Texas Capital Bancshares Inc (TCBIO) 2008 Q3 法說會逐字稿

Hello, and welcome to the Texas Capital Bancshares Third Quarter 2008 Earnings Conference Call. (OPERATOR INSTRUCTIONS.) Now, I would like to turn the conference over to Ms. Myrna Vance, Director of Investor Relations.

Thank you very much, Amy, and thank all of you for joining us today for our conference call. As Amy said, I'm Myrna Vance, head of Investor Relations, and I would be happy to answer any questions or follow-up things that you want to talk about after the end of the call. My number for those who don't have it is 214-932-6646.

Now, before we get into our discussion, let me read the following statement. Certain matters discussed on this call may contain forward-looking statements, which are subject to risks and uncertainty. 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, 2007, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

With that done, let's begin our discussion. With me on the call today are George Jones, our President and CEO, and Peter Bartholow, our CFO, and after a few prepared remarks, our operator, Amy, will facilitate our Q&A session. At this time, let me turn the call over to George.

Thanks, Myrna. Good afternoon, everyone. We believe that Texas Capital had another good quarter in Q3. We had good growth in loans held for investment and good growth in demand deposits. We did have some margin compression in Q3, but our business model is intact and our equity capital raise, as you recall, of 55 million positions us we believe very well to take advantage of future growth and the opportunities that this market will give us.

As all of you know, there is an opportunity to participate in the U.S. Treasury's TARP and Liquidity Programs. We're currently assessing whether we will participate or not. We'll make a decision by November 14, as soon as more facts are known.

The Texas economy, while slowing, continues to outpace the nation in job growth and our unemployment rate in all our markets is better than the national average. We had net income of $7.6 million and that was--that increased substantially over Q2 2008, but did decrease 14% compared to Q3 '07. And our EPS really showed similar comparisons.

We did experience a customer fraud in our mortgage warehouse group that had a one-time $0.02 negative impact on our Q3 earnings. I believe we have an opportunity over time to recover some or all of this loss, but again, time will tell. The additional $0.01 impact was the issue--was the issuance of additional shares related to the capital raise I mentioned just a moment ago.

Loans held for investment showed a nice 5% increase linked quarter and an 18% increase compared to Q3 2007. 47% of that average loan growth came from our regions outside of the Dallas area. We continue to see good production from all our regions and we're very proud of the progress we've made over the last few years.

Demand deposits showed a nice increase of 11% on a linked quarter basis and a 21% increase compared to Q3 2007. Our energy lending group, our mortgage warehouse group, and Houston and Austin regions provided substantial growth of the DDAs. Margin did decline from 3.65 to 3.47 and Peter will discuss that more in detail in just a moment.

We did provide a $4 million provision to the loan loss reserve in Q3. That was about 2.6 times net charge offs of $1.5 million that we reported for the quarter. We did see an increase in nonperforming loans and I'll discuss those in much more detail in just a moment.

But right now, let me turn it over to our CFO, Peter Bartholow.

George, thank you very much, and we appreciate your participation in this call. As George mentioned, we had net income of $7.6 million, or $0.27 per share. This we consider a very good result considering the economic environment and the problems confronting our industry. We saw an increase of 23%, as George mentioned, from Q2. And though we are down slightly from Q3 of 2007, due primarily to margin pressure, we saw a linked quarter reduction in provision, but we did have an increase in the provision from Q3 2007 by $2 million or 100%.

George mentioned that the stock sale in September of $55 million was--we regard as very successful. It did result in a $0.01 per share dilution during the quarter. In addition, as he mentioned, we suffered a $1 million or $0.02-plus per share of fraud loss that arose out of a very unusual circumstance involving a single customer. And we believe it's not indicative in any way of systemic risk, which would affect our future earnings power.

Due to exceptional growth in loans, DDA, and equity, we saw a very slight increase in linked quarter net interest income despite, as George mentioned, a compression of 18 basis points or 5% in net interest margin. The favorable credit position reflected--is reflected in the substantial reduction in net charge offs and a reduced provision for loan losses.

As George mentioned, the equity offering with gross and average balances of 20% with a small impact only in the average balances from the September sale. From Q2 2008, we had a linked quarter absolute increase of 20% and over $96 million or 34% from the year ago quarter. This is, as George mentioned, a strong capital position to support our growth. Tier one ratios are now 10.5% and the total capital ratio at 11.4%, obviously well in excess of the substantially--of the well capitalized standard.

Turning to the next slide, I mentioned that net revenue increased only slightly from Q2 due to the decrease in margin, but we overcame a 5% reduction in net interest margin that we think demonstrates the benefits of our growth model. The decrease in net interest margin, which I'll discuss in more detail, also masked very solid improvement in operating leverage, which remains a real priority at our company. We saw a reduction in the ratio of non-interest expense to earning assets linked quarter of 10 basis points and we were down 22 basis points in that very important measure from a year ago.

I'll say assuming stable net interest margin, today the efficiency ratio would be less than 60% before the $1 million fraud loss. With loans involving the greatest exposure to actual loss out of the portfolio, which resulted in the net charge offs in Q2, both the provision and the net charge off levels fell sharply - provision down 50% from the trailing quarter and net charge offs of 15 basis points compared to 40 basis points in the linked quarter.

We saw significant growth in income contribution from the mortgage warehouse group despite the unique circumstances that created the fraud loss. We see there a strong growth, favorable spreads, and despite the fact that the yield is down slightly due to changes in treasury rates. Key ratios for return on assets and return on equity improved from Q2 due primarily to the reduced provision, but were adversely affected by the decrease in net interest margin.

Turning to slide nine, as George mentioned, we had remarkable growth in loans - balances that remain well ahead of plan for the year. We had long tail for investment up 5% in the quarter, 18% over the prior year. The growth of 184 million in Q3 was due primarily to the strong growth in the final month of Q2. With stronger growth in loans held for sale, total loans are up just under 6% and 22% year-over-year. Loans directly related to--we believe are directly related to the strength of TCB's position in the Texas market. The growth rates are down from prior quarter and in recent past due to seasonal factors in Q3, tightening of credit standards, and obviously weaker economic trends nationally and in our market.

The strongest contributors, as George mentioned, to loans held for investment growth were San Antonio, Houston, Dallas Corporate, and Fort Worth. We did have remarkable growth in DDA. I don't expect we'll see anybody that had linked quarter growth of 11% not annualized and 21% from the prior year. Growth in total deposits linked quarter average of 295 million over 9% was primarily driven by growth near the end of Q2 and exceeded the growth in loans by more than $100 million. We obviously with this kind of loan growth are continuing to see a shift in earning asset composition with loans now comprising 92% of all earning assets.

Turning to Page 10, loans held for investment ended the quarter at 3.84 billion, again substantially ahead of plan. Growth of 135 million on a [date] statement basis is less, as I mentioned, than recent quarters - an increase of under 2% from Q2 average, which I think is still very strong compared to industry trends. We do, as I mentioned, see some seasonal weakness in Q3, but the reduced growth mostly reflects tighter credit standards and our economic outlook.

Loans held for sale were up 4% from Q2 and were almost triple the volume of the year-over-year balance. This is a highly liquid asset with a duration of less than two weeks. Deposit growths showed seasonal weakness in Q3 typically compared to Q2. DDA totaling 561 million was comparable to the average for the quarter, but below the seasonally high level of 610 million at the end of Q2. Growth of 19% over Q3 2007 is again very strong. We saw deposits down slightly from Q3 averages in the end of Q2 due to expected maturities.

Slide 11, more commentary on the net interest margin. The 3.47--we had a reduction of 18 basis points or 5% linked quarter and 38 basis points from the level a year ago when the core interest rates, fed funds, and so forth, were much higher. Two major factors produced this result, each accounting for about half of the total decrease from Q2. Loans paid, maturing, or sold in Q2 and early in Q3 had higher rates than those loans generated in the same groups primarily throughout Q3. This includes loans held for sale and other categories of commercial lending. This condition relates to as much as $600 million or more in loans on a linked quarter basis and results in a lag effect from the decrease in average fed funds rates from Q1 and Q2, which contributed to the stable net interest margin in Q2, but hurt Q3.

The increase in non-accrual loans and ORE also affected the margin significantly, again, about half of the total. Most of that occurred near the end of the quarter resulting in an abnormal lumpiness of the reversal of interest compared to Q2 when those same loans were on full accrual. We do, of course, expect that nonperforming assets will reflect a drag on ongoing earnings, but we are unlikely we believe to see the lumpiness resulting from the levels of reversal at the end of the quarter.

The spread of Libor to fed funds rate, which affects 25% of total floating rate loans, remains high, though it is down in recent days. I think in current recent days it still remains higher than it was on average for Q2 and Q3. The spread to prime on floating rate portfolio was also better at the end of Q3 than in recent quarters. Funding costs obviously play an important part of margin and we saw strong DDA growth and strong equity growth benefiting total funding costs, just not as much in the low rate environment. In terms of net interest margin and very low market rates, DDA and equity provide much less benefit. Growth in DDA and equity though did produce a slight decrease in the overall funding costs. This despite the effect of the global demand for liquidity and impact on pricing of deposits and other interest bearing liabilities throughout the entire system.

By earning asset and funding composition, Texas Capital is much less rate sensitive than it used to be. But when rates are very low, the cost of certain funding components cannot fall enough to compensate for reductions in floating rate loans, increasing the effects of asset sensitivity despite structurally being less sensitive. Prolonged--a prolonged period of low rates is clearly a negative for us even when loan pricing continues to improve.

Turning to Slide 12, we clearly have--continue to have a strong growth model in terms of core earnings power. Compound growth rate of net revenue is higher than the growth rate in expense by 500 basis points. That trend did not hold through into Q3 because of the effective margin, but as I mentioned, the improvement in the ratio of non-interest expense to earning assets still is delivering results for us. The CAGR of non--net interest income is higher than expense by--expense growth by 700 basis points. The conditions evident in our industry have not changed our view of the benefits of this business model. Historically, as I think you are all aware, credit costs remain low compared to industry trends and have been more than offset by the growth advantage.

On Slide 13, again, the growth model is confirmed. Strong CAGRs for loans and deposits. And our market opportunity despite economic weakness and problems in the industry has improved due to those conditions.

George?

Thanks, Peter. If you'll turn to Slide 14, you'll see the pie chart on the left. That's loan distribution by collateral type. And that, frankly, has not changed much at all from Q2. But I'd like to focus your attention on the right side and discuss our non-accrual loans in slightly more detail than you can get from the printout. I'll really focus my remarks on the real estate loans, because as you can see, they comprise a significant portion of the non-accruals or about 95%. The increase in non-accruals of approximately $30 million from Q2 really centers around four particular credits. Let me talk through those with you.

The first one is a $9 million construction loan to a large homebuilder to construct smaller homes in the Greater Houston area. While Texas really has remained their best market, their projects in Arizona and other areas have drained cash from the company and they're really unable to meet their obligations. We put a specific reserve of $1 million allocated to that credit in Q3 and we foreclosed on the completed homes and lots this month. We reduced the carrying value by $1 million and we have fresh appraisals and we believe the assets are properly valued today. That $1 million that was allocated in Q3, as I mentioned before, was taken and charged down on that particular credit. We believe the $8 million on the books today is valued appropriately.

The second credit is a $9.4 million loan to a developer that we know quite well. He's been a good customer for a number of years. This is a retail shopping center site in Austin, Texas. It's extremely well located within the city, but our customer lost his two large anchor tenant prospects and doesn't have the liquidity to carry the loan. We put a specific reserve on this credit and we believe there will be little, if any, loss on the loan because frankly when we underwrote the credit we took a large portion of cash equity upfront before the loan was made, and frankly, the location of the property gives us great confidence in the value of that particular collateral piece.

The third loan is a $5 million loan to a townhouse developer in Dallas. We have an interested party wanting to purchase the note at a small discount and we hope to be able to complete that transaction by year-end.

And the fourth loan is a $4.5 million relationship secured by a building with exposure of approximately 1.1 million. We think that exposure is real and we've put a 90% allocated reserve to that exposure and we'll do our best to collect that $1 million.

The majority of the balance of our non-accrual loans is a development loan that we previously identified and discussed with you earlier this year. It's $9 million. It has specific reserves assigned to it. It has a relatively current appraisal and we feel good about the carrying value at this point in time. The remaining $7 to $8 million of NPLs are represented by smaller real estate type properties that we believe are properly reserved with the right kind of appraisals.

The message here really is that although our non-accrual loans are increasing and this economy is definitely slowing, we don't see big losses at this point in that portfolio. We believe we're properly reserved and that frankly our losses are not large. The two basic reasons, I'll reiterate again, is because of the way we underwrite those credits with a nice cash component upfront typically on the real estate side, and we're in the state of Texas, which we're blessed with that location.

Net charge offs are 1.5 million in Q3 and 7.6 million year-to-date. These charge offs for Q3 represent 15 basis points for the quarter, 28 basis points year-to-date, and 28 basis points for the last 12 months. The charge offs were related to identified problems that we've seen in the past and they were basically covered with allocated reserves in prior periods. Our increase in non-performers really wasn't unexpected and they continue to receive intense focus. Our provision of 4 million in Q3 increased our reserve to 1.07 of loans held for investment. We're continuing to tighten standards, as you might imagine, on loans that we make today and we're working diligently on reducing the level of problem assets. However, I suspect that all of us in our business--in the banking business are going to have to deal with a higher level of NPAs until the economy returns to a much more normal state.

In closing today, I'd really call your attention, again, to another good quarter of growth. We do have a cautious outlook for the Texas economy. It is slowing. We are not immune to national events. The lower rate environment and the increased economic risk could impact our guidance in Q4. And as we said before during our capital raise in September, we continue that intense focus on maintaining credit quality, at the same time though exploiting the market for people and for customers. We do believe there is a good opportunity for that. It makes a lot of sense for us to raise the capital we did and we're pleased with our position in the market at this point in time.

And that really concludes our remarks today. And we'll pause for a moment and see if there are any questions.

(OPERATOR INSTRUCTIONS.) Our first question comes from Erica Penala at Merrill Lynch.

Hello, Erica.

Good afternoon. The $23 million in construction non-accruals, how much of that is [raw] land or partially completed land versus fully completed projects?

Basically, it's either completed projects or it's development loans that have been developed waiting to be sold to builders or, as in that $1 million new construction loan of $9 million, that's a number of finished houses and lots that I mentioned we foreclosed on in October.

Well, what--can you give us a sense what the split is between fully completed and partially completed?

The only one that really is--would be considered undeveloped land in that total relates to that $9 million loan we talked about in Austin, the shopping center site. That has not been developed, but they have all the entitlements to develop that property.

Okay. And are you looking to dispose of this through a secondary market sale? And if so, what's the demand like out there and what's the--for lack of a better term [bid out] spread?

It's very interesting. It's almost project by project, to tell you the truth. We would certainly look for these larger projects to--if we could find a reasonable way to dispose of it in bulk. But again, we don't believe that we have large losses in any of these particular projects. And for someone to come in and bid $0.50 on the dollar just to move it off our books, we just wouldn't do that. We don't believe that we have that kind of loss in these particular projects. Again, we're always open. We're always looking for ways to move it off our balance sheet. But book sales to--with big losses just to clean up the balance sheet really doesn't make sense today when we have collateral value and I think we do.

Okay. And just moving on in the deposit side, we're hearing from other Texas banks that deposit competition remains quite fierce in your footprint. Do you suspect that you'll have to hold your deposit offering steady in the fourth quarter despite the rate cuts?

Certainly, Erica. Certain categories of deposits you can't lower price on. We understand that. The competition for deposits I don't think is--unless you're talking about retail, with consumer deposits being pushed aggressively--pricing pushed aggressively to justify the existence of over-branched networks, in many cases involving banks that have serious problems. That is at the retail level clearly driving high rates. That is not a rate that really has much, if any, bearing on rates that we pay. More important to us is what's happened globally with the demand for liquidity and that clearly has increased deposit prices. But we do not believe, and based on recent evidence, we think prices can come down in borrowing categories. Those prices have actually come down very sharply in the last week or two.

How has--.

--Unfortunately, you can't lower the yield on a demand deposit. For a bank of our character, the demand deposit and equity, while they cost nothing in nominal rate terms, the effect of not being able to reduce a zero price and increase spread has the biggest single impact on net interest margin for us.

In your footprint, how have, if at all, the flight to quality deposit flows played into corporate banks in your market specifically?

No. I think every bank would tell you that they've experienced some. It would not be logical that any bank would not have given all the publicity affecting the largest banks. But in no way has it been an issue for us in terms of managing liquidity.

Thank you for your time, gentlemen.

You're welcome.

Your next question comes from John Pancari from J.P. Morgan.

Hey, John.

Good evening. How are you?

Good. You?

A quick question on credit--actually, a couple of quick questions there. On the 30 to 89-day past dues, can you give us some indication of where they came in at this quarter?

I'll have to look at that. I'm more focused on the 90-day and over. The 90-day and over was $2.9 million.

Down 20 million.

Down 20 million. And 2 million of that--2.9 million was our premium finance group that we're always going to run about 2 million. So our 90-day and over past dues came down dramatically. The 30 to 89-day category really was pretty flat in terms of where it came in at. It was in the $9 million or so range.

Okay. All right. And then, separately, in terms of loan participations, can you remind us the size of your shared national credit portfolio and then give us an update on some of the credit trends you're seeing there and if you're concerned about that book?

We have about 350 million or so in the shared national credit portfolio and we're aging probably a third of that, something like that, around 150 million. The home solutions credit was a credit that was a shared national credit. That's where we saw a lot of weakness. But frankly, in the portfolio that we have today, that number I mentioned to you we have virtually no problems.

Okay. So you indicated you're aging about 150 million of it?

That's rough. I don't have the number in front of me, but that's approximately.

Okay. And that portfolio in general, you indicated it's holding up well.

Yes.

Okay.

Yes, it is.

All right. And then, on the energy side, obviously I'm sure you're getting a lot of questions. Can you just talk a little bit about your view on the impact on the--I guess on your direct portfolio, but more importantly on the broader economies given the pullback in oil prices and what that means for your energy exposure?

Well, we're currently analyzing that right now. We're probably going to reduce our price deck here pretty soon. But we don't think it's going to be any dramatic pullback or shift. Our portfolio we believe is in good shape. You recall it's basically all production oriented. We don't have any equipment financed. We don't have big refineries financed, those kinds of things. So it is a commodity based project. And most of our customers are holding up well.

We're basically at a 60% advance rate to current prices today. Our clients make a good profit at these prices today. We really, as I mentioned before, don't have any oil service type of loans--companies financed. And we think the portfolio will do just fine. It's--it will be interesting to see what oil prices do in the next 30 days, 60 days, 90 days, gas prices also. But from our perspective we think we underwrote conservatively. We have advance rates that have a sensitivity portion attached to it that gives us the ability to look at it lower than the prices today and still feel good about it. So we feel--we're watching it. We're moving our price deck down somewhat, but we're comfortable with our portfolio.

Where does your price deck stand right now?

We're in the process of reviewing that right now. It has been as high as--or it has been as low, excuse me, to almost 50% of what prices were. But we're in the process of, again, adjusting that based on what the market is today.

Okay.

So it will come down.

All right. Thank you.

Our next question comes from Charlie Ernst at Sandler O'Neill.

Hello, Charlie.

Good evening, guys.

How are you?

I'm doing great. How are you?

Good.

Good. The $9 million construction credit, you guys have taken possession of the collateral in that credit, right? You no longer really have exposure to the company itself.

That's right.

Okay.

The nice thing, Charlie, about--I mean, if there is any nice thing about a foreclosed asset, the homes and the lots are all in the Houston area. And that market is holding up fairly well.

Okay. And what sort of LTV was originally on that loan?

Loan to value was typically 80%. These are smaller homes, Charlie. They're not the big behemoths.

Yes, okay. And then, the $9.4 million developer loan, you said that there was a large cash equity component to it.

Right.

Can you just comment as to how much cash there was in the deal--percent?

I want to say 2 million-plus. I'd say--excuse me a minute. That's the one in Austin. That is closer to 3 million. Roughly a third of that was put in in cash.

Okay. And that was the property that you said is not developed--.

--That's not developed--.

--But you have entitlement--.

--That is a piece of land. It's very well located right across the street from a very good retail development. And we were perfectly comfortable moving ahead with the right kind of tenancy. And we had two large retail national type tenants that basically fell out.

Yes. And then, the $4.5 million credit, can you just repeat the details on that credit again. I missed that.

That's really a combination of two credits. We have one building behind it and we think based on the collateral we have a gap of about $1 million and that's what we have reserved for.

So that gap you have a reserve for now?

Yes.

Okay. And what kind of properties were those?

That was a building, a small office building.

Okay. And then, can you just add a little bit more color to the $1 million fraud and why this was able to kind of slip through? What can you maybe do to prevent this--things like this in the future.

As Peter mentioned, we don't believe it is a systemic problem in the mortgage warehouse group. It was--it involved more than just one customer. It involved more than that. And it was--.

--It was centered in one customer--.

--Centered in one customer.

With that customer's activities with other parties.

With other parties was very interesting. We are in the middle, Charlie, of working through all of that right now. And as you might imagine, we can't get too descriptive in terms of defining it more than that. But we believe the $1 million is the outside of the our exposure to that particular fraud.

Okay.

We think that we have written off all of our exposure.

Okay. And then, on the margin, you guys--the margin I think was probably worse than what your guidance was. Was it really that the deposit seasonality or decline was greater than what you expected?

No. The--it really didn't--it wasn't deposit seasonality. It was the pricing of loans that remained high in Q--late Q1 and throughout Q2 that paid off in the course of Q2 and early Q3. And that same type credit spread to prime, for example, still very strong, but not as strong as it had been because it was--they were in many cases short duration fixed rate loans.

Okay. And then, I apologize. My last question is on the TARP. Can you just kind of say maybe two or three of the pros and cons as to when you think about it as far as picking up some of this preferred equity?

Well, we'll take a stab at it because it changes every day as you might imagine and as you know. We know the financial terms today and in today's environment the financial terms look pretty good compared to what is available in the marketplace today. That's assuming you need the capital or you want the capital. I mean, we were very pleased with our capital raise back in September.

It doesn't mean we're not going to take a look at participating on a go-forward basis, but we're very pleased with where our capital levels are today. The devil's in the details, Charlie. And we are--we have got our law firm looking very actively at all pieces of this and as application--as requirements come out we're trying to learn from that. We will be as up to date as we possibly can by November 14 and we'll make a decision prior to that time. But it's--we're all learning I think a lot as we go on a daily basis.

Okay, great. Thanks a lot.

Okay.

Our next question comes from Andrea Jao of Barclays Capital.

Good afternoon, everyone.

Hello.

I was hoping you could share your interest rate outlook, including how much--how many cuts are you factoring in on the fed funds target through 2009? And under this scenario, how do we think about your margin? How will you manage your margin?

Andrea, the last time they did this they took it to one, but it didn't go below. It's hard to imagine they're going below 1%. We have--when I said most of the change resulted from two major components, that is obviously over simplistic, because there are at least eight major drivers of the margin for us - spread--Libor to prime, obviously the composition of the portfolio. We have certain categories that are producing much better spreads today than they were even three months ago. I think there's a very high probability of--that they're going to take this to 1%. More important to us than the level is how long it stays there. But I don't think anybody's--to my knowledge is projecting a rate below one.

Best you can tell, how long do you think--how long are you assuming interest rates will remain very low? And then, of course, related to that, through 2009--it's an unfair question, but how much more weakness do you think we'll see in the economy and how should we think about loan growth and deposit growth under those assumptions?

I think we read the same things you do and it might be hard for us to have a better view, other than the fact that so far employment growth--there is real employment growth in Texas, albeit at a slower rate, and real absorption, which for our markets obviously is very important.

Andrea, you also mentioned something about loan growth and deposit growth, also. And I think--.

--Yes--.

--We'll--we have been able to up price our product. We have been able to structure the product better than we have been in the competitive markets that we've been in previously. I think that while probably our loan growth will be slightly less or somewhat less than our historical loan growth, I believe that you can watch our numbers and see--we will outperform in terms of loan growth our peer group.

Great. Thank you so much.

You're welcome.

Our next question comes from Michael Rose at Raymond James.

Hi. Good afternoon.

Hello, Michael.

Just a quick question. Are you guys seeing any opportunities yet out of the Wells Fargo-Wachovia merger? And secondarily, what are your hiring plans for the next couple quarters?

Well, we are seeing some people opportunities from that particular merger. We do believe that in many cases the people come first and the relationships follow the people. But Wachovia was extremely aggressive in our marketplace. We think that there will be some opportunities certainly from that merger. And that, again, is why we raised a significant or a reasonable amount of capital almost a month ago or a little over a month ago. It is that we didn't do it to fill a hole. We did it to hopefully take advantage of lending deposit relationships that we can garner from our competition, Wachovia and Wells just being one.

Okay. And does your previous guidance of 30 to 33 million hold at this point?

We're not changing that at this point in time, but as I mentioned in my remarks, there are two or three things that put that at risk. And we would be truthful with you and tell you we are looking at all of that right now. But when you talk about the lower rate environment, the economy that we're dealing with, it's hard to put a factor on that right now.

All right. Thank you.

(OPERATOR INSTRUCTIONS.) And our next question comes from Andy Stapp at B. Riley and Company.

Hi, Andy.

Hi, guys.

How are you?

Very good.

Good.

All my questions have been answered. Thank you.

Okay.

We show no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

Well, thanks so much. We appreciate your time this afternoon. We're extremely pleased to be in this marketplace we're in today. These are difficult times, no question about it. But we are working hard for our shareholders' interest. And we believe that Texas will come out better in this economic downturn that we're seeing, but we won't be immune. But thanks, again, for your time. We appreciate your interest and we'll talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.