Texas Capital Bancshares Inc (TCBI) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen.

Welcome to the first quarter Texas Capital Bancshares earnings conference call.

My name is Phillip, and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later we will conduct a question and answer session.

(Operator Instructions).

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference to the host for today, Ms. Myrna Vance, Director of Investor Relations, please proceed ma'am.

Thank you Phillip.

And thank all of you for joining us today for our first quarter earnings conference call.

As you all know I am available for any kind of questions after the call.

So if you have something you want to ask, be sure to call.

Before we get into the discussion, let me read the following statement.

Certain matters discussed on this call may contain forward-looking statements, which are subject to risks and uncertainties, and are based on Texas Capital's current estimates, or expectations of future events or future results.

Texas Capital is under no obligation and expressly disclaims such obligation to update, alter or revise its forward-looking statements, whether as a result of the new information, future events, or otherwise.

A number of factors many of which are beyond Texas Capital's control could cause actual results to different materially from future results expressed or implied by such forward-looking statements.

These risks and uncertainties include the risk of adverse impact from general economic conditions, competition, interest rate sensitivity, and exposure to regulatory and legislative change.

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found with the prospectus supplement, the Annual Report on Form-10K, and other filings made by Texas Capital with the Security and Exchange Commission.

Let's begin our discussion.

With me on the call today are George Jones, our CEO, and the Peter Bartholow, our CFO.

And after a few prepared remarks, our operator Phillip will facilitate our Q&A session.

Let me turn the call over to George.

Thank you Myrna.

Good afternoon everyone.

Welcome to our first quarter conference call.

I am pleased to reports another strong record quarter for Texas Capital, $33 million in net income and $0.80 in earnings per share.

Our credit trends and returns are quite good, in spite of a very competitive environment.

We experienced an expected seasonal decline in loans held for sale, which does not change our expectations for the year.

We have a strong capital position having raised an additional $150 million in preferred stock.

This raise gives us an additional $150 million, and gives us the resources and potential to continue our growth.

Net income increased 5% on a linked quarter basis, and 22% from the first quarter of 2012.

Demand deposits increased 4% linked quarter, and grew 50% year-over-year from first quarter 2012.

Loans held for investment grew 3% linked quarter, but our loans held for sale were down 11% as expected.

However, year-over-year loans held for investment were up 19%, and the loans held for sale were up 16%.

Loans held for sale, as you know, our mortgage warehouse unit performed exceedingly well in a weak mortgage quarter.

The national warehouse market and many of our competitors were down between 25% and 35% in Q1, while our decline was less than one-half of that number at 11%.

We continue to believe that we will end 2013 at approximately the same level on an average basis as 2012.

Our strategy, and we have discussed it numerous times, of customer acquisition and increasing availability of financing for our best customers, while remaining the preferred lender in 80% of existing relationships is working extremely well in a weak mortgage market, keeping us well ahead of the competition and maintaining volume and outstanding loan balances.

Mortgage warehouse unit is also responsible for providing $850 million in deposit balances in March, of which $750 million are non-interest bearing.

Margin held firm at 4.27 equal to the fourth quarter of 2012 and only 9 basis point below Q3 2012.

On loans held for investment declined held only 2 basis points linked quarter, and loans held for sale yields were down 7 basis points.

Our capital position was enhanced with the successful addition of $150 million of preferred stock.

This capital along with approximately $200 million raised in third quarter 2012 strengthens our ability to grow.

With that I will turn it to Peter for some additional information, and I will come back after he concludes.

Thank you George.

As George mentioned, we had strong year-over-year growth in net revenue, operating net income, and EPS.

We did experience a linked quarter reduction of 4% in net revenue, due to the day differences which represented $2.2 million, and of course the seasonal reduction in warehouse volumes and fees that George mentioned.

We did have year-over-year net revenue growth of 12%, with a 4% reduction in linked quarter, due to the Q1 factors.

But net income increased 22%, with a 14% increase in the earnings per share; that difference resulted from the effect of the equity offering in Q3 2012.

Now remember we had a charge of $4 million or $0.06 a share for the settlement of the Oklahoma litigation in Q4, that permitted linked quarter increase in reported EPS of 5%, but a 2% reduction in EPS presented on an operating basis.

We did have in terms of core earnings power a very strong first quarter.

It's a seasonally weak quarter that has what I described as Q1 factors, worth a total of pretax $3.6 million.

That is the 2 days difference between Q1 and Q4, and the FICA charges and related aspects of accounting that are an additional $1.4 million.

Net interest income was down 5%, only 5% actually despite an 11% reduction in loans held for sale.

We had Q1 impact from seasonal factors in loans held for sale, which has already been mentioned, and loans held for investment, but still grew 3% linked quarter.

As expected the balances in held for sale remained well above Q1 2012, and our full year average in 2012 of $2.3 billion, consistent with our view that the business can sustain high levels of volume and profitability relative to that competitive position.

Noninterest income was down seasonally, in terms of expense management, expense reduction, even adjusting for the effect of the settlement expense, we were down.

We had in that context also as I mentioned, $1.4 million of factors related to Q1, meaning that the performance was even more dramatic in terms of reduction.

The efficiency ratio adjusted for the factors that I mentioned remain very strong, essentially flat with the fourth quarter.

George mentioned the strength in preferred stock position, protects us from any financial finally adverse determination about risk weight for our held for sale portfolio.

Our capital allocation approach continues to show exceptional returns for the warehouse business unrelated to any change in capital risk weights.

Held for investment loan growth occurred in a number of lines of business, and throughout the state reaching $6.84 billion, growth well ahead of plan in a seasonally weak quarter, and on pace we believe for mid to high-teen growth year-over-year.

As stated in George's comments, our approach in held for sale is to build a business by adding customers and expanding penetration within the current base.

We are prepared to report that is going extremely well.

The participation program is also working well.

It has represented a buffer to the reduction levels there are committed at again still over $600 million, with an outstanding balance at the end of the quarter of $352 million, down from the $436 million the prior quarter.

In Q1 the funding profile continued to improve, with huge improvements in DEA funding that George mentioned, and reduction in costs of all interest-bearing categories.

Change in the funding mix has also been very important, and reflects the success of Treasury management focus throughout our lines of business and regions, and of course in the growth and deposits from the warehouse group.

Credit quality and costs, those trends remain obviously very positive.

Total costs were down more than 60% compared to the Q4 and Q1 levels of last year, net chargeoffs of just over 7 basis points, and a significant reduction in nonperforming asset levels.

Slide 6 shows quarterly net income progression, again very positive trends.

You will see in the subsequent slide, five year CAGR that is obviously superior to industry and peers.

We believe the performance is driven by what we think is an almost unique business model, certainly one in Texas, with strong growth and the ability to maintain a high NIM, due to our balance sheet composition.

I mentioned the efficiency ratios remained very strong, flat essentially with Q4 when factoring in the $1.4 million of additional cost, and the reduction of net interest income.

Very strong high ROA was maintained, and ROE of 15.8% despite the big surge in equity resulting from the Q3 offering.

Again, good capital ratios even allowing for a change to 100% risk weight for held for sale, especially given the strength of internal capital generation.

The loan growth and funding profile are drivers of a very high ROM compared to our industry.

We have produced in our business an ideal balance sheet for a low rate environment.

As George mentioned, the held for investment yields have remained very strong, reduced by only 2 basis point from the fourth quarter.

Held for sale yields have also held up well, despite pressures on mortgage rates, reduced by just 7 basis points.

Held for investment growth, shown on slide eight, obviously well above industry trends, and ahead of our own expectations.

Again as I said, on pace to produce high teen year-over-year growth.

Held for sale balances again well ahead of the last year, and above the average for 2012, but down from the very high levels of the fourth quarter.

Due to the very high ROA, our growth in stockholders equity has been very strong.

We expect stockholders equity, still common equity to grow at a rate faster than the average growth in total loans.

Obviously the quarter end balances are what drives the averages, and those have been very strong.

Very high held for sale balance at the end of the quarter compared to the average.

Again very strong growth in deposits, exceptional in DDA with 7% average, and 50% on year-over-year outstandings.

I will comment on the slide showing the graphs, but obviously, with very strong CAGRs in loan and deposits, net interest, net revenue, and net income, we produced very strong growth in earnings per share.

George.

Thanks Peter.

If you will move to slide 13, you will remember it is familiar to you.

It shows our loan breakdown by collateral on the left, and it shows little change from Q4 2012.

While nonaccrual assets continue to come down as shown on the column to your right, we have returned one large non-accrual loan to accrual status and have sold various ORE properties, reducing our nonperforming asset ratio to under 1%, or 0.83%.

This is down from 1.06% in Q4 2012.

Moving to slide 14, recaps the credit quality with all measurements improving each quarter.

And Q1 2013 is no exception.

Total credit costs were over 50% less than Q4 2012.

And all nonperforming assets were down $14 million on a linked quarter basis.

Slide 15 graphs net chargeoffs to average loans, as Peter mentioned at 7 basis points in Q1 2013.

Our reserve to nonaccrual loans was 1.7 times, and the NPA ratio was the lowest since before the recession in the 2008.

As always, I would like to leave you with a few thoughts.

We had strong core earnings and organic growth that will continue throughout the year.

We see our return on average assets, our return on equity, and growth in our loans held for investment portfolio continuing to outpace most all of our regional peers.

We expect our credit costs in 2013 to be slightly lower than 2012.

And we have a strong loans held for investment pipeline, and new commitments present opportunities for growth.

Our loans held for sale balances should stay high, and could grow modestly, with increased market share and our participation programs.

As we have mentioned, we successfully completed both an equity offering and a debt issuance during 2012, raising $200 million.

And in Q1, we raised $150 million with our preferred stock offering.

We raised the additional capital to maintain a strong capital position, even with the prospect of having to increase the risk weight applied to the warehouse business.

In the resolution of the matter, we have adopted a 100% risk weighted approach, with regard to capital supporting the mortgage warehouse.

We are continuing to pursue alternatives, which include trying to demonstrate to the OCC that our program has been properly risk weighted in the past.

In case we are not successful in that effort, we are evaluating changes to restructure our program that would fit the current 50% risk weight category.

This is a very profitable business for us, and one we are committed to continuing to grow.

Regardless of the outcome of the risk weight matter, we have sufficient capital to execute our program, and continue to pursue additional mortgage and commercial relationships in all of our lines of business.

We are pleased with the results we reported this quarter, and look forward to another strong year.

These are all of our prepared remarks today.

Now Myrna, I will turn it back to you for questions.

Great.

Operator, I think that we are ready to start our Q&A period, if you would please?

Of course.

(Operator Instructions).

Your first question is from Brady Gailey.

Good afternoon guys.

So the risk weighting issue with the OCC, any idea on timing, as far as when the OCC will get back to you on if they think there is a change that is mandated here?

And the follow-up would be, if the OCC comes back and say hey, something has to change here, either you up it to 100% risk weighting, or you slightly alter the way that you do this business from purchasing a 99% participation to 100%, if you did move to purchasing 100% of the loan, would that satisfy the OCC on the risk weighting issue?

This is Peter.

The simple answer is, we really don't know on either question.

We are working on structural issues and we will develop what we think should be a valid, or reasonable approach, but we have got to do that consistent with our own views, very, very tight views of risk and on an operating as well as put back another basis.

Okay.

And then moving on to held for investment loan growth.

If you look at on an end of period basis, you grew loans 22% last year.

That slowed to around 8% annualized this quarter.

Obviously some of that is a seasonal slowdown.

But is there any reason to think that you guys wouldn't be that far off from the 22% last year this year?

What we have said, and I think we said earlier in the conversation, that we expect a high-teens ability to perform this year.

We might get to 20, or 21, if we get a little tailwind behind us, but we are looking at the high-teens, and we think that is very achievable.

Great, and last question, what were the outstanding syndicated loan balances as of the end of the March?

It was down about $100 million to $1.2 billion, from $1.3 billion at the end of December.

Okay.

Thank you, George.

Brady, let me add to that, we have already experienced in the month of April more growth than we had in the first quarter.

So we are coming very strongly out of a seasonally weak quarter.

And Brady, this is LHI, this is the held for investment, not the syndicated loans.

Held for investment, yes, right.

Alright, thanks for the color.

Your next question comes from the line of Michael Rose from Raymond James.

Please proceed.

Good afternoon guys.

Hi Michael.

Wanted to get a sense on the warehouse, it looks like as far as I understand you usually have a spike at the end of the quarter, but when I look at average versus period end and the held for sale, it looks like it was down.

So have you since the end of the quarter, have you seen the pipeline start to rebuild in held for sale?

Yes, let me talk about what we are doing.

Frankly the short answer is yes, we are seeing a lot of activity in that area.

But as far as color is concerned, we are doing a couple of things that we haven't been doing as aggressively in the past.

One is customer acquisition.

We have our representatives very much active in the marketplace.

We actually had slowed them down a little bit, just because of the activity last year.

But we have turned them loose, and we are seeing really good improvement in bringing business that we can do, and that we can approve to the Company.

So we see that working extremely well.

Secondly, again as I mentioned, we are still the preferred lender.

We believe that we can maintain, and that is why we were only down 11%, when the market was down 30%, in terms of the warehouse side.

Participations, we are beginning to buy a few of those back.

We have got a 90 day period, as you know, so we have had to wait 90 days to buy some of that back, but that 90 days is about up so we will be doing some of that.

As importantly as anything, we are increasing lines to our best clients.

These are the largest most well capitalized, highly liquid mortgage customers we have, who will use these lines.

So we have gone back and selectively increased lines to these best clients.

We think Michael, all of that taken together over the course of this year can increase outstandings $800 million.

And the customer base still stands at around $160 million, if I remember correctly?

That is exactly right.

George, one more for you just on credit, is there anything going on in substandard or classified?

I noticed the 90-day plus day was up, I didn't know what 30 day to 89 day did.

But if I remember correctly, last quarter substandard and classifieds were--?

89 is up a little bit.

It is around 65.

I don't see any big issues there at all.

At this point in time, the end of March we are renewing a lot of lines, trying to get financial statements in to get that done.

Sometimes it takes a little bit longer, and some of these things run into the past due category.

I don't see any real issues.

If you look at classifieds to capital, today they are as low as they have been in a long time, since I can remember.

There's really in the over 90 days no problem.

One of those in the over 90 days is one particular loan that the property is sold under contract, and we expect that to leave quickly.

So I would tell you that credit is about as strong as we have seen it in a long time.

Okay thanks, and I will let everybody else ask the rest of the mortgage warehouse questions.

Oh, go ahead.

Thank you Michael.

Your next question comes from the line of Matthew Clark from Credit Suisse, you may proceed.

Good evening guys.

Hi Matthew.

Can you talk to the margin and the resilience of those loan yields still?

I know that you guys have floors in place and that has held those yields up well, down another 2 ticks and the margin staying flat.

I guess how do you feel about the margin going forward?

I assume we would start to see some pressure maybe resume, just maybe because of day count, but just curious on how you think about yields going forward in the overall margin.

The day count really won't affect it because of the way that those rates are computed.

What we do expect is a weakening that results from rebuilding the warehouse.

Our spreads there are 3.75 or so, obviously below our margin.

So the more growth we get there, the more pressure on margin just from that line of business.

On the other side we are entering, beginning in the second quarter and third quarter in the line renewal period, and we expect to have pressure there.

Nothing that would surprise anybody in terms of trends, but between that and competition in the marketplace unquestionably we will have pressure.

And unfortunately the more growth, the lower the margin, but the better the net interest income.

Okay.

And then on the loan growth front, it sounds like there was some seasonality in HFI.

Curious as to what else may have contributed to more muted growth here in the first quarter, if you could talk to the sources.

If you have a $100 million.

The issue we have addressed in the past with the [SNIC] portfolio, is those loans fund and pay down when they do.

With a $100 million reduction in that balance, plus the seasonality, you are talking about $275 million worth of growth, $250 million to $275 million.

Okay.

And then on the SNIC portfolio, can you update us on the amount where you are the lead agent, and the amount of nonperformers in there?

Virtually no nonperformers in the portfolio, in fact the one that I mentioned where we reduced nonperformers by a large amount, that came out of the SNIC portfolio.

It happened to be the one that we were agencying, by the way.

It was a $17 million number, and that came out of the nonperforming.

So that was the only nonperformer in the SNIC portfolio that we had, and today it is back on accrual.

Oh, agenting, excuse me, we agent about $320 million of that $1.2 billion.

Okay, thanks a lot guys.

Our next question comes from the line of John Pancari from Evercore Partners.

Please proceed.

Good afternoon.

Can you talk to us just remind us, what is your latest in the terms of the bottom line profitability of the mortgage warehouse business, at least for the first quarter?

John, it is exactly the same as it has always been.

It is a very profitable business.

It is more profitable when the volumes are very high.

There is an, obviously a fixed cost component to that business, with the infrastructure and the staffing.

There is also a variable component related to commissions, fees, labor related to the high production levels.

Nice try.

I figured I would try one more time.

I can't seem to get that number out of you.

I saw him smile when you said that.

I figured he did, George.

And then the other question would be on the regulatory capital ratios, I am not sure if you said this in your prepared remarks, but I know you didn't provide them with the release this time.

Could you do have you what the regulatory capital ratios were for the quarter?

We are actually just redoing that, but the Tier 1 common to risk weighted is just below 8, Tier 1 capital to risk weighted 10, a little over 10, and total capital to risk weight 12.

Okay.

Alright great.

And lastly, you mentioned competition when you were talking about the margin there.

Can you give us a little more color in terms of where you are seeing the most competition by type, and then who is it coming from, and then lastly, if you have any color on what is a good average, new money yields you are seeing on the certain types of C&I, and other types of loans?

We certainly see, as we have said before John, pricing is coming down, being very competitive, and that is all over the place.

That is in every market we are in.

If it is a high quality credit, it is incredibly price competitive.

And we are being very competitive, certainly to keep the business that we have, but more to the prospect that is out there also.

We are trying to get our fair share, and we are having pretty good success in doing so.

One thing I see that is really, really unusual, certainly at this time of the cycle, is commercial real estate.

Commercial real estate seems to be quite frankly more price competitive, especially multifamily than a number of other types of businesses.

And we have also seen the structure in commercial real estate become very, very, I don't want to say weak, but I will say not as strong as it should be.

We have actually seen some fully spec office buildings in our marketplaces, which is quite, quite troubling I might say.

Yields, our commercial yields are down just slightly.

Someone else mentioned that we did have floors on 50% or so of the floating rate portfolio, we still do, those rates have come down some, but we been able to hold it on about half of those particular loans.

We have seen it come down in the mortgage side too a little bit more.

But actually if you look at where we stand today, and where we were, I feel really good frankly about our yields on the portfolio.

I think they are holding in quite well.

Okay, thank you.

You are welcome.

The next question comes from Brett Rabatin from Sterne Agee, please proceed.

Hi, good afternoon.

Wanted to, I didn't hear it if you gave it, just the mix purchase versus refi for the warehouse during the quarter, and then also asked the decision to go to the 100% risk weighting, why you guys decided to do that in front of what the OCC may end up making a decision, why you guys ended up doing it before they made an announcement?

On the refi, one thing that you will find about our program that is very different than most other programs, is that our refi is much less than most others.

I heard one this morning that was an 80/20, 80% refi and 20% of purchase money.

We are at 58% refi, and the balance being purchased money.

That is very important in a market like we are in today, when the refi is going away, and we have said on this call numerous times that we target not refi shops, but we target originators that actually specialize in first time mortgages.

And that is what the majority of our customers represent.

We really on the call with our prepared remarks, said about all that we can say now on the 100% risk weight issue.

We thought we raised capital in the past, to be sure that if we decided to move to 100% risk weighting, that we would certainly have the capital to do so.

And we are just going to have to wait and see what happens.

We hope it can be resolved in a very timely manner.

But the main point to remember is that we have got a plenty of capital to support it, and certainly on a go forward basis, we are prepared to do so.

Okay, and then as just as a follow-up.

The off balance sheet paper, how much of that was maybe outstanding during the quarter on average versus the fourth quarter?

You are talking about the participation program and the warehouse?

Right.

$352 million.

We had commitments to sell $604 million, but we sold $352 million, and we will be bringing, unless volume picks up dramatically, we will be bringing some of that back too, to support our outstandings on our balance sheet.

Okay.

Appreciate all of the color, thank you.

$352 million at end quarter end, and $350 million for the quarterly average.

Your next questions comes from the line of Brad Milsaps, Sandler O'Neill, please proceed.

Hey good evening.

Evening Brad.

Peter, just a question on expenses.

Appreciate the color on the seasonality related to the first quarter, but I guess generally, your expense have been up 15% to 17% the last couple of years.

Anything sort of hanging out there that you feel like you could back off of that run rate a little bit?

I know you got some relief in the first quarter from legal professionals, and things like that, but just kind of curious, sort of your thoughts of expenses on a go forward basis?

It is really just a function of what we do in the hiring and build out.

There are no major problems in front of us that are going to upset the trends.

I think we feel very good about where we are.

Obviously being down as much as we were from the fourth quarter was a plus.

The credit and related costs are just so much lower, legal and collection, and getting rid of the major lawsuit in the fourth quarter obviously was a huge, huge driver of the improvement.

Okay, George, can you talk a little bit about, even when you did hire in the first quarter, and what you see coming down the pike, in terms of potential new lending teams?

Hiring, yes, we are continuing to look for teams, Brad, as you might imagine, with our focus on Houston and Dallas.

We have also hired, and will be making formal announcements soon, a President of our private bank.

A very senior individual from the industry that will really assist us we believe in kicking off our wealth management area, stronger than we have had before.

So that is a real positive.

We have one group that we are looking at right now, and again we are continuing to selectively add to the Houston market and the Dallas market primarily.

Great, thank you.

You are welcome.

Your next question comes from the line of Jennifer Demba from SunTrust Robinson Humphries, please proceed.

Good evening.

Two questions following-up on the expense question from Brad, so Peter, is it fair to say, like Brad pointed out, you guys grew expenses 15%, 16% over the last couple of years.

Is it fair to say that your expense growth over the next couple of years should be much less, given credit costs have come down so much, and legal costs?

And you are not hiring at the pace you had been in the last few years?

And then I have a follow-up question.

Fortunately, as you know about the pace of hiring, we just never really know.

The outlook is pretty damn positive in that regard.

We just don't know when and how many it would affect in a particular quarter.

Given the larger asset size, the larger base, we would expect that rate to come down year-over-year going forward.

A little obviously hard to predict.

We have acknowledged that in the past that regulatory costs are going to increase, but again, no step function up or anything that would be particularly troubling.

And my other question is related to loan growth during the quarter.

I am curious as to how much of the growth was related to energy lending?

Quite a bit of it was energy, Jennifer.

We saw Houston being quite active.

It was up one of the three top producers of loans in Q1, Houston was up dramatically.

Our bank direct capital finance was up on a secondary basis, and energy was third.

So those three areas promoted most of the loan growth.

Okay.

What are your energy outstandings as of the end of the quarter?

Right at $1 billion.

Okay.

Thank you.

Next question comes from Dave Rochester from Deutsche Bank.

Please proceed.

Hi, good afternoon guys.

Those capital ratios that you guys gave earlier, that includes 100% risk weighting of the warehouse book?

That is correct.

Great.

And I know you mentioned the regulators have been comfortable with your considering that portfolio to be your liquidity portfolio, I was just wondering, I wanted to get your thoughts on if there are any potential issues when Basel III eventually kicks in, if you think you will still be able to count that towards your liquidity coverage ratio, or if you might have to build the securities portfolio to help with that?

That is another question for which we have to say we really don't know.

But there is no indication at this time that would be a major factor.

Okay, great, one last one real quick.

Just wondering if the average warehouse balance was impacted at all by the number of days the loans were on the books.

I know that you have been trending around that upper end of your 12 to 20 day range, just curious if that had come in at all this quarter.

It is coming down somewhat Dave.

As you know, as volumes slow down a little bit, the investors are able to process faster, and so they are able to take those loans off the financing for our originators faster, so it absolutely does matter on both sides of the coin.

When the volume is really high, they are going to stay on the line longer; when the volumes are down, they are going to be taken off much quicker.

So it does have an effect.

So if there were a pick-up in refi activity, you would see that even more in the balances?

If there was a pick-up in refi, you would see probably those days stretch out a little bit, and the outstandings stretch out.

Okay, great, thanks guys.

You are welcome.

Michael Toledano from GGHC.

Please proceed.

Hi guys.

Sorry, if you said this already.

So the reasons in the loans in the held for investment portfolio, why you are kind of guiding to high-teens growth versus the low-20s growth that we have seen in the past couple of years, is it competitive?

Is competitive the number one reason for the slight slowdown, or is it something else?

No, I would say that competition is a big part of that.

We continue to follow the same model that we have followed since inception of the Company.

We are hiring great teams of bankers, and they bring their business with them, it is competitive.

And in the past, and up to this point, it has also been credit quality too.

Because we have a lot of companies coming off of the recession, that simply are not as strong as they have been, and we have not been able to finance them.

So I would say competition and credit quality, but we'll be very happy I believe, if we see high-teens growth, and certainly in the warehouse if it stays flat to slightly up.

Perfect, thanks.

Matthew Keating from Barclays, please proceed.

Yes, it is Matthew Keating.

One quick question, on bringing back the warehouse loan, the participation loans back on balance sheet.

I guess that only encompass those, the $352 million or so that are outstanding now, you mentioned there is a lag of 90 days or so.

What sort of financial impact I guess, you say you see lower brokered loan fees, but is there any other impact from buying back those participations?

Thanks.

We get those loan fees for everything, not only the participations, but the one that we keep on balance sheet too.

So that shouldn't have too much effect.

We plan to bring back maybe up to $100 million or a little bit more of the participations.

We have relationships with a number of those purchasers of those participations.

We want to be good stewards of that, so we are not going to take all of them back at this point in time.

It does give us an opportunity to bring some back, and to increase our outstandings somewhat.

Great.

Thank you.

(Operator Instructions).

Scott Valentin of FBR Capital Markets.

Please proceed.

Good afternoon.

Just a quick question.

As you consider alternatives, if the OCC comes back and says yes you must 100% risk weight, and you mentioned that there might be some alternative ways to restructure the business to avoid that, is there any, in terms of the changing the profitability of the business, would there be any negative impact by maybe any of the changes you are thinking about?

Should not be of any consequence, assuming we can get there.

Is it based on what you are planning right now in terms of changing the business model; there shouldn't be any real material impact on the profitability?

It should not be significant.

Alright.

Thank you very much.

Our next question comes from Brady Gailey, KBW.

Please proceed.

Thank for the follow-up.

George, I just wanted to clarify a comment that you made.

You were talking about the three things that you could do to help grow the warehouse market share business, and then you mentioned an increase in $800 million in outstandings.

Can you just clarify what you are talking about there, the increase of $800 million?

Sure.

Really a couple of things that we can do.

One is customer acquisition.

As I mentioned before, we are stepping up our calling and customer acquisition process on a nationwide basis.

So we are going to see the customer acquisition process speed up.

Consolidation again in the marketplace is benefiting our customer.

We see a lot of our larger regional mortgage companies gobbling up these smaller mortgage companies, and providing more volume, and they need additional availability.

One is customer acquisitions.

Secondly, we have taken our larger more profitable, highly liquid, high net worth of good credit quality mortgage companies and increased their line only if they will use it.

So if we give them an increase, and remember these lines aren't committed.

These are not formally committed, but we will give them more availability if they commit to use it, and these larger companies that are buying other companies need that kind of availability.

And we believe too, that since we are financing the originator that is not focusing necessarily on the refi business, home buying in Texas particularly is a lot stronger.

We see a nationwide pick up in the second and third quarter.

We see some natural volume that we think our customers will pick up and need to warehouse with us.

And again the last thing I would mention is we still are the preferred line in about 80% of our customers.

So we get more usage from our customers than typically some of the other competitors.

And then specific to $800 million comment, are you basically saying that those three actions will help increase the business by $800 million?

Yes.

Remember I said that is over a year.

That is not going to happen next quarter.

These are things that are going to take three quarter, maybe even four quarters to get there.

But it should happen within a year.

Okay.

And this increase of $800 million, you are guiding to average balances basically flat 2012 and 2013.

I guess this increase and $800 million will just help offset some volume decline?

Sure.

That is obviously right because that is origination.

We are talking about average volumes, and if they don't stay on the line but 10 or 11 days, they are going to turn three times a month.

So that is just fundings.

It won't stay on the line that long.

Okay.

And then finally, the actual risk weighting of the warehouse at the end of March, I know at the end of fourth quarter it was around I think 40%, or a little under 40%.

Did that change materially as of the end of March?

No.

Alright, thank you for the follow-up guys.

Thank you.

Thank you.

That ends the question and answer session of today's conference.

I would now like to turn the call back over to George Jones.

Thank you Philip.

If there are no other questions, we will move on.

I want to thank everyone to taking time out of their schedule today to listen to our call.

We want to assure you that we are working hard, and we will keep you updated on our progress.

Thank you very much.

Ladies and gentlemen that concludes today conference.

Thank you for your participation.

You may now disconnect, have a great day.