Texas Capital Bancshares Inc (TCBIO) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter One 2010 Texas Capital Bancshares, Incorporated Earnings Conference Call.

My name is Jonathan and I'll be your operator for today.

(Operator Instructions.) I'd now like to turn the call over to Ms.

Myrna Vance, Director of Investor Relations.

Please proceed.

Thank you.

Great.

Thank you, Jonathan, and thank all of you all for joining us for our first quarter conference call.

As Jonathan says, I'm Myrna Vance, Director of IR here.

And if you have any follow up questions, I would invite you to give me a call.

Before we get into our discussion today though, I'd 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, 2009, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Okay, let's begin our discussion.

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

And as Jonathan said, after a few remarks, he will come back on the line and facilitate our Q&A session.

At the time--at this time, let me turn the call over to George.

Thank you, Myrna.

Good afternoon, everyone.

I am pleased to report another quarter in which our core earnings power improved.

We had strong loan and deposit growth, which outpaced our Texas peers and other companies nationally.

Although we continue to experience a challenging environment for our industry, we've maintained solid profitability.

We have a strong equity capital base to support our business activities.

Margin expansion of 22 basis points in Q1 to 4.43% drove earnings of 7.6 million for an 18% increase over Q4 2009, a 24% increase over Q1 2009.

Strong deposit growth, especially demand deposits, at a significantly reduced cost, along with better loan pricing, fueled continued margin improvement.

Growth in average loans held for investment grew linked quarter by about 1% and 10% over Q1 2009.

Loans held for sale declined 24% linked quarter and, as we've always said in the past, Q1 is historically weak in both loan categories.

We continue to have an intense focus on credit quality and I'll return later after Peter's remarks to discuss that in more detail.

We stated last quarter that we were taking an opportunistic approach in growing our market share in all five of our markets - Dallas, Fort Worth, Houston, Austin, and San Antonio.

We reported last year that we hired 27 relationship managers in 2009 and we have continued to attract great talent in 2010.

We've added additional strength in Houston, Dallas, and Fort Worth.

We have hires planned for Austin and San Antonio.

We're also reviewing and upgrading our existing talent.

I continue to believe that Texas Capital has great opportunity to take market share from weakened competitors in our space.

I'll be back in a moment, but let me turn it to Peter.

Thank you, George.

We do think we had very solid results in an environment, which to say the least, has been very challenging for the industry.

The growth that we've seen year over year has clearly resulted in market opportunity as opposed to general loan demand.

The net income of 7.6 million, or $0.21 a share, is an increase of 19% from Q4 of 2009, and 23% before the TARP dividend of Q1 2009.

We obviously have a higher cost associated with credit charges and those were consistent with our expectation.

They are managed and tracked basically the same way our methodology works for all credit cost, the loan portfolio, as well as the ORE portfolio.

Performance, as George mentioned, was driven by significant expansion of net interest margin, DDA growth, and a reduction of rates on all major deposit categories, a very modest loan linked quarter growth in held for investment to 10% year over year.

We have had a seasonal contraction in held for sale activity.

Linked quarter contraction was 144 million.

We saw a growth of 135 million for the end of the quarter compared to the average balance for the quarter.

The impact on balances, net interest, and fee income, did have a $0.03 per share adverse effect on earnings per share.

In comparison to Q4 2009, most of you will remember that we had the meaningful impact of the change in number of days.

For us, that reflects about $1.2 million in reduction in net interest income or $0.02 a share, compared to Q4.

So on a comparable basis, Q1 to Q4 was stronger than the 19% that's reported.

We have said all along that we would expect higher credit costs during this year.

We had a total of 15.4 million in Q1, compared to 16.1 in the fourth quarter and just 8.5 million in the first quarter of last year.

The provision of 13.5 million was $3 million more than the provision in Q4, but the valuation charges for ORE of 1.95 million were $3.8 million less than those charges in Q4.

For the year, we had net charge-offs--excuse me, the quarter we had net charge-offs of 85 basis points and for the trailing 12 months, 61 basis points.

We had an increase in non-performing loans, which had a minor effect on net interest margin to 2.6% of the portfolio.

We have an additional 60 basis points of ORE, reflecting a total, which George will talk about in a minute, of 3.24% of loans in ORE.

I mentioned we had modest loan held for investment growth because of some seasonal influences, with better growth at the end of the quarter, consistent with prior years.

The contraction of held for sale, as I mentioned, costs us about $0.03 per share, compared to Q4.

Strong balances were--and the strong position was retained and had good profitability.

As I mentioned, we had $135 million in growth compared to--at the end of the quarter compared to the first quarter average.

George mentioned EDA growth - a 5% linked quarter on top of what we've done throughout 2009, and 50% from the first quarter of last year.

Year over year growth in total deposits of 33%.

The linked quarter growth in total deposits was limited by very favorable change in the composition, which I'll talk about in a moment.

The capital position, as George mentioned, is obviously very strong.

We have a tangible common ratio of just under 9%.

We do expect to continue use of the ATM at a modest pace.

We had net proceeds in Q1 of 9.2 million on sale of 547,000 shares.

The impact on EPS was very modest, less than $0.003.

Turning to slide six, we are pleased with the performance.

Net revenue, while flat from Q4, was reduced by the number of days in the held for sale contraction, some of which was about $0.05 a share, still representing 29% growth from the year ago quarter, with non-interest income reduction due to smaller contributions from mortgage warehouse and leasing activity.

The linked quarter reduction in non-interest expense, both before and after the change in ORE charges, resulted from an offset to the growth in staff expense by reductions in professional and marketing expenses, reflecting a linked quarter reduction in total before ORE charges of 5%.

The year over year increase of 16%, compared to a 29% growth rate in total revenue, was mostly related to staffing expense with the recruiting initiatives that we've described in previous quarters.

The results in market opportunity clearly in our mind justify the investment we've made in capacity for our future growth.

We demonstrated very strong core earnings power, which are mitigated--that earnings power is mitigating the impact of higher credit cost.

[NIM] expansion - excluding ORE valuation charges, the efficiency ratio is just under 58%, and under 60% even including those charges.

Credit costs obviously are going to represent constraints to ROA and ROE, with ROE further limited by the fact that we have such a strong tangible common equity position.

On slide seven, the NIM increase of 22 basis points reflects an increase in the 18 basis point improvement in yield linked quarter in held for investment, 57 basis points from the year ago quarter increase.

Held for sale up modestly from Q4 and by 39 basis points year over year.

Funding costs are down sharply in Q1, very favorable in terms of both growth and pricing.

The DDA and equity growth reduced funding costs to just 68 basis points in Q1, compared to 73 basis points in Q4 2009 and over 114 basis points the year ago quarter.

We've obviously benefited from the activities in treasury management and the focus on deposit growth in all lines of business.

We do have a rig pricing significant opportunity.

We have floors on a significant portion of the floating rig portfolio at levels above historical spreads to both prime and LIBOR.

We have had in the quarter a minor adverse effect on NIM from the increase in non-performing assets.

We remain asset sensitive with some reduction from the imposition of floors.

The funding position is also very favorable to what we would expect eventually to have in the way of rising interest rates.

So we enter Q2 2010 in a very good position.

Long yield trends are favorable and total funding costs remain very low.

Turning to slide eight, again, good growth year over year in held for investment, just 1% linked quarter.

We still see no meaningful loan demand for what we classify as organic growth.

The held for sale portfolio decreased linked quarter, but again grew reasonably well to the end of the quarter due to seasonal and industry issues.

I mentioned earlier that that business is very profitable, but the reduction in activity did cost us about $0.03 a share compared to the fourth quarter of last year.

I think the deposit growth reflects just how successful the company has been in emphasizing core deposit growth.

Again, DAA up 5% compared to the fourth quarter, 50% year over year.

Total deposit growth was over $1 billion for the first quarter of 2009, representing 2.6 times the growth in loans held for investment.

Obviously, the 260 million in linked quarter growth was a multiple of what we've experienced in held for investment.

We also had a dramatic change in the composition in our funding and the ability to reduce funding costs with dependence on borrowed funds--which increased borrowed funds and wholesale deposits, which had increased in the early part of 2009 because of our growth and because of the worldwide conditions for liquidity.

We've seen those levels drop by 1.5 billion and entirely replaced by customer deposits.

Turning to slide nine.

We won't have much comment about the period end balances.

We saw a modest increase from the first quarter averages in loans held for investment.

The DDA total at just under $1 billion was 95 million, or 11% better than the prior quarter.

We've seen a growth of 4% in the end of the quarter from the average balance during Q1.

The total deposits are up 7% linked quarter.

That's after getting through the period of eliminating substantially all wholesale deposit sources, and again, much improved composition.

Turning to slide 10.

Again, we've said it over and over again, this is a very good growth model.

A CAGR of 22% on operating revenue, 21% in non-interest expense.

That number would be at or just below 20% if you exclude the valuation--the ORE valuation charges as a credit cost equivalent.

Market opportunity remains favorable.

Pricing conditions are helpful and we have the ability to require very strong underwriting in our portfolio.

Recruiting efforts, as George mentioned, are very effective and improving.

And with that, I'll turn it back to George.

Good.

Thanks, Peter.

On slide 12, or page 12, our loan distribution by collateral type has not changed much since Q4 2009.

As Peter mentioned, our non-accrual loans increased 20 million to 116 million or 2.6 of loans held for investment.

The other real estate category increased 2 million to 29 million from 27 million.

That made total nonperforming assets at 145 million or 3.24% of the loans held for investment plus the ORE category.

Increases in the NPLs are approximately one-third real estate loans and two-thirds CNI loans.

The majority of the real estate loans that were put into nonaccrual in this Q1 are well secured and should have little loss potential.

The CNI portfolio, or the CNI loans that were added to the non-performers, are properly reserved at Q1, based on our analysis of potential exposure.

When you look at our lease--NPAs in our leasing portfolio, the equipment lease portfolio is shown as NPA subsequent to March 31, 2.5 million of that number is paid off completely, and an additional 2 million should be paid within 45 days.

We took three properties into ORE from our nonperforming loan portfolio that made up most of the increase in ORE, and we increased our ORE reserve by approximately $2 million.

As we've said in the past, we could see NPAs trend up somewhat for a few quarters in 2010, but again remain very manageable and below peer and national averages.

Composition of NPAs remains weighted toward real estate with approximately 60% in that category and 40% in the CNI category.

Construction loans comprised approximately 35% of the NPA totals.

Our credit experience remains consistent with our expectations.

Total credit costs, as Peter mentioned, in Q1 were 15.4 million, representing a small reduction from Q4.

The provision was 13.5 million and the reserve was 1.9.

Our loan loss reserve balance has increased to 1.69% of loans held for investment, again, driven by methodology including factors that are related to the challenging environment in which we all operate.

Net charge-offs were 9.3 million in Q1, or 85 basis points, and 61 basis points for the last four quarters.

This represents an increase of 1.3 million compared to 72 basis points in Q4 2009.

On page 14, you see the graphs that we've shown you before.

This graphs our net charge-offs to average loans for the past four years, our year to date charge-offs for 2010, and then we've added one that shows you the average for the trailing 12 months at 61 basis points.

In closing, I want to emphasize five points that we've touched on before.

One, Texas Capital has improved strong core earnings power displayed by strong margin growth over the past year.

Two, Texas Capital has seen steady deposit growth, especially in demand deposits, exceeding loan growth, not only in Q1, but also for all of 2009.

With our recent capital raises in place, plus improved earnings, we continue to maintain a strong capital position.

Peter mentioned tangible commons or tangible assets 8.8%.

Our tier one is over 11 at 11.3; total capital, 12.5; and tier one leverage at 11%, very strong.

Credit issues, number four, remain challenging, but as I've mentioned before, quite manageable.

And five, we have demonstrated our ability to take advantage of market opportunities for people and for customers.

That's the end of our prepared remarks and we'll take a few minutes and open it up for questions.

(Operator Instructions.) Your first question comes from the line of Dave Rochester with FBR Capital Markets.

Please proceed, sir.

Hi, Dave.

Hi, guys.

Thanks for taking my questions.

Yes.

Or my question.

As you highlighted, you had some great deposit growth again this quarter.

That's sort of a recurring theme for you guys.

Can you talk about your outlook there?

Do you think at this point that rate of growth is sustainable given your ability to pull business?

I think we have a very good pace established.

Given the nature of some of the relationships, it's hard to predict when new ones will be booked.

The sales cycle related to treasury management can vary widely depending on the nature of the customer.

But the product set for different types of businesses we think is very competitive and we're enjoying quite good success in the marketplace.

What I would add to that, too, is the fact that we have made a number of hires, not only in 2009 but in the first quarter, not only treasury management personal, but relationship managers who in effect are bringing their best customers with them right now.

And that's the growth we're experiencing.

So my take would be with our increased treasury management effort and with the additional hiring, both treasury and relationship managers, that we have a real good shot at continuing growing at that pace.

Your next question comes from the line of Brett Rabatin with Sterne Agee.

Please proceed, sir.

Good afternoon, guys.

Hi, Brett.

Wanted to ask for a little more color if possible on the--I noticed the $10.9 million in restructured loans.

Could you give us some more color around that?

And then, as it relates to that, also the commercial net charge-offs of 7.5 million this quarter?

The 10.7 million, that is what is shown as TDR.

Yes.

Yes.

That's one particular loan.

It is not a non-performer.

We don't anticipate it being a non-performer.

We did stretch out the amortization a little bit, not a great amount.

But that's really the only basic change we made in the credit and it's well secured and we don't think it's an issue.

Okay.

Do I need to get back in the queue for the charge-off question or you guys can--?

--No, no, go ahead.

You--.

--Well, I just was asking for any color around the commercial--the CNI net charge-offs this quarter of 7.5 million.

Is that--can you break that down a little more?

You know, really, we had--oh, let's see--it was fairly well spread out over a few credits.

It wasn't necessarily one large credit.

It was previously identified credits that we--in almost every case had reserves put up against.

Industries would be medical, real estate, and auto.

Your next question comes from the line of Bob Patten with Morgan Keegan.

Please proceed, sir.

Hey, guys.

Just a little color around--I understand what you guys are doing with hiring really good lenders and bringing over a portfolio.

Can you talk about the kind of portfolios that you're bringing over, the type of loans?

Is it real estate?

Is it middle market?

Maybe look at '09 as a proxy.

That's the first question.

The second question is you mentioned that the warehouse was off about $0.03 from the fourth quarter levels.

Could you give us an idea of what the contribution and EPS for the warehouse was in 2009 and sort of what your outlook for 2010 is?

On the last one, we don't really give that kind of a breakdown.

But it has net interest margin comparable to the rest of the company and has a fee structure that covers in good times, like Q4, most of its non-interest expense.

So the overall profitability is a little better than some other lines of business, but not inconsistent on my line of business or portfolio with others.

The other reason I asked is because you threw it out there.

That's all.

I know.

But it's just the simple computation is the reduction in average balances at today's margin times a quarter and a little--and you can see the fee income difference in the broker loan fee line.

Okay.

And then, in terms of just the portfolio, what kind of portfolio you guys have going.

I'm trying to get a picture of what growth will look like for you guys over this next year.

And are you guys getting lines of credit that aren't being used?

What's your sort of look on line of credit usage?

Yes.

Remember our model and what we've done since the inception of the company and we're doing it today.

We're hiring talent from our competitors and they in turn are bringing their best customers with them.

The preponderance of the business is corporate banking business, CNI loans.

They're not growth oriented loans, obviously, because in this environment we don't see a lot of customers really growing in this environment.

So they're bringing existing lines of credit that typically these companies have had in place for a number of years.

That's really what's helping us with that 1% linked quarter growth in the loans held for investment.

We have made a few selected real estate loans.

We've made a few selected energy credits.

It's really a broad brush, but it more lends itself to the CNI operating lines of credit corporate banking business and business banking, which would be the smaller company also.

Your next question comes from the line of Jennifer Demba with SunTrust Robinson and Humphrey.

Please proceed.

Thanks.

I was wondering if you guys--if you have this number to talk about the NP--the problem loan formation during the first quarter versus maybe the last couple of quarters.

Talking about the growth in the NPAs, Jennifer, as it relates to the last two or three quarters?

Yes.

It's been similar.

Any changes you've seen?

In the composition?

Yes.

I think we're--I think this quarter we've seen more on the CNI side than we have the real estate side.

As I mentioned, the increase in Q1 really lends itself two-thirds to the CNI portfolio, one-third to the real estate portfolio.

And actually the one-third real estate is not really construction CND.

It's more of the permanent real estate loans.

That's what we've seen again in Q1.

Your question comes from the line of Andy Stapp with B.

Riley.

Please proceed, Mr.

Stapp.

Nice quarter.

Thanks.

Hi, Andy.

Hi, how are you?

Good.

Just wondering how much of your growth in DDA or on an average basis was attributable to your mortgage warehousing business versus your other operations?

Not significant.

Despite the fact that the warehouse loan volumes are down, the deposit levels have remained basically consistent with Q3 and Q4.

Okay.

And we're really getting good growth out of financial institutions.

We're getting good growth out of investment dealers, other categories where we're tailored--tailoring the treasury product to a type of deposit only business.

I will tell you, Andy, in the mortgage warehouse group, the composition of deposit lends itself more to the DDA product than the interest bearing product simply because of the servicers that we bank that need to keep a significant amount of their balances in checking accounts.

The past 12 months have really been strong growth in our mortgage warehouse group.

But the linked quarter growth was not concentrated--.

--No--.

--In that category.

No.

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

Please proceed, sir.

Hi.

Good afternoon, everyone.

Hi, Michael.

Hi, Michael.

I wanted to talk about further repricing opportunities on the deposit side.

Your average deposit cost now is below 1%.

And kind of how that relates to the margin.

I mean, are we getting close to a near term peak in the margin?

There are just too many variables, Michael, as I think we've been through this before, but the level of DDA growth has been so good and it's--even at these kinds of interest rates it doesn't have that much incremental value.

But it's obviously been a source of overall price improvement.

The interest bearing categories, maybe they're reaching kind of the lower limits, but on the other hand, as I mentioned, we also don't see them moving up as rates begin to rise.

So modest continued improvement in funding costs by category, but the mix can change quarter to quarter based on the success of treasury management whether it's interest bearing or DDA.

Your next question comes from the line of Julienne Cassarino with Prospector Partners.

Please proceed.

Hi.

Good afternoon.

Can you tell me what the early stage, the 30 to 89 days' fees were?

About 95 million.

And that is a little bit higher than we like to see them.

But again, this is renewal season and we're in the process of accumulating financial statements and restructuring credits and lines of credit.

So I would tell you that most of that 30-day plus paper is down a lot today because of the renewal season and that most all that was not problems, but was really paperwork type related.

Okay.

Does that compare to 48 million last quarter, just to compare?

I don't have that in front of me.

I am sure that, again, it is higher than it was last quarter for the reasons that I've mentioned.

Right.

Okay, thank you.

You have a follow-up question from Dave Rochester.

Please proceed.

Hey, guys.

Just one quick one.

I'll hit the margin question from earlier on the other side of things.

Can you update us on how far you are through the repricing--through repricing higher spreads into your loan portfolio?

I know you've benefited a lot from that over the past three or four quarters.

How much more room do you have?

In terms of repricing, really, on setting the floors, probably not a great deal of room.

We are still, as we renew the credits, as I mentioned before, we're still using that as an opportunity to increase the spread over indexes, and every time--every place we can increase fee income.

Do the kinds of things that, again, will give additional earnings in the first half of this year.

But the floors are on a significant portion of our floating rate portfolio today - over 60%.

And I'm not sure how much more room we have on that.

I would comment we see a substantial pay down.

So when we grow 10% year over year, that's a lot of net new business and new business is being priced better than business that was on the books a year ago.

And I would add to that, because we're such a relationship oriented bank that we get deposits on virtually every relationship we make a loan to.

And we base our pricing in many cases on improved increased deposits from those customers.

So we get it one way or the other.

We'll get it through deposits and DDA or we'll get it through the rate.

(Operator Instructions.) Gentlemen, you have an additional follow-up question from Mr.

Brett Rabatin with Sterne Agee.

Please proceed, sir.

Hi.

I just wanted to ask, you mentioned, George, today the increase in the 30 to 89 past due.

I was just curious could you give us then the color on the potential problem loans?

Maybe that number wasn't up as much.

Let's see - 46.

46.

So that number is actually down 3 million linked quarter?

That's down a little bit.

Okay, great.

Thank you.

And, Brett?

Yes?

I think it was cut off at the end, but George mentioned that they are already down very substantially at quarter end.

Oh, so, was that the commentary about the premium finance?

No, no.

The past dues.

No, the past due.

Oh, okay.

We were talking about the reason they had popped up in Q1 was because it's renewal season and we're trying to document a lot of these things.

And true to fashion, the past dues dropped dramatically subsequent to the end of the quarter.

Okay.

Do you happen to have that number?

More than--.

--It's more than 50%.

Yes.

More than 50% down.

More than 50%.

Okay.

Thanks for the color.

You bet.

You also have a follow-up question from Andy Stapp with B.

Riley.

Please proceed, sir.

Legal and professional expenses came down about $1 million linked quarter, presumably due to the completion of the mortgage warehousing software upgrade.

Is this a good run rate now?

Really, Andy, it didn't really have anything to do with the software upgrade.

It was really collection costs, legal--.

--Okay.

Finishing off one suit in a line of business.

Just lots of miscellaneous stuff, but not related to buildup in costs related to mortgage warehouse.

Okay.

All right.

Thank you.

Just--and it can be lumpy, to make sure everybody understands.

Yes.

You have an additional follow-up question from Mr.

Michael Rose with Raymond James.

Please proceed, Mr.

Rose.

Hey, guys.

Just following up on loan growth seasonality.

I know first quarter is typically a little light.

Are you seeing the normal pickup thus far?

I know it's only three weeks in, but do you expect period imbalances to kind of rebound from the second quarter?

There's--this year and last year are like no years we've ever experienced in the history of our business, so it's hard to normalize anything.

I would say that because again of our hires and our ramping up in virtually all our markets we are seeing good pipelines.

Are they are robust as we've seen in earlier days?

No, probably not.

We see huge opportunities, Michael, as you might imagine in this environment.

But we're not approved in a lot of them.

We're being pretty cautious in terms of what we do.

And it's--it will grow.

Loans will grow in 2010.

We're not going to get back to the days when we had our 25% days in 2010.

But it will--we will grow and I think if you watch us through the year, you'll see we'll--it will be a very favorable number in the environment in which we're dealing.

Well, can you just talk about then the magnitude of the increase in the pipeline a little bit?

We've hired this year another 13 relationship managers in Q1.

And they are--again, it's a little early to predict based on that.

But we are seeing opportunities--good opportunities through a number of the people that we've hired bringing--trying to bring other really good relationships with them.

It will be building.

I'm confident that Q2 and Q3 will see a lot more.

The pipelines are substantial.

But again, as I mentioned to you, approvals are very cautious.

We're seeing a lot of volume, but we're not approving all of it, as you might imagine.

We're not at a point where we will do that because we're cautious.

But I think, again, you watch us in Q2 and Q3.

You'll see that growth is there and it just probably won't be as robust as yesteryear.

All right.

I'm be watching.

Thanks.

We're going to have to get this economy back in better shape before we feel good about really getting aggressive.

You have an additional question from Mr.

Andy Stapp with B.

Riley.

Please proceed, sir.

Yes.

I'm going to cheat and get both of my questions--remaining questions out of the way.

One, just wanted to confirm that the loans that some of your new hires--being brought over, they're continuing to hold up okay?

And lastly, if you can give us an update on Lake Travis?

Is there any water in Lake Travis?

Yes.

Are the fish flopping still?

Yes.

Come on, now.

Tell John to leave us alone.

Again, your first question.

I laughed so hard on the second.

Tell me your first question again.

Just making sure that you're not seeing any issues on--with new loans being over.

Interestingly enough, we sort of did a scrub from the last 12 to 18 months to take a look at the credits that had been put on the books in the last 12 to 18 months, because some of those credits certainly were credits brought over by new hires.

And we were exceptionally pleased, not only with the pricing but with structure.

Remember, it takes these new RMs several months, six months or so, to get in our fairway, to have our culture of credit quality embedded firmly.

And remember, they don't underwrite anything.

They bring the business from a marketing perspective and we centrally underwrite everything and we centrally approve everything and we centrally monitor everything.

But, again, to answer your question specifically, we are very pleased with what we've seen come over in the last 12 to 18 months.

Is there any water in Lake Travis?

Yes, there's some water in it, and it's rising.

Oh, good.

It's rising.

We still have the credit.

We've taken a portion of it into ORE.

We still have a portion of it on the books.

We are actively trying to market that product.

We think we have adequately reserved for it based on what we think the market will bear today.

And again, we're cautiously optimistic that we'll get it done in 2010.

But again, it's had a lot of work and a lot of reserves thrown at it at this point in time.

Are the units starting to move yet?

We've sold a few that we took to auction previously, as we mentioned.

But it was not up to our expectation.

Right.

Okay.

Thank you.

You have a question from the line of Bob Patten with Morgan Keegan.

Go ahead, sir.

Hey, guys.

The--my two questions got asked, so I'm okay.

Okay.

You have a question from Bob Milsaps with Sandler O'Neill.

Please proceed, sir.

Hi, Brad.

Hey, guys.

How are you?

Good.

Just a question on the DDA growth.

You guys have obviously had quite a bit there - up about 400 million year over year.

I guess the service charges haven't really followed suit.

Can you talk about that a bit?

And just curious, is some of the DDA related to maybe your corporate treasurer is leaving just more cash in the bank to avoid those types of fees?

Yes.

That's exactly right.

Do you have any idea--kind of what you think--could you quantity that at all, or maybe better asked, maybe number of relationships versus that you brought in.

And if you need to follow-up offline, that's fine as well.

Brad, this is Peter.

That's not something I actually track.

I watch it more in terms of impact on margin where more deposits to offset fees improves the net interest margin than it does on the balance charges.

Got it.

Okay, fair enough.

Brad, just a follow-on comment maybe to give you a little color, but not much.

We prefer, as you might imagine, DDA versus the service charges.

So we slightly tier a higher credit or higher earnings credit on the DDA when we're looking at it on a monthly basis.

And that has helped drive a lot of our DDA growth, too.

So it's--again, we're really focused on getting the DDA in the company.

Absolutely.

Now, it makes sense.

Just wanted to ask.

Thank you.

Okay.

And that was the final question in the queue.

I would now like to turn the closing over to Ms.

Myrna Vance.

Please proceed, ma'am.

Yes.

George, do you want to give us some closing comments?

Sure.

Thank you very much.

We think this, again, was a very good quarter.

We are pleased with it.

We are still working hard for our shareholders in terms of this tough environment that all of us are working within.

But we're pleased with our performance and we're very pleased with the support of our shareholders.

So thank you for your attention this afternoon, and we'll see you soon, I hope.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

The conference has ended.

You may now disconnect.

Good day.