When Texas Capital Bank in Dallas was founded in 1998, it set a record by raising $80 million of initial capital. Now its founders want to help create carbon copies of Texas Capital in other cities.
Texas Capital Bancshares Inc., the holding company, announced Thursday that it will be an adviser to BankCap Partners Fund I, a private equity fund in Dallas that will invest primarily in newly chartered banks throughout the nation.
Joseph M. "Jody" Grant, Texas Capital's chairman and chief executive, said the fund will be a separate entity, but the bank and its officers will be heavily involved in helping the fund find good projects to back.
"If it works the way we want it to work, a bank in another city would be almost a clone of Texas Capital Bank. It would look just like us," Mr. Grant said.
At its founding Texas Capital was the largest start-up bank in history. It is primarily a business bank, with offices in Dallas, Fort Worth, Houston, Austin, and San Antonio, and has nearly $3 billion of assets.
BankCap Partners will find groups of organizers that want to start banks and then put up 25% to 50% of the initial capital. The organizers will raise the rest.
Mr. Grant said that the fund's goal is to raise $200 million and that it already has tentative commitments for about $60 million from members of Texas Capital's board and from some of its initial investors.
Among its initial board members are: Mr. Grant, James H. Graves, a partner at the management consulting firm Erwin, Graves & Associates LP, and William Isaac, a former head of the Federal Deposit Insurance Corp.
But Texas Capital will not be an investor itself, Mr. Grant said.
"For regulatory reasons we want to keep distance between Texas Capital Bank and the fund, because it gives more room to do the things we want to do," he said.
One thing Texas Capital wants to do is share loans with the new banks and provide back-office services to them. It has created a subsidiary called TCB Banking Solutions to offer those services for a fee; it will do everything but help the banks make lending decisions, Mr. Grant said.
"We spent $15 million creating the infrastructure at Texas Capital Bank," he said. "We believe that we can short-circuit that. We think we can accelerate the path to profitability with the services we provide."
Texas Capital will not own a stake in any of the banks it advises, but it is certainly not the first banking company to lend a hand to start-ups.
Perhaps the best known is the $3.5 billion-asset Capitol Bancorp Ltd. of Lansing Mich., which provides 51% of the money to start-up banks and then generally acquires the rest after three years.
The $12.8 billion-asset TCF Financial Corp. of Wayzata, Minn., started a venture capital fund in 2002 to invest in start-up banks. Neil Brown, TCF's chief financial officer, said that one bank his company invested in, Neighbors Bancshares Inc. of Alpharetta, Ga., is being sold. Security Bank Corp. of Macon, Ga., is paying $30.6 million for Neighbors in a deal announced in November and set to close in the second quarter.
Mr. Brown said TCF's return on investment in this deal was about 50%. TCF has about $10 million invested in start-up banks, but it TCF does not try to take over the banks.
"We'll answer questions and give some advice if they ask for input, but we don't take part" in operations, he said. "They are actually pretty good at running the banks on their own."
Christopher L. Hargrove, the CEO of Bank Professional Services Inc. in Louisville, said he has often found that would-be bank entrepreneurs are not good at controlling expenses and could use the advice of bankers who have been through the start-up wars.
"You have these guys who want to start a bank and build a Taj Mahal and have two nice branches," he said. "We like to see a CEO who has been in the business for 15 years and who on Saturday is out there cutting the grass."
Bank Professional Services advises start-ups, but Mr. Hargrove said it turns away 80% to 90% of the organizing groups that approach the consulting firm. He said the most successful start-up banks are those run by bankers who come from the business-development side, not operations.
Texas Capital, for example, has been able to grow quickly in large part because it recruited top producers from rivals like Comerica Inc., the former Bank One Corp., and Bank of America Corp. Mr. Grant said BankCap will be looking to invest in banks that think the way Texas Capital does.
"We want to identify a team of home run hitters and let them build their own team and create a culture similar to our culture," he said.
