Analyst Tom Brown highlights Texas Capital Transformation

Bank analyst Tom Brown highlighted Texas Capital's transformation in the 3/13/26 edition of Tom Brown's Weekly Banking, a banking publication regarded as essential reading for industry leaders, analysts and investors. Read the article below.

To learn more or to subscribe to Tom Brown's Banking Weekly Newsletter click here https://tombrownbanking.com/ and source: 

Tom Brown’s Banking Weekly: 3/13/26
Financial Services Insights and Intelligence  

TEXAS CAPITAL: MISSION ACCOMPLISHED!
By Tom Brown

The transformation of Texas Capital Bancshares has all the ingredients of a Hollywood movie for banking geeks like me, but it would have to be produced by a Texas production company for authenticity. Here is the story line: a group of former Texas bankers dismayed that Texas had lost all but one of its largest banks from the 1980s to out-of-state banks come together to form a new bank in 1998. It would be a commercially oriented bank run by Texans and focused on serving Texas-based institutions and other institutions with major operations in Texas. It would be named Texas Capital Bank.

The bank enjoyed great initial success, but after a period of rapid growth, management became complacent and started stretching to maintain its rapid growth. Its two dominant lending businesses were highly volatile and low-profit mortgage warehouse lending and non-relationship-based syndicated lending. The combination of volatility and low profitability eventually led to profit disappointments as credit losses rose. Eventually, the company’s board brought in an outsider to turn the company around.

In January of 2021, new CEO Rob Holmes took over. He came straight from central casting. He’s a Texas native to his core with 30 years of experience at the best banking company in the country, JPMorgan Chase. Over eight months, he developed a new strategic plan before announcing it to Wall Street on September 1, 2021.  However, it wasn’t just a plan to fix Texas Capital, it was a remarkably bold plan to completely transform the company. Holmes didn’t set his sights on building a strong regional bank headquartered in Texas. That wasn’t his vision. His plan would turn Texas Capital into a full competitor of all the New York investment banks, with his edge being that Texas Capital is based in Texas and run largely by Texans. In Texas, that counts for a lot.

Wall Street reacted to the transformation plan with all the long-term optimism we have come to expect; the stock dropped 10% on the day after the plan was announced.  The next 18 months were difficult, with more questions about the plan as the company sold assets, reduced legacy expenses by 35%, and made significant investments in people and systems, all of which resulted in negative operating leverage. From 30,000 feet, it looked ugly, and on the ground it was a baby only its mother could love.

When Holmes announced the plan in September of 2021, he set some financial targets for the company to achieve by the third quarter of 2025. The goal was for Texas Capital to earn 1.1% on its assets by then. The company reached that target when it reported its third-quarter earnings last year, and put an exclamation point behind its Mission Accomplished sign with the company’s fourth-quarter results when it earned a 1.2% ROA.

I talked with a proud Rob Holmes recently and he told me that the company’s ROA recovery was the greatest in such a short period of time for any banking company with over $20 billion in assets. In addition, it was the greatest increase in tangible book value per share for a similar-sized bank over such a short time period. We reviewed all the changes that took place, including a complete re-mixing of the assets and liabilities, new products, a new tech stack, and new employees (90% are new to Texas Capital since Holmes arrived).

When I asked Holmes what he viewed as the biggest risks when he started the transition, he listed three items:

• The risk of attempting all aspects of the transition at once. The pieces were all connected, so all had to be changed at the same time. This made it more complicated and painful, but it enabled faster completion.
• The risk that the clients would not accept the turbulence during the transition. The company’s new-business effort never missed a beat and the total number of banking customers has continued to grow.
• The risk that Texas Capital might not attract the talent to compete with the major investment banks in New York. It turns out that that was no problem.

I have seen plenty of bank profitability recoveries and a few successful transformations, but I have never seen a more significant transformation than the one at Texas Capital.  As Rob Holmes told me, “The transition’s over. Now you just use the toys you’ve got.” I look forward to this next phase.