the pandemic and said the company would pursue a “standalone” strategy.
Plenty of speculation ensued about what had gone wrong and what would come next.
“People were wondering if Helm was going to try to find another buyer, run it himself or find a new CEO,” recalled Brad Milsaps, an analyst at Piper Sandler. “And if he was going to find a new CEO, what type of person was going to want to step into that role given what this bank has been through?”
Under Helm, the bank trimmed its workforce, strengthened its balance sheet and de-risked its energy and leveraged loan books. But Helm said that his No. 1 job as interim CEO was to name Cargill’s successor.
“It was to find someone who could take this organization and make it a long-lasting financial institution that would do extremely well for shareholders and employees and clients in this state,” Helm said.
Harnessing the bank’s potential
Holmes was comfortable at JPMorgan, where since 2010 he had been building and running the division that provides global treasury management services, credit and investment banking solutions to clients headquartered in North America and those based in certain countries in Europe and Asia.
What he saw in Texas Capital was a bank that had “a lot of potential to be molded into a new vision.”
It was also ideally situated in a state with good banking talent, a growing economy and a favorable business and regulatory climate that continues to attract companies from all over the country, he said.
What he laid out is a multipronged approach that includes launching an investment bank; building out private wealth and treasury solutions; expanding relationships in business, middle market and corporate banking; spending more on technology; and more than doubling the number of client-facing employees.
One of his first priorities as CEO was talent acquisition. To fill several newly created heads of business roles, Holmes has recruited former colleagues and other bankers who’ve held high-profile jobs at banks like JPMorgan, Bank of America, Citigroup, Truist Financial, Regions Financial and BBVA USA. Today, 11 members of Texas Capital’s 17-member operating committee and upward of 1,000 of the company’s 2,100 employees are new to the company in the last 18 months, according to Holmes. As of the end of the first quarter, the number of client-facing employees had increased by more than 50%.
Names of those who’ve been hired since Holmes’s arrival include Nancy McDonnell, a former JPMorgan executive who came out of retirement to lead Texas Capital’s treasury solutions business; Tim Storms, another JPMorgan veteran who is now Texas Capital’s chief risk officer; and Dan Hoverman, who came to Texas Capital from Regions Financial to lead investment banking.
Holmes has also promoted from within. In January, Matt Scurlock, who joined the firm in 2013 and most recently was corporate treasurer and director of finance, was promoted to chief financial officer and added to the operating committee. He replaced Julie Anderson, who worked at the bank for 22 years.
Shannon Jurecka, who had worked at Bank of America and was in the chemical industry before she joined Texas Capital last year, is also on the list of new names. Jurecka is in charge of human resources, which means she has been focused on filling hundreds of new positions and existing jobs at the firm that are open as a result of normal attrition and turnover related to the larger changes underway.
Aside from offering competitive pay and benefits and, for many roles, shares of stock, the company is trying to recruit candidates by telling the story of what Texas Capital is and aims to be, Jurecka said.
“This isn’t tweaking this little thing and that little thing,” she said. “This is building what we want this firm to be, which is sustainable through all cycles.”
Another important component of Texas Capital’s plan is the buildout of fee-based businesses. Led by Hoverman, the investment bank launched a broker-dealer, Texas Capital Securities, and offers traditional investment banking products such as underwriting, mergers and acquisitions advisory and sales and trading, with more products on the way.
The division has about 50 people now and should grow to 100 by the end of the year, Hoverman said.
Combined, fee income from treasury management, private wealth and the investment bank is expected to account for 15% to 20% of total revenue by 2025, up from 11.2% in 2020, the company has said.
“By adding all of these products, we made it so that we’re more relevant to our clients,” Hoverman said. “If we deliver products that are relevant to our clients, it creates an institution with real lasting value.”
If I had known the state that Texas Capital Bank was in, I wouldn’t have taken the job. But today I couldn’t be more excited or pleased with where we are and where we’re going.
The risks of doing ‘a 180’
Still, a makeover this extensive — outside of a merger or acquisition — is unusual in the banking industry, experts say.
“I can’t think of an institution off the top of my head that has made that many changes that quickly,” said Onker Basu, senior director of strategy and execution at Cornerstone Advisors, a consulting firm that works with banks, credit unions and fintechs. “I think the significance here is that the degree of moving parts is much higher than average.”
With so much going on and so many new faces coming from different organizations, there’s a risk of a culture breakdown, said Basu, who has not been involved in Texas Capital’s transformation plans. Those who were shaped by JPMorgan’s culture, for instance, may not jell with someone from another bank.
“If leadership is not in sync, it trickles down to the teams,” Basu said. “So you have to figure out what it is that you want to be and what you want your DNA to be and whether you can all agree on that.”
Winter, the Wedbush analyst, compared the endeavor to “taking the shell of a bank charter and remaking the whole thing.”
“I don’t know of a bank that’s had a complete overhaul like this,” Winter said. “It’s done a 180.” Holmes is open about the fact that he is creating a new culture. So far, he says, it’s working. “We have not had a hard time attracting people,” he said. “We have great talent. They love the story. They love the build. They love the platform.”
Investors have been lukewarm about the company’s bounce-back plan. When the new strategy was rolled out last year, the stock dropped by more than 10%. Analysts pointed to skepticism about the 2025 timetable, which many thought was too long, and higher-than-anticipated expenses.
The company has set out to achieve return on assets of 1.1%, return on tangible common equity of 12.5% and a CET1 ratio of 9% to 10%, all by 2025. But it has a ways to go. In the first quarter its ROA was 0.47%, ROTCE came in at 5% and its CET1 ratio was 11%.
Still, there are signs of progress, analysts say. Commercial loan growth is picking up, the bank is bringing in more organic deposits, and the investments that Texas Capital has made in people and fee-based businesses are starting to pay off.
Holmes, who signed a three-year contract with Texas Capital that ends in 2024, says he is confident about the bank’s future. The strategy outlined last year is resonating with clients and the people Texas Capital wants to hire, and the company is in good shape to keep taking advantage of the market opportunities, he said.
While some may still be wondering whether the bank will ultimately be sold, Holmes said that’s not the plan.
“We’re here to create the flagship financial services firm in Texas, and we’re well on our way,” he said. “All this talent [we’re hiring] didn’t leave their other jobs to come here with the goal of selling this bank.”
Still, Holmes acknowledges that the turnaround job is more complex than he thought it would be.
“If I had known the state that Texas Capital Bank was in, I wouldn’t have taken the job,” he said matter-of-factly. “But today I couldn’t be more excited or pleased with where we are and where we’re going.”
