Texas Capital Bancshares Inc (TCBIO) 2011 Q1 法說會逐字稿

Welcome to first quarter 2011 Texas Capital Bancshares, Inc.

earnings conference call.

My name is Deanna and I will be the operator for today.

(Operator Instructions).

As a reminder today's conference is being record for replay purposes.

Now I would like to turn the call over to your host, Miss Myrna Vance, Director of Investor Relations.

Please proceed.

Right.

Thank you very much, Deanna, and welcome to all of you all to our first quarter conference call.

If you have any follow-up questions I can be reached at 214-932-6646.

Now before we get into our main discussion today let me 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 impact 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 and be found in our annual report on Form 10-K for the year ended December 31st, 2010 and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Now let's begin.

With me on the call today are George Jones, our CEO and Peter Bartholow, our CFO, and after a few prepared remarks our operator, Deanna, will facilitate our Q&A session.

Now let me turn the call over to George.

Thank you, Myrna.

Good afternoon and welcome to our first quarter earnings call.

As you can see we had another quarter of solid earnings at $0.31 a share.

This was accomplished despite the additional impact we experienced in each year's first quarter.

Our margin was 4.46%, an expansion of 34 basis points from Q4 of 2010.

A major reason for this expansion is a significant reduction of 21 basis points from Q4 which we accomplished this quarter in our funding costs.

They now stand at 39 basis points with more to come.

You won't see the full effect of our progress until Q2.

We continue to experience good average demand deposit growth of 6% linked quarter and almost 50% growth from Q1 2010.

As we discussed in Q4, we have a strategy of plan reduction in interest bearing deposits to reduce excess liquidity and as you can see we have been quite successful.

We have reduced outstandings by 12% linked quarter.

Credit costs are consistent with our expectations and are showing improved trajectory that will continue throughout 2011.

I I'll discuss these costs more in-depth after Peter's remarks.

Loans held for investment grew on average 4% linked quarter and our loan pipeline remains strong for 2011.

We have seen very strong fundings subsequent to March 31 and month-to-date it's about $125 million and we expect growth to exceed what we experienced in Q1.

We experienced expected reductions in our loans held for sale, our warehouse line of business.

As we continue to add quality customers we will somewhat mitigate reduction in the refinance activity.

It is significant to note that our Q1 fundings have exceeded our plan for the first quarter.

We believe that our Company continues to be very well positioned in the best economy in the US.

Peter?

Thank you, George.

As George commented, net income and EPS for the quarter were very strong.

We saw an increase in net income of 57% year-over-year and 48% in EPS to $0.31.

The flat comparisons to Q4 result from what we talked about earlier, the Q1 conditions that affect in this quarter a total of about $0.06 per share.

That's the reduced number of days, the FICA expense, the seasonal contraction in warehouse lending which is not included in the $0.06 number, and also the increase in shares which is the share price increase and a number of exercises of expiring options.

In terms of core earnings power and net interest margin we saw very strong year-over-year growth in net revenue to $72 million.

A decrease of just 3.9% from the fourth quarter, and I will say that the entire $1.4 million reduction in net interest income compared to Q4 is due entirely to the two days fewer in this quarter than in the fourth quarter.

That runs just over $700,000 a day, or a total of $0.025 a share for the quarter.

If you will recall we did describe a plan to reduce funding costs, and we experienced that throughout 2010 with a significant increase in that pace during the fourth quarter.

We reported that we began a multi phase program in December to reduce funding costs and to manage excess liquidity.

The benefit we experienced in Q4 then ramped up in Q1 and will continue to a more modest degree in Q2.

The reduction in funding costs and $200 million in growth and average balances of held for investment loans offset the entire impact of the $600 million contraction in loan held for sale balances.

Obviously, we experienced significant benefit of repricing of all funding categories and a continuation of transient growth in demand deposits.

Contraction of the warehouse activity reduced non-interest income on a linked quarter basis where we saw 11% year-over-year growth.

George mentioned the credit cost reduction.

$10.8 million in Q1 compared to $15.5 million in Q2 and $14.3 million a year in Q4.

With provision of $7.5 million and ORE evaluation charges of $3.3 million we realized a year-over-year reduction of 30% from Q1 2010 and 25% from Q4.

That's consistent with the expectations and the favorable trend which has continued the sequential reductions of $3 million each quarter from the peak in Q3.

Reduction in net charge-offs and non-performing assets was consistent with the more aggressive initiatives begun in 2010 and are still in place.

As will be reflected in our 10-Q the unallocated reserve is essentially equal to the total provision of Q1.

George will comment more about that in a few moments.

The non-interest expense growth, excluding the ORE evaluation charges which we carry as credit costs in later slides, was basically equal only to the increase in FICA expense of $1.3 million offset to some degree by reduction of professional and other expenses.

In otherwise, linked quarter we would have had a small decrease.

As adjusted for Q1 conditions the efficiency ratio remains very good with an increase from Q4 due only to the Q1 conditions of reduced days and the increase in FICA expenses.

Total loans were consistent with expectations and actually slightly ahead of the planned levels for the first quarter.

George mentioned we had 4% growth in held for investment linked quarter and 7% year-over-year.

We anticipated the seasonal softness in Q1 with significant pay downs, but the growth from Q4 carried over to leave us with a strong growth for the quarter.

Held for investment balances are now building as George mentioned with new loan fundings in held for investment and near-term pipeline.

We have no change in our outlook for low double digit loan held for investment growth for the year 2011.

We did have a reduction as George commented in held for sale due primarily to the reduction in refinancing activities, and with the increase in interest rates.

The higher rates did have a favorable impact on that interest margin offsetting a portion of the effect of the reduced balances.

With increases in rates the spread on held for sale loans is now approximately equal to our margin, so expected growth over the remainder of 2011 is not expected to dilute net interest margin.

We have strong deposit growth.

6% linked quarter in DDA.

We usually have seasonal weaknesses in Q1 and those have been out stripped by the growth in our market position.

George commented, and we need to confirm, the initiatives to reduce excess liquidity produced a very strong result, and we have driven our cost to the point where the excess liquidity has little impact on net interest income or total profitability.

The initiatives we outlined earlier were to reduce rates in all categories of interest bearing funds, to reduce balances and place, where possible, deposits as [agent] off-balance sheet.

Those things produced a $0.5 billion reduction in interest bearing deposits.

We still have excess liquidity of over $1 billion in Q1, but as I mentioned the impact on net interest income has been reduced substantially.

(inaudible) (technical difficulty) -- somebody commented.

I said low single-digit for loan held for investment growth.

I meant low double-digit.

Excuse me.

Quarterly income statement on slide six.

An excellent trend year-over-year growth in net revenue.

Saw a reduction in Q1 from Q4 to the warehouse lending and the Q1 conditions.

We had a sharp increase in NIM with increase in loan yields, and more importantly, substantial reduction in funding costs.

Credit costs are still above normalized but down sharply.

In confirming we expect an improvement we have for 2011.

We have good quarterly progression of net income and EPS even with the adjustment for Q1 which is flat because of the $0.05 to $0.06 per share effects of the Q1 conditions.

The highest ROA we've had since the collapse of the mortgage industry and the economy in the last half of 2007.

Saw an increase on slide seven of 34 basis points that were commented on.

The [Co- NIM] is adjusted for the excess liquidity position actually increased from 438 in Q4 to 472 and still going higher for Q2.

We have described initiatives to reduce those funding costs in detail.

We can talk about them in Q&A if necessary.

The impact of the improvement reflected in net interest income variance between Q1 and Q4 is strictly limited to the number of days difference despite the $400 million reduction in total loans.

[Money rates] have been holding above 5% with an increase in the total loan yield with the improvement in yields on held for sale loans.

Including DDA and equity the cost of fundings fell to 37 basis points.

Stable and slightly increasing loan yields and much lower funding costs.

Slide eight I think we have covered the trends in average balances.

Held for investment growth has remained well above industry levels and is consistent with our expectations for 2011.

Again, with low double-digit growth over the course of the year.

Held for sale in Q4 was above Q1 2010 levels by a substantial amount and we expect it to decrease.

DDA growth remains exceptional.

On quarter in-balances on slide nine we have already covered most of the points.

A point mentioned that balances in held for sale are ahead of plan and are above the Q1 averages by $65 million.

Customer consolidation and increasing market share should cause balances and earning contribution to build over the course of 2011.

On slides ten and 11 we have CAGRs in both interest and non-interest components of net revenue.

They're all very high despite the relative weakness in the economy and the effect on the industry.

They've been driven by the remarkable CAGRs and loans and deposits shown on slide 11.

Again those are especially strong period to industry-wide contraction; much weakened economy since 2007.

George.

Thanks, Peter.

Slide 12 really doesn't show much change in loan composition since Q4.

With the exception of loans held for sale being down as we've discussed and it has been expected.

Non-performing assets continue to be weighted two-thirds real estate and one-third commercial.

Non-performing loans went up slightly but total NPAs have come down $12 million from Q4.

ORE has been reduced $16 million linked quarter with the largest asset in that category the office building in central Texas that we've talked about before has been sold along with five other properties.

We have additional ORE of approximately $6 million under contract and a $4 million non-performing loan was collected in April further reducing NPAs.

We are definitely seeing more investor interest and because we have properly reserved these assets we have very little incremental costs to incur at disposition.

If you look at slide 13, as Peter mentioned, we had total credit costs of $10.8 million for Q1.

That's a decrease of $3.5 million from Q4 reflecting a better trend and the lowest level in two years.

Our total of potential problem loans disclosed in our 10-Q this quarter has declined to $13 million, down from a high of $79 million at Q3 2009.

We had a substantial reduction in net charge-offs to $9 million or 77 basis points.

That was compared to 114 basis points for 2010.

This is the lowest level of loss in five quarters.

Our low loss provision of $7.5 million for Q1 is compared to $12 million for Q4 and was the lowest level since Q3 2008.

As Peter mentioned, you will see in the 10-Q that the provision for Q1 2011 is almost equal to the unallocated reserve at the end of March, demonstrating the charge-offs had no real impact on reserves from year end 2010.

We remain very pleased with the methodology and the ability to identify and address portfolio risk.

We took ORE evaluation charges of $3.3 million for the quarter to address actual and pending sales.

As we have previously discussed, these credit costs are consistent with our aggressive efforts to reduce non-performing assets.

The sale of the largest ORE property was accomplished with only an additional 5% of the carrying balance at year end.

Again, demonstrating that our approach to building reserves has been effective.

Our strong core earnings power gives us the ability to manage our NPAs aggressively.

As mentioned previously, we have seen ORE decline $16 million and NPAs decrease $12 million bringing that NPA ratio down to 3%.

This is the lowest since Q4 2009 and 99 basis points below the peak in Q2 2010.

We continue to believe that credit costs and NPAs will decline further in 2011.

If you look at slide 14 this reflects net charge-offs to average loans showing that what we believe to be a trend of lower losses for 2011.

Our reserve to loans is at an appropriate level and our coverage ratio to non-accruals compares favorably with peers.

In closing I would like to leave you with the following five thoughts.

Number one, Texas Capital has strong core earnings power that will continue in 2011.

Secondly, we had exceptional DDA growth in Q1 with significant improvement in margin.

Third, we maintain a strong capital position.

Fourth, credit costs are as expected with good improvement from prior quarters.

We believe these improvements will continue throughout 2011.

And fifth, Texas Capital is well positioned to take advantage of market opportunities as economic conditions improve.

Thank you very much.

That brings us to the end of our prepared remarks and we'll go to Q&A.

(Operator Instructions).

And the first question will come from the line of John Pancari, Evercore Partners.

Good afternoon.

Hi John.

In terms of your loan growth outlook you mentioned the double-digit growth.

Just want to confirm that is year-over-year growth that you're talking about, correct ?

Year-over-year average balances, yes.

Okay.

I believe that would imply a pretty good clip on a linked quarter basis going through the remainder of the year, and I just want to try to get an idea of what you are assuming in terms of a linked quarter growth rate.

We haven't really given that, but it starts, John, with the fact that the year end 2010 balance was 5% greater than the average balance for all of 2010.

So we enter 2011 with a 5% base effectively.

And remember, John, that Q1 is typically weaker than the balance of the year so we showed reasonable growth in loan sale for investment for Q1, but as I mentioned, Q2 for the first 20 days in April has shown loan sales for investment growing $125 million.

Right.

Okay.

So with that comment you made, George, you also mentioned on your prepared comments that you expect loan growth in Q2 to exceed that of Q1 or what you saw in Q1.

So is that on average basis, or on [peak period]?

What we said is the margin will increase in Q2 compared to Q1.

Okay.

But we also think that loan growth will continue at a nice clip from where we're talking about today.

Okay.

Alright.

And then lastly, on the mortgage warehouse, I believe you indicated that you expect some upside there through the year.

Is that -- so growth in coming quarters or is that year-over-year you should have an increase in warehouse?

Well, we're really talking about average balances year-over-year.

We averaged for 2010, even though we had a very strong second half of 2010, we averaged about $880 million.

We expect a number similar to that on an average basis growing over 2010 and 2011.

Remember, we're coming off a much higher average loan outstanding in December of the warehouse.

It was about $1.2 billion, I think.

So we have a long way to drop before we really worry about dropping below those averages.

And the other thing I think I mentioned in my comments if I didn't I want to, the mortgage warehouse group is really continuing to acquire significant customer relationships.

Remember these companies are not your typical broker.

These are large, well established, liquid, high net worth mortgage companies that provide a lot of volume, and we see a lot of compression in this business, a roll up.

So we see a lot of our existing customers acquiring other customers which, again, should help our volume on a go-forward basis.

Okay.

And are you still looking at participating out the business?

we will when it makes sense from a risk mitigant standpoint and a concentration standpoint.

We haven't found the need yet in the first quarter to do that.

We're positioned to do that, we're ready to do that and we also have a couple of clients that are ready to do that with us.

We just haven't seen the need yet to do that.

Okay.

Great.

Thanks for taking my questions.

You're welcome.

The next question will come from the line of Michael Zaremski Credit Suisse.

Hi, guys.

Hi, Michael.

Hi, Michael.

Can you better explain how your deposit costs came down so significantly this quarter.

Overall deposit levels weren't down that much.

I guess if you can talk about the program and explain what kind of follow through you guys are expecting.

It really started, and I think we mentioned, in December and only was in place during the last month of the year, and it was a multi phase program.

The last phase of which while minor relative to what's been completed so far was not put in place until mid March.

So we have more to come and then in addition to that we have in the next two quarters about $440 million in CDs that mature at an average rate of just under 100 basis points.

So we will pick up 40 to 60, maybe as much as 70 basis points when those mature.

Every category of funding basically was subject to a significant reduction in what we were willing to pay.

As I said, we were successful in placing money off-balance sheet as agent for a number of customers and we control those deposits in a way that when it makes sense to do so they can be brought back into support our funding needs.

Do you show how much money is controlled by you guys off-balance sheet?

No.

It's today it's close to $200 million.

Okay.

And the compensation run rate that we saw this quarter, is that what we should expect going forward?

This has the lumpiness of the FICA of $1.3 million.

Obviously that's the increment over Q4, so if you go back to Q2 or Q3 levels and then adjust for the growth in the overall it might be more indicative.

Okay.

And adjust for the overall kind of a mix of loan and deposit growth you're saying?

No.

Just overall staffing levels.

Okay.

Okay.

Thank you, gentlemen.

The next question will come from the line of Bob Patten, Morgan Keegan.

Hey everybody.

Hi Bob.

Okay.

George, you baited the hook.

I'm going to take it.

Since acquisitions are out of the question can you talk about the market opportunities that are out there?

Are you just talking about taking share?

That has a lot to do with it, Bob.

We have gotten a lot of these RMs that have come on a year of plus ago are now hitting their stride, so we're seeing some organic growth with our customers, but the larger component of that still comes from the outside.

Our growth really is 50/50, C&I and real estate.

The new credit that I mentioned in April that we saw pretty evenly matched between C&I and real estate.

But as , real estate, you can underwrite real estate today much more securely and tighter than you've ever been able to in the past.

So we feel very good about the real estate credit that we've done, and frankly, there is a lot of companies that just can't do real estate today.

Either the regulators tell them not to or their ratios won't permit it.

So we're taking an opportunity there selectively, not in mass, we're not being aggressive, but we're selectively seeing some projects that are typically fully leased or stabilized that we can bring on our books as good

Okay.

And Peter, can you just review for me because I was having some phone static.

The impacts of the first quarter.

We talked about day impact, the FICA impact.

You said, I think there were three or four things.

I did.

The three things principally are the reduction in days.

That's about $1.45 million.

FICA $1.3 million.

And then the increase in number of shares outstanding of 700,000.

Sort of $0.02 -- $0.025, $0.025 and $0.01 in terms of per share impact.

Got you.

And so your implication was that was $0.5 to $0.6 impact in the quarter?

Yes.

Yes.

So you guys are sort of on a core run rate of like $0.35, $0.36 in your view?

That's --

I'm trying, Peter.

That's your view.

All right.

Thanks, guys.

You're welcome, Bob.

And the next question will come from the line of Brett Rabatin, Sterne, Agee.

Hi, guys.

Good afternoon.

Brett.

How are you?

I'm doing well, thanks.

I wanted to ask, credit quality is obviously improving, but wanted to get a little color around the restructured loans that were I think $22.2 million at the end of the quarter.

Yes.

Can you give a little color around those lines?

Sure.

It really basically is a couple of loans.

The real increase this quarter came from a $13 million credit that is secured by real estate, it's currently cash flowing interest coverage and it's leasing up well.

It was restructured in the past because we cross pledged it with the other loan.

In other words, to strengthen the credit because one of those loans had not leased up as strong as the other one had, so they made a $650,000 principal reduction, cross pledged the two loans.

It is now cash flowing on an interest basis and leasing up.

We feel very good about that loan.

That's the large one.

Okay.

The second one is a little bit more problematic.

Although it has been restructured and we are feeling better about ultimate collectibility, it is a lot development loan in a suburb of Dallas here and it has been restructured.

It's been restructured properly with the right sponsorship, the right equity, but it's going to take awhile just to move some of those lots.

Again, we think both of these credits, particularly the one I talked about of $13 million, is well secured and has cash flow that will service the credit.

The second one we're going to have to see some lots sold.

Okay.

And then I wanted to make sure I understood the commentary around more to come in terms of the improvement and funding costs.

The way I understand it maybe, Peter, is you mentioned earlier $440 million of CDs maturing in the second quarter.

Does that essentially imply that you're continuing a mixed change where those CDs will not be renewed, or can you just put some more color around the more to come piece of the funding improvement?

Sure.

The key is at the end of the quarter the funding costs were substantially less than what they were for the average for the quarter.

And in addition to that its really over the next -- it's Q2 and Q3 -- we have $440 million worth of maturities and they will either be matured and paid off or they'll come down in rate from roughly 100 basis points down to 25 or 30.

We saw 10 or 11 basis point improvement from Q3 to Q4 and we saw 21 basis point from Q4 to Q1.

It's our general view that Q2 will see improvement by about the same amount that we had from Q3 to Q4.

That make sense?

Yes.

No.

I understand.

Just a run rate was better because of the phases at the end of the quarter because of the phased way in which the programs were implemented.

Okay.

And then just last question around the mortgage warehouse you discussed a little earlier that essentially you were looking for a run rate similar to the full year for 2010 this year, so maybe a little growth from the end of the quarter.

I want it make sure that I understand that's essentially what you're implying for the averages for the year.

Obviously there is a lot of uncertainty in that industry today, but that is our plan and we saw compared to Q1 the quarter in-balances were $65 million above the average.

Right.

Hitting closer to the average for 2010.

Okay.

And then I apologize just one last follow-up.

As it relates to compensation, can you discuss maybe a little bit of the variable piece from that mortgage warehouse business this quarter versus last quarter.

Was there any material decline or was it essentially that not much in variability for those related expenses?

The flow through the warehouse is obviously less so there's a marginal cost component.

It does go away, but there's a -- at some level most of the costs are relatively fixed.

Okay.

Great.

Thanks for all the color.

You bet.

And the next question will come from the line of Jennifer Demba, SunTrust Robinson Humphrey.

Brad just asked my question.

Thank you very much.

Okay.

And the next question will come from the line of Brad Milsaps, Sandler O'Neill.

Hey.

Good evening.

Hello, Brad.

Just a question about deposit growth.

I know typically loan growth precedes the strong growth that you guys have had in deposits.

Just kind of curious what you're anticipating this year in terms of funding the double-digit loan growth you see and are you comfortable going back over 100% loan to deposit ratio?

We feel pretty good in 90%, 95% to 105% and we think that we have the funding vehicle to do that, Brad, and we have made a lot of progress through our treasury department in terms of product development for a number of non-borrowing cash rich lines of business.

A lot more than we had a year ago -- or two years ago, and in fact, 87% of our clients today have treasury product compared to 50% about a year ago.

Over 85% of DDA is tied to treasury management accounts where the number was half that a year ago.

Two years ago.

So we feel confident that we have got a much more stickiness to a number of those deposits that will be around when we need them to fund loan growth.

And Brad, it also basically bears on the view that our held for sale balances should be carried with borrowed funds.

Sure.

To the extent we have $740 million of that and $350 million worth of excess liquidity assets.

That's where the $1 billion I mentioned comes in.

Okay.

Great.

Thank you.

And the next question will come from the line of Michael Rose, Raymond James.

Hi.

Good afternoon, everyone.

Michael.

Just two quick questions for you.

First, if I look at your average earning asset balances, obviously they were down because of the warehouse, but going forward do you expect some modest growth there and you expect loan growth to pick up.

I mean average earning assets should increase, correct?

That's correct.

That's right.

Okay.

Remember too if you look at our numbers, the yields on earning assets, loans primarily, have increased slightly while our funding costs have come down dramatically, so I think you're really going to see continued pickup in income as we go forward.

Are you seeing any competition or any signs that competition is increasing and could put pressure on those loan yields going forward?

Sure.

I think that's right.

That's another reason why it's very important to get the cost of our inventory, i.e.

the deposit funding costs down.

We will see some competition.

We're already seeing competition, but we have he been able to hold the line pretty well.

We don't see right now much softness in our yields.

We keep looking for it because it is getting competitive and it will come down somewhat, but our people are still pushing floors very hard, they're pushing spread over index increasing very hard and our numbers reflect it.

Our numbers, if you look at the yields, our numbers are hanging in there, and frankly increasing slightly.

Okay.

And then one follow-up question.

I know total loans were flat in the quarter, but do you know what C&I did and what construction did and some of the major categories?

Well, you mean point-to-point flat?

Correct.

Yes.

That's right.

Obviously, we look at the average in terms of really getting a sense for what kind growth we've got built into the portfolio.

It's again, as I mentioned, pretty much split C&I and real estate.

We've got a new real estate lending unit that has brought a significant amount of customers with us.

We brought a group over about nine months ago and we've seen some significant growth out of them.

It's been very good.

Thanks, guys.

And the next question will come from the line of Andy Stapp, B.

Riley & Co.

Hi, guys.

Hey there.

What was driving the increase in the yield on securities?

With the thought that maturities of securities originating in higher interest rates environment would maybe not bring it down but at least keep it from going up?

I think it's the 90 day quarter.

Okay.

Got you.

And would you provide some color on what you're seeing from the competition out there in terms of loan pricing and underwriting?

How aggressive --

Sure.

We're in probably the best state in the union to be in the banking business.

We see a lot of people wanting to grow their assets in Texas.

It is competitive.

It always has been competitive.

And it is heating up again after the decline for the past two or three years.

One thing we notice more than anything else is that floors are declining fairly dramatically and in many cases going away on your loan pricing, but we are still able to get pretty strong spread over the index, which is really helpful on a go-forward basis particularly when you get 75 basis points higher than we are today in rates and get through the floors, but it is getting competitive.

The underwriting is competitive also.

We have seen some of our competitors that are willing to stretch a little farther than we're willing to stretch and we're letting them go.

We're letting them do it.

But the nice thing about the Texas market is it's so big that we don't have to worry about seeing another transaction not too far down the road.

So the key in our minds is to defend our clients, be very aggressive at fending off competition from our good clients, but not stretching for new business because that kind of thing will bite you a couple years down the road.

Right.

Okay.

And I know you talked about credit costs going down but could you provide some outlook specifically on REO expenses?

Not necessarily specific but we do see a fairly strong decline during the year in ROE.

We don't have much right now to begin with.

We've got what, $26 million, which is not much.

Carrying costs are pretty low at these kind of rates, so it's not penalizing us dramatically.

Our legal expenses and professional expenses are down this quarter, so I think you're going to see like total credit costs, provisions costs, ORE costs and even professional costs are going to stabilize and begin going down.

Okay.

And what's your headcount now versus say year end?

How much did it go up during the quarter?

Let's see.

We had -- we -- relationship -- now I don't have a total bank wise, but relationship managers we hired six, we let three go and we netted three.

707 versus 699.

Okay.

Thank you.

And the next question will come from the line of Dave Bishop, Stifel Nicolaus.

Hey good morning gentlemen, or good afternoon.

George you had mentioned in the preamble about some of the marks I guess you had written down in terms of the other real estate owned this quarter.

Sort of broke up on the [comment].

You were saying, was there a plus or minus 5% or so in terms of the variance around which you had it on the books for?

And is that holding stable or generally what you have been seeing?

Yes.

We work hard at getting it right as it walks down the credit scale.

We try to reserve properly.

If it's ROE we try to write it down properly, so we don't have any big surprises at time of disposition.

I think that's a fair representation of what we expect -- have to do at disposition time.

It'll vary a little bit one way or the other, but you're not going to see in my mind big swings, big chunks of dollars having to be thrown at loans or ORE to -- in the final analysis.

That make sense?

Yes.

Great.

Thank you, George.

And the next question will come from the line of Matt Olney, Stephens, Inc.

Hey guys.

Good evening.

Hi, Matt.

Hey, Peter in your prepared remarks I believe you addressed the access liquidity position.

Can you go over that again and give us your expectation for how much excess liquidity you plan on keeping for the remainder of 2011?

Well obviously, the simplistic way of looking at that, Matt, is whether it's Q4 or Q1 take the sum of held for sale loans and what we classify as liquidity assets.

That number in Q4 average was about a little over $1.5 billion, Q1 is a little over $1 billion.

That's what we need to grow through or reduce to the extent we can without affecting strong customer relationships.

So we'll expect to grow into that number over the course of the year.

Probably will not realistically burn it up entirely this year.

That's probably a 2012 prospect.

But another way of looking at it, we could grow $1billion in loans held for investment before it would be an issue.

Okay.

Thanks, Peter.

(Operator Instructions).

The next question is a follow-up question from the line of Jennifer Demba, SunTrust Robinson Humphrey.

Thank you.

Marketing expenses have been higher than they were in the previous quarters in fourth quarter and first quarter.

Is this a new run rate and is there something different you're doing now versus earlier in 2010?

It is different from early in 2010, but realistically our expenses, if you look at it is a percentage of revenue, is still quite low compared to our competitors.

Yes.

We are making some efforts.

We are highly targeted and focused exclusively on key audiences in our core markets.

We definitely, if you have been reading the Wall Street, if you have been reading some of the national publications you will see a few of our ads in there are focusing on our customers and on the people that manage those customer relationships, and it's been extremely well received.

So we plan to continue to do that in the future, and I think it's just a good ad campaign to exploit our brand.

Thank you.

And we do have another follow-up question from line of John Pancari, Evercore Partners.

Hi again.

Do you have what the amount that C&I loans grew period end on a linked quarter basis this quarter?

The answer is yes.

I don't have them right off the top of my head, but we can get those.

All right.

I guess that and then CRE as well.

I'm curious in terms of the differences in the growth in the period end basis for the quarter.

Well, there's net no growth point-to-point.

Right.

Obviously was on average basis.

C&I, including leases, were down about $60 million, and real estate and construction, therefore, were up about $60 million.

So a very minor shift, excluding obviously, loans held for sale.

Right.

Right.

Thank you.

And we have an additional follow-up question.

This one from the line of Michael Zaremski, Credit Suisse.

Hi.

Quick follow-up.

Peter, do you have an estimate of what the FDIC insurance fees have all changed by 3Q given the new rates?

I don't have a detailed estimate on that.

It's obviously a function of where we are in total deposits, but in the general sense they are coming down.

I guess some companies have said as much as 30 plus.

Do you have any ballpark or do you expect it to be material or --

I don't think it's that much.

Okay.

Thank you.

And this concludes the question-and-answer portion for today.

I would like to turn the call back Myrna Vance for closing remarks.

Well, thank you very much and I will turn it to Myrna in just a moment, but I want to thank everyone for listening in.

I feel today better about Texas Capital and our position in the marketplace than I have in two or three years.

Credit costs are dropping, and dropping fairly rapidly.

I think our Company is extremely well positioned with personnel systems, back up and the ability to grow our Company in 2011, and take advantage of what's out there.

So we are very pleased with what we have seen in the first quarter.

We are very pleased in terms of what we see beginning in the second quarter and I think it will be a very good year for us and I really appreciate all your support and help, and with that we'll end our call.

Thank you very much.

And ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.