Texas Capital Bancshares Inc (TCBIO) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Q1 2007 Texas Capital Bancshares, Inc.

earnings conference call.

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

Throughout this conference, all lines will be on listen only.

(OPERATOR INSTRUCTIONS).

At this time, I would like to turn the conference over to your host for today's call, Ms.

Myrna Vance.

Thank you very much, Rob, and good afternoon to all of you.

We are glad that you could join us today to discuss Texas Capital's results for the first quarter of 2007.

As Rob said, I'm Myrna Vance, Head of Investor Relations here.

And if you have any questions after the call, give me a call at 214-932-6646.

Now before we begin our discussion today, I would like to read the following statement.

Certain matters discussed on this call may contain forward-looking statements which are subject to risks and uncertainties.

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

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

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in our annual report on Form 10-K for the year ended December 31, 2006, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Now, let's begin our discussion of the quarter.

With me on the call today are Jody Grant, Chairman; George Jones, President; and Peter Bartholow, our CFO.

Let me remind you -- after our prepared remarks, our operator, Rob, is going to facilitate a Q&A question.

So let me now turn the call over to Jody.

Thanks, Myrna, and welcome, everybody.

On behalf of Texas Capital, I'm delighted to report we had another strong quarter as we continue to benefit from, number one, our business model focused on the middle market, and number two, on a very robust Texas economy.

This quarter is particularly gratifying, in that it is traditionally our weakest quarter of the year for reasons that we have explained in the past.

But they are namely that it's the shortest quarter of the year.

We pay bonuses during this quarter, and that accelerates a largest part of our FICA expense to the first quarter.

Also, typically, the largest portion of our raises fall in this quarter.

And seasonally, we found it to be our weakest quarters in terms of both loans and deposits.

Let me talk for a minute about the Texas economy.

It is extremely strong, perhaps the strongest in the country.

And it's one of the principal drivers of our success.

Virtually all the major economic indicators are at or near all-time highs, and that includes the Index of Leading Economic Indicators, Industrial Production Index, retail sales, and others.

The unemployment rates in our five major cities are all at the lowest levels since June of 2003, when the Texas economy hit its bottom.

And just to give you some examples, Austin, which has been one of the bellwether markets this year and last -- the unemployment rate there is 3.7%.

The highest unemployment rate we have in one of the major metropolitan areas where we do business is Houston at 4.5%, and Fort Worth at 4.5%.

And Dallas and San Antonio are both at 4.4%.

So suffice it to say that we are kind of hitting on all cylinders here.

Even housing permits have bounced back after hitting a low in June of last year -- or having hit a high, rather, in June of last year.

In February, they were 17,352.

And while that is below the 19,883 which was an all-time high again established in '06, those are still very, very high numbers historically for the state.

The rig count remains extremely high.

The Barnett shale continues to get a tremendous amount of play, and continues to create an enormous amount of wealth in north Texas and to investors in that particular gas field.

In summary, I guess as it relates to Texas, one could say it's great to be in the right place at the right time.

Turning briefly to our operating results, and I'm only going to speak to these for a moment, because George and Peter are going to go into them in more depth.

But the numbers that we just posted we believe further authenticate our strong growth story.

It's evidenced in loans.

If you look at either loans based on averages or period end, we are up on a linked-quarter basis by 6% and a year-over-year basis, 28%.

Those were loans held for investment.

If you take total loans, the numbers are 5% on a linked quarter, 31% year-over-year.

And that's based on averages.

And then for period end, linked quarter 6%, and year-over-year 31%.

So we're doing very, very well in the loan category.

Deposits have been a little harder to come by.

On an average, which we think is probably more -- in terms of depicting what the trends really are, deposits on an average basis, I think, are a better indicator.

And on a linked-quarter basis, they were up 4%; year-over-year, 27%.

Earnings per share were $0.29 for the quarter versus [twenty se -- cents] for the same quarter last year.

However, I will remind you this year we took a reserve of $1.2 million, whereas last year, we had no reserve in the quarter.

If you annualize the provision for last year and spread that $4 million before-tax provision over the quarters ratably, we would have been up 21% from the fourth quarter of '06.

On the revenue and expense side, year-over-year revenues grew slightly faster than expenses.

And this was during a period when we still were investing heavily in building out some of the businesses that are now discontinued.

More importantly, we told you at the last conference call that we had that we would be focusing on expense control this year.

As a result of that, expenses on a linked-quarter basis from the last quarter of last year increased only $102,000.

And that compares to the increase in the fourth quarter of '06 of $2.4 million.

So our efforts seem to be paying off.

On credit quality, we had a very, very good quarter, experiencing a net recovery of $386,000.

If you take that recovery together with the recovery that we reported in the third quarter of last year, we recovered over half of the charge that we took in the second quarter of last year.

And those are related, incidentally.

I want to comment finally on the sale of TexCap Insurance.

This was reported for the first time in the earnings release.

We decided shortly before the end of the quarter that it was in our best interest to consummate this transaction.

And we did that just a few days before the quarter ended.

It's a business that we like.

However, looking at the resource allocation that is required, we decided that it was in our best interest to sell it with this opportunity.

Based on our projections, it was going to require more capital and more time to get to a scale that would contribute meaningfully to earnings.

So again, it was a good time for us to go ahead and take this action.

As a result of the sale, we booked an after-tax gain of $1,090,000 and we eliminated $4.5 million in intangibles.

Subsequent to quarter end, also as indicated in the press release, we terminated and settled the contractual arrangement we had with the buyer of our residential mortgage lending unit.

In conjunction with this, we included in discontinued operations an after-tax charge of $1,060,000 to accommodate this transaction.

In short, the sale of TexCap Insurance frees up capital for us to use in our core lending operations and enables us really to, along with the sale of the residential mortgage lending unit, to focus more clearly on what we do best in our local markets.

With that, let me now turn it over to Peter, who will discuss in more depth the financials.

Peter?

Thank you, Jody.

If you will turn to slide six, as Jody mentioned, we had net income of $7.6 million, or $0.29 per share.

That was driven by a 20% growth from Q1 2006 in net revenue, and a level flat with Q4 2006.

As Jody commented, that's heavily affected by the shorter number of days -- or the lesser number of days in Q1 compared to Q4.

We did see a decrease in net interest margin by 8 basis points and 9 basis points from the year-ago quarter.

Loan growth, earning asset composition and earning asset yields remain very stable or positive.

Funding costs were generally flat, with some success in reducing and rationalizing cost in key deposit categories.

We did have as we did last year in the first quarter a seasonal decrease in DDA balances to reflect what we know occurs in our business base as well as the industry conditions.

We had strong growth in non-interest income, up 6% for the quarter.

The operating expense growth, as Jody mentioned, was limited to 0.4% from Q4 2006.

We saw improvement in a number of categories, and it reflected in the detailed report, that offset increases that we identified in the guidance earlier this year, including the first full-quarter impact of the expansion that we enjoyed in the last quarter of the year; the FICA charges, which we mentioned many times; the increase in 123R expense; and the performance-based incentives.

We also saw and overcame the substantial growth in the operating lease depreciation.

To state it differently, without the impact of the non-cash increase in depreciation, we would have seen a net reduction in non-interest expenses.

ROA, ROE and efficiency ratios are obviously affected by the lower level of income, driven in part, as I said a minute ago, by the lesser number of days.

On slides 17 and 19, which we will not discuss in any detail, we break out as we did last year the impact of discontinued operations.

And you will note in your review later if you choose to do so, the discontinued operations have had a large effect historically on both non-interest income and non-interest expense.

TexCap and RML both had high levels of both categories, but had only a small net contribution to operating results.

In Q1 2006, as TexCap was growing rapidly, we incurred a small loss in that operation, bringing therefore continuing operations up to $0.26 from $0.25 as originally reported.

So Q1 2007 income from continuing operations was up 16% compared to Q1 2006 as reported.

We saw in Q4 net income from discontinued operations of $344,000, approximately $0.013 per share.

And that caused income from continuing operations to decrease by a rounded $0.02 per share.

Slide seven -- we saw significant improvements, as I said, with a 20% growth in net revenue from prior year.

A very slight reduction in net interest income results, as I mentioned, primarily from the reduction in days -- 92 in Q4 to 90 in Q1.

It's very important to a Company that's as interest sensitive as we are.

Improvement in expense comparison was, as I mentioned, very important.

Essentially, they were flat with Q4 with an increase of just $100,000.

[When we came] -- the salary and benefit growth which we anticipated because of Q4 expansion, FICA, and 123R expenses was, as I said, overcome by improvements in other categories.

With improvements in key measures of credit quality and the net recovery, the provision was essentially driven entirely by the growth of the portfolio.

And growth was especially strong at quarter end, as indicated by the quarter-end balance of loans held for investment and loans held for sale compared to the averages.

Net interest margin was affected mostly by the impact of growth on our funding composition coupled, of course, with what we encountered as a seasonal and industry trends with respect to DDA funding.

So again ROA, ROE and efficiency ratios have been very affected by the DDA position and its effect on net interest margin.

The increase, obviously, in provision expense from both Q4 and Q1 of 2006 and growth in the operating lease portfolio produces a significant increase in equipment depreciation.

On slide 8, these are average balances, as Jody commented -- very strong growth in loans held for investment, up $148 million or 6% in Q1 compared to Q4, and year-over-year growth of $600 million.

That's especially strong given that Q1 typically does have some seasonal characteristics.

Those might be in fact more indicative or indicated by the growth we saw at the end of the quarter.

And I will comment on it again in a moment.

Consistent with the past two years, deposit growth has represented 100% -- it's 100% customer based, and remained very strong.

All growth in earning assets has been funded by customer deposits.

We have a linked quarter growth of $129 million and $640 million from the prior year.

DDA balances are a challenge in this environment, especially for a bank focused on commercial business as ours is in Q1.

Security balances continued to climb, thereby improving the earning asset mix.

Next slide shows quarter end balances.

And I will comment just that loans held for investment and sale growth was especially strong at the end of the quarter.

The quarter end held for investment category was $118 million or 4% above the Q1 average.

Total loans -- $173 million higher than the Q1 average or 6.2%.

DDA balances were sharply up at the end of the quarter.

And we have noticed in the past an improvement in DDA balances going into the second quarter.

On slide 10, yield on earning assets has been flat with Q4.

We did have a minor 7 basis point reduction in the yield on total loans.

Part of that related to a higher fee component yield in Q4.

Earning asset mix continues to improve, with strong loan growth funded in part by the runoff of securities.

We've seen -- of course, the deposit mix shift continues to be driven by loan growth.

Strong deposit growth enabled a reduction in the other borrowings category, a reduction of over $100 million from Q1 2006.

Improvement in cost of key funding components, especially euro deposits, has been evident over the last five or six months.

Deposit growth induced funding shift cost of interest [bearing index] -- resulted in only a 2 basis point increase in the cost of interest-bearing funds.

Seasonal trends in DDA have had a more pronounced effect, of course, in Q1.

The weakened DDA balances resulted in an increase in overall cost of funds by 7 basis points.

The benefit of loan growth on net interest income is expected to outpace the erosion in net interest margin.

The NIM has been essentially flat except for the impact of growth and the seasonal DDA trend on funding composition.

Our outlook for NIM is based primarily -- that it's going to be heavily dependent on the level of DDA funding.

And as I said a moment ago, historically, DDA growth does resume in Q2.

The slope in the yield curve obviously continues to affect all banks.

This is significant opportunities loss, but it's one that affects us less because of the strong rate of organic loan growth.

And with that, I will ask George to continue.

Thank you, Peter.

On slide 11 -- this graph you have seen before.

And it shows excellent total deposit and loan growth over the past five years.

You will notice, as we have talked about before, demand deposits in '06 and the first quarter of '07 are flat to down because rates have increased and customers have more deposit options.

If you look at the loan growth for the first quarter of '07, you'll see commercial and industrial loan growth made up 64% of that.

Real estate growth was 25%.

And our lease portfolio grew 9%.

Regions outside of the Greater Dallas area were responsible for 45% of the core loan growth in Q1.

Houston at 24% was particularly meaningful, and corporate Dallas at 17% up again made a meaningful contribution to loan growth.

If you look at the deposit side, Dallas business banking, the private banking area, and our San Antonio region drove the deposit growth up for Q1.

On slide 12, all our income growth numbers continued to reflect excellent growth, exceeding, obviously, our expense growth.

And as we have told you previously, 2007 is a year for us to reduce expense growth.

As Jody mentioned earlier, expenses in Q1 compared to Q4 '06 increased only 0.4% or roughly $100,000, and was substantially below expense growth Q3 to Q4 '06.

If you'll turn to slide 13, I'll elaborate a little bit on the credit quality.

You're tired of hearing me say this, but it was another good quarter.

And it doesn't get much better than this -- net recoveries of 386,000 in Q1, which was 6 basis points; our charge-off ratio, only 6 basis points for the last 12 months; and net charge-offs for the last two years, $1.2 million, or 3 basis points.

Jody mentioned our provision of $1.2 million in Q1.

With our net recoveries, the reserve actually increased $1.6 million.

And as Peter mentioned, growth of the portfolio really drove the provision in Q1.

Improvements noted -- again, in the key measures of credit quality, non-accrual loans down to 31 basis points from 37 basis points, and the sale of ORE.

We only own two pieces of ORE.

The largest piece was sold in Q1 with a slight gain on that sale.

Additional improvements realized during April -- as you noted on the following slide, $3.4 million reduction in past due loans.

The ratio of reserve to total charge-offs and nonperforming assets remained high.

And we will tell you that our outlook for this portfolio and the credit quality certainly remains favorable.

On the next slide, slide 14, we look at our net charge-offs to average loans.

And for the last four-plus years, total charge-offs have been less than 10 basis points, as you can see.

And one year, we had a net recovery, and obviously six basis points recovery in Q1 '07.

The reserve to loans is certainly adequate at 78 basis points.

Non-accruals to loans, as mentioned before -- 31 basis points; reserve to non-accruals, 2.6 times.

And the reserve to NPL is 2.2 times.

We mentioned again -- we had a nice reduction in past-due 90-day non-accrual loans of $3.4 million that happened in the first week of April -- again, very, very good credit quality.

Jody?

Just to close very quickly, we gave earnings guidance of $32 million to $33.5 million during the last conference call reporting year-end results.

That is about $1.21 to $1.26.

We think it's a little early in the year to change that guidance in any way, but we do look forward to a good year.

I think the first quarter is in keeping with the guidance that we have given.

The economic outlook remains very strong.

And again, we're lucky to be in Texas, where we seem to be hitting just about on all cylinders as it relates to the economy.

Even -- and I don't know whether I commented on this before -- but the lower end of the housing market in certain areas of the state is particularly strong, and those being Austin and San Antonio.

Our credit experience obviously is good.

And based upon the view we have of the portfolio today, we expect a good experience this year.

Margins -- as Peter indicated, with the rapid growth in loans, DDAs will probably be a challenge for us.

But there is ample funding out there, and we would expect that the margins won't change materially from what you saw in this quarter.

In short, again, we reiterate the guidance of roughly $1.21 to $1.26.

We think we have had a good report, and look forward to receiving your questions.

(OPERATOR INSTRUCTIONS) Jennifer Demba, SunTrust Robinson Humphrey.

A couple of questions.

Did you guys do any hiring of new relationship managers in the first quarter?

And if so, how many?

We hired -- we really had a net reduction of one, although we hired five and six left us.

And those that left us were none of the key producers.

So Jennifer, I guess in short what I would say about that is we continue to evaluate all of our RMs.

And we obviously are interested in the highest quality that we can possibly obtain.

And some people leave of natural accord.

Others don't.

And we continue to try to upgrade the staff, although we think we have got a very, very strong cadre of RMs.

The departures -- were those voluntary, or -- can you give us some color around it?

You know, since there were so few, it's difficult to do that without casting aspersion or in other ways typifying how those people left us.

But let me just say that nobody who was regarded as a key producer left the organization.

And I would reiterate that since we started this Company, we haven't lost a single person that we regarded as a key to the bottom line unless there were other mitigating circumstances.

Can you give us some color behind the new hires and where they were?

We probably can, George?

Yes, Jennifer -- we hired a leasing person.

We hired an energy RM.

And we hired two people in our premium finance group, producers, and one in our corporate banking unit in Dallas.

We had a net add of five RMs.

And as Jody mentioned, a net loss of 3.

Okay.

And your professional legal fees were down from fourth quarter, Peter.

Is the run rate in the first quarter a good run rate going forward?

And can you remind us why they may have been down?

I think we commented at the time in Q4, Jennifer, that they were up because of transactions and other occurrences.

We had an increase in audit and related costs associated with the rapid growth and the expansion we have had in 2006.

So we should have Q1 as more reflective.

With the loss of TexCap and RML, we lose two businesses that required -- in the case of TexCap, not a great deal of audit-related services, but with RML, quite a bit more.

One more question.

Can you just kind of characterize the loan growth in the first quarter -- where it came from geographically and by category?

Sure.

Again, I mentioned the regions outside of Dallas produced 45% of the loan growth.

The majority of that was commercial C&I growth, about 65% of the total loan growth.

And again, it came from Houston.

It came from Dallas, corporate banking primarily -- are the two larger areas.

And obviously, others contributed.

But Houston had a very good growth quarter.

Sorry, George; I must have missed that.

Thanks a lot.

Good quarter.

Andrea Jao, Lehman Brothers.

Was hoping you could give more detail on the trends you're seeing this April, early in the second quarter, in terms of demand deposit growth -- and you know, how strongly or not strongly is it coming back?

You're asking about demand deposit since the first quarter, during the first part of April?

Yes, if possible.

Andrea, it would be very difficult for me to comment on that because in a 17-day, 18-day now, period, we have only got maybe 15 business days.

And there's just a lot of movement.

And I don't think we can see any trends as it relates to demand deposits.

But I would stick by what Peter said.

As long as our loans are growing as rapidly as they are, we're going to have to go in the market, and we're going to have to fund these loans.

And fortunately, we have been able to do this with customer deposits.

Our brokered CDs are down to I think about $4 million at this point.

And the only borrowed money we have is in the form of reverse repos.

And we do buy some Fed funds from time to time as we need them -- [we] also on the sell side of that equation.

But I think really, again, to get back to your core question, it's just too early to comment on the trend of demand deposits since March 31.

Fair enough.

The reason I was asking is to get the better feel of the impact of raising funding using other alternatives on your margin.

You said the margin may be stable, but should that mean stable to maybe five bips lower over the course of the year, or --?

Andrea, this is Peter.

I think that's a fair guess.

I think absent the shift in composition of funds, and the erosion in DDA specifically, our net interest margins have been flat to slightly up.

So at the margin, it's basically the net -- it's DDA balances that have the biggest single effect.

And as I said, historically, we've seen growth beginning in the second quarter.

The Q1 month-end balance, or March 31 balance is also influenced by things that happened to us and to our customers at the end of months, and particularly at the end of quarters.

So it's not necessarily indicative of a big surge from the averages that we enjoyed in Q1.

Fair enough.

So just to make sure I heard you right, absent erosion in low-cost deposits, your margin is flat to modestly higher over the remainder of the year.

No -- I mean, it has been over the last several quarters except for that effect.

We are seeing a little erosion, as I mentioned earlier, in the yield on the loan portfolio.

It's not clear that that's going to continue, because we are comparing it to a yield that was influenced by a little larger than normal fee composition in Q4.

But we do see effects of competition obviously on pricing.

We see some slight increase in the weighted average pricing using LIBOR as the pricing mechanism instead of prime.

So all those things can have some effect.

But Andrea, if you go back to -- even the last quarter of '05, we were at 3.87.

And we had three straight quarters at 3.87.

We dropped to 3.80, and then we came back to 3.84, and we're now at 3.78.

So over the last 15 months, you've seen a 9 basis point decline in our margin.

And I think one of the characteristics of this Company is that even though the margin may decline somewhat, with our loan growth being as robust as it is, you know when you compare -- when you play the rate or the volume/rate game, the increases in volume from an income point of view are overcoming the decline in the margin.

Brent Christ, Fox-Pitt Kelton.

A couple of questions.

First in terms of the RML and the charge you took this quarter -- with that, are you guys completely now separated from RML?

Or is there the potential for any additional costs associated with the divestiture?

Well, when we terminated our agreement to go forward with the sale, we chose to wind down RML ourselves.

And in that discontinued line, we provided all estimated expenses and reserves related to what we believe are the wind-down costs.

Okay, so is that business then -- when do you expect it to be fully wound down?

You know, probably in the next couple of months -- we will wind down a significant amount of it by the end of this month.

But it will probably take us another couple of months to get that done completely.

And you think that this charge encompasses the entire cost associated with doing that?

We believe so.

The next question was on your nonperforming assets.

I know you guys mentioned last quarter expecting to resolve about a $3 million commercial credit.

And I was just curious if that particular credit got resolved and there was a new addition, or you are still working through that one?

Brent, that $3 million -- I missed it by about three days, getting it paid off within the first quarter.

It was roughly a $3 million credit that got paid off on -- gosh, I think the first week in April.

So we did get the one that we discussed previously completely paid off.

Okay.

And then the last question just on expenses -- you guys did a good job holding the line there.

Was there anything in particular driving the decline in the other expense line?

On a sequential basis?

No, in the fourth quarter, we tend to see a surge in business development and other expenses.

And we do have a natural decrease in that line item in Q1.

And on top of that, we have been emphasizing that strongly.

But there are no single categories that were a major factor.

[Michael Rose], Raymond James.

Can you guys talk a little bit about the construction lending outlook in each of your markets for both residential and commercial construction?

Sure, this is George.

The commercial side of our business has been good and remains good.

And the markets in Texas, particularly the markets that we're in on the commercial side have remained sound.

We see good prospects in terms of potential for our continuing to see good commercial loans.

Now, it's down a little bit in Q1.

But we think the long-range potential on the commercial side is good.

On the residential side, it has been steady.

We have roughly probably 9% of our portfolio is in residential building.

That includes lots and 1-to-4 family homes.

And that has been steady for us.

Our credit portfolio quality in that portfolio in both the commercial and the residential portfolio is quite sound.

We're very positive on what we have, and we're very positive on frankly what we see in the near-term future.

Let me just add one thing -- from a macro point of view, the state created 250,000 new jobs in the last 12 months.

And with the robustness of the economy and a continued very, very favorable outlook for the employment and jobs market, I would anticipate that construction will remain very, very solid in Texas, even though you may see different kinds of trends in other parts of the country.

And I have already commented on the housing markets in particularly San Antonio and Austin.

They just don't seem to be able to build them fast enough in either market to accommodate the demand.

And I guess the last thing I would say -- I would just remind everybody that we don't finance high-rise condominiums, high-rise office buildings, and certain other high-risk types of commercial developments.

(OPERATOR INSTRUCTIONS) Bain Slack, KBW.

I just had some quick questions on the discontinued operations on -- I guess that's slide 17 -- or page 17 on the slide deck.

I guess -- if you could help me reconcile the $1.03 million from noninterest income.

Did that come from the insurance or RML?

I wasn't sure, because I didn't think the insurance had interest income.

It's both.

The interest income all comes from RML.

Okay, so the $1.034 million in net interest income was all from RML?

That's correct.

Okay.

And so then I guess looking at the noninterest income, the $2.64 million, is that is both -- or is that mostly insurance --?

That's both, but mostly insurance.

And I guess this last question is going to the expenses of the $3.6 million.

What portion of that was salaries?

In RML, I know the answer.

But I don't know in TexCap.

Most of that would be TexCap.

Okay, so most of the salary of the 3.6 would be TexCap?

TexCap, that's correct.

Salaries and commission-related expenses.

Right, okay.

And then do you have in terms of headcount, the number of people that would be in this discontinued operation?

Yes, or stated differently, we will give you the number that are in continuing operations.

Okay.

The bank, including all RMs, is now 422; bank direct capital finance is 42, for a total of 464.

That is down 13 net from the end of Q4.

We're basically back to Q2 levels in those two areas.

Bain, I think we have something close to about 35 people in TexCap.

Okay, I'm just trying to -- it's mainly a modeling question.

I'm just trying to get my model for the rest of the year set, since you all don't have this in the numbers any longer.

So I appreciate that, though; good quarter.

Brad Milsaps, Sandler O'Neill.

Just two questions.

Can you update us on the percentage of prime or LIBOR-based loans versus fixed rate, and how successful or what progress you made?

I know you have talked a lot about migrating more people over to fixed rate to take off some of your asset sensitivity.

Kind of where are you with that?

It has remained almost the same at 12% fixed and 88% floating.

Okay.

And second question -- Jody, I'm kind of curious about your earnings guidance.

I know you guys want to be pretty conservative here at this point in the year.

But it seems you're off to a pretty fast start, especially on the expense side --

Well, we think we are off to a fast start.

But you're right.

We are going to be conservative, and -- stay tuned.

Is there anything that -- I know you have said on past calls you're going to be -- keep a pretty tight grip on expenses this year.

Are there other things coming in terms of higher accruals in coming quarters that you think may soak up some of the good, strong loan growth that you had?

Because it sounds -- if the margin does stay relatively stable, the revenue growth is going to be there.

Just trying to figure out where the offset might be.

We know of nothing, Bain -- we have no plans for any new operations.

We're going to stay with what we have got.

I think we commented in our last conference call that we're going to concentrate on our core business.

The action we took with TexCap was really a byproduct of that -- taking a hard look at the existing lines of business and we have done that.

We're satisfied with all of our lines of business.

They're all doing well.

Some can do better.

But by and large, most of them are ahead of their plan.

We have a few that are lagging behind a little bit.

But your basic question was any accruals or any -- obviously, we can't comment on the unexpected, because we don't know about the unexpected.

But we do know that there are no major accruals.

It's kind of business as usual as we look at it from today's perspective.

It's just early.

Yes, it's just early in the year.

Really, what we're doing is allocating resources to existing, proven revenue driving lines of business.

Peter, do you think it's still fair to best look at operating expenses on a year-over-year basis?

I mean, I know you're flat here on a linked quarter basis, but the more relative comparisons are year-over-year?

Yes, because there are just so many things about Q1 -- the change from Q4 to Q1 that make that difficult to extrapolate.

Okay, great.

Thanks very much.

Good quarter.

Sir, I have no further questions for you at this time.

Well, if there are no further questions, once again, we thank you for your interest in the Company and for your attendance this afternoon.

Again, we think we had a very solid quarter.

We look forward to talking to you about the second quarter, which we hope will be equally as solid as the first quarter.

With that, on behalf of all of my colleagues, let me say goodbye.

I wish all of you the very best.

And please call us if you have any questions.

I would encourage you to direct those to Myrna Vance.

And we are all available to talk to you.

That will bring the call to a close.

Thank you, sir.

Thank you again, ladies and gentlemen.

This brings your conference call to a close.

Please feel free to disconnect your lines now at any time.