Texas Capital Bancshares Inc (TCBIO) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Texas Capital Bancshares, Inc. earnings conference call. My name is Chanel, and I will be your Operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Myrna Vance. Please proceed.

Thanks, Chanel, and good afternoon to all of you. Thank you for joining us today. We are pleased to report another good quarter, and glad you are with us. As she said, I am Myrna Vance. And if you have follow-up questions, please call me at 214-932-6646.

Before we get into our 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's 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, 2011, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Now let's begin our discussion. With me on the call today are George Jones, our CEO, and Peter Bartholow, our CFO. And after a few prepared remarks, our Operator Chanel will facilitate a Q&A session. Let we turn it over to George.

Thank you, Myrna. Good afternoon, and welcome to our first-quarter conference call. As Myrna mentioned earlier, we have posted another record earnings quarter, with net income increasing 5% on a linked-quarter basis and 127% from the first quarter 2011. Total deposits increased 9% on a linked-quarter basis and grew 16% from first quarter 2011. Loans held for investment increased 4%, and total loans increased 5% on a linked-quarter basis and grew 23% and 46%, respectively, from the first quarter of 2011. Our business banking model is working well, and commercial lending opportunities abound, due to the size and breadth of our five key markets in Texas.

Our market share for loans and deposits remains small in these markets, providing enormous potential for loan growth and market share gains without stretching in terms of pricing or credit structure. The same is true from a deposit perspective. We continue to add new deposit customers every month, as we leverage our treasury management platform in all our Texas markets. Loans held for sale -- that, of course, is our mortgage warehouse line of business, remained high at quarter end but are expected to moderate somewhat during 2012. However, we believe average balances will exceed averages in 2011.

Although mortgage volumes can be somewhat volatile during periods of rising rates, our warehouse outstandings and earnings contribution tend to be much more stable than the origination side of that business. We have loyal customers, because we have been a steady source of funding over the past three years, when other institutions left this space. We also continue to add new mortgage customers, improving our base as large competitors leave this business, due to their de-emphasis of mortgage lending activities. We are one of the only warehouse banks that do not compete with our customers, and we have become the favorite line of credit in many instances. We are continuing to see reductions in credit costs and nonperforming assets. I will discuss this more in detail after Peter's comments. Peter?

Thank you, George. As George mentioned, we had very strong linked-quarter and year over year performance in net income and EPS. This is especially favorable given that first quarter of the year is seasonally the weakest in our Companies' general operations. In terms of core earnings power, net interest margin, we again had exceptional performance, resulting in strong operating leverage, I will mention later, and improvement in credit costs. Net revenue growth -- Q1 was slightly up compared to Q4 -- again, reversing the normal trend, driven by growth in loans [for the statement in] to produce 37% growth in net interest income, compared to 2011 first quarter.

We have really maintained a strong net interest margin throughout the year. The strong growth in both held for investment and held for sale that produced much improved composition of earning assets and the growth, obviously, net interest income. We had good growth in non-interest income, as well, driven primarily by the improvement in the operations of the mortgage warehouse group. In terms of expense management, non-interest expenses were up less than 1% in Q4, despite normal Q1 factors. The growth from Q1 2011 to 15% -- that compares in the operating leverage context through net revenue growth of 35%. Legal, professional expenses have come down with the reduction in nonperforming assets in recent quarters. The carry cost for OREO -- that includes taxes, maintenance, and other items, are down because of the improvement in our position.

Marketing expenses related to deposit programs produced very strong growth with successful programs. In loan growth, held for investment growth in a number of lines of business and regions was experienced in the first quarter, reaching $5.8 billion at quarter-end -- growth of approximately 4%, as I mentioned, the seasonally weak quarter for Texas Capital. Due to the strong growth at the end of Q4, average LHI balances grew 5% in Q4 and 20% from the first quarter of last year. Starting with Q2, with balances now 18% above Q2 2011 averages and a strong pipeline, suggests that the outlook is very favorable. Held for sale balances remained at very high levels, down just 2.7% from the exceptional levels of Q4.

We exceeded plan with the expansion of customer base, a high level of refinancing activity that both contributed to our exceeding planned levels and overcoming normal seasonal trends. As indicated earlier, as average balances appear likely to exceed $1.5 billion for a meaningful period, we increased the emphasis on our participation program. We had $72 million at quarter-end, with an expansion expected for the second quarter. We anticipate additional participants in that quarter with the refinancing activity and it should bring balances down over the course of 2012, but at higher levels than previously anticipated, in comparison to the average in 2011 of $1.2 billion.

In funding and deposit growth, we had continued improvement in the funding profile, with a reduction of cost in both deposits and total funding from the first quarter last year. Costs were identical in the first quarter to Q4. EA growth of 20% year over year, it has obviously been a major factor. Growth in held for sale provided an opportunity for a more beneficial funding profile; and as planned, in concert with the growth in LHI, the growth in total deposits resumed in Q1, increasing 4% from Q4 and 10% from the prior year. Credit costs and quality trends remain very positive. Other credit costs improved 19% from Q4 and 47% from a year ago.

With improved credit quality metrics in nonperforming loans, net charge offs, loss provision was reduced to $3 million from $6 million in Q4, down from $7.5 million a year ago. Provision in the first quarter was dedicated potentially to the growth in the portfolio. With a significant improvement in NPAs and NPLs, the reduction in net charge offs, which George will cover in more detail later, we expect good results in credit quality trends. The quarterly income statement on Slide 6, obviously it's a strong trend quarterly and with year over year comparisons. We have had tremendous growth in LHI and LHS, coupled with maintenance of a very good net interest margin.

Provision approach normalized in the first quarter and was down sharply, with an improved outlook for credit metrics over the rest of the year. The exceptional progression of net income and EPS producing the highest quarterly ROA and ROE in Texas Capital history. Response to questions about capital we will address later. Slide 7 -- average balances, yields, and rates, loan growth, and funding profile, drivers of high NIM and the growth in net interest income. We did better in earning asset composition. The yield on total earning assets at 4.8% for Q1 has changed less than five basis points since the end of 2010.

The nature of LHI, LHS eliminates the need for us to buy securities with excess liquidity. The very favorable and highly liquid asset category reduces great spreads, has been, obviously, an exceptional provider of growth in net interest income. We get a significantly better yield compared to securities, with a duration of just 15 to 20 days. LHS yields have remained stable in recent quarters and are expected to increase, as mortgage rates increase with no commensurate increase in the cost of funding. Combined with a declining level of securities, our balance of LHS represents a commitment to total liquid earning asset categories, potentially equal to the regional banks throughout the United States, but obviously at much better yields and rate-sensitive characteristics. The modest increase in NIM from Q4 was due essentially to the growth in LHS and LHI. NIM has increased, actually, from the first quarter of last year to a better funding profile. We think this all clearly demonstrates the benefit of Texas Capital's growth model for strong growth in loans, and an impact on net interest margin, but did not produce or come from business weaknesses.

Average balances on Slide 8 -- obviously, LHI growth has remained well above industry levels and ahead of our expectations. LHI growth of 5% from Q4 is really built off the extremely high levels at year-end 2011. EDA and total deposit growth have been strong, even in seasonally weak quarters. The linked quarter-growth in stockholders equity of 20% annualized coming from the excellent returns now growing at a rate exceeding the rate of loans on a risk weighted basis.

Ordering balances -- again, exceptional growth and equity, 19% year over year, 20% annualized by quarter, very good LHI growth, LHS balances at the end of Q1, which we do expect to come down from the surge that occurred compared to the average for the quarter. Very solid growth in deposits, I think, are obvious. On Slides 10 and 11, (inaudible) of net income at 34%, obviously driven by the operating leverage, represented by the difference in percent growth and percent and dollar growth of net revenue, compared to non-interest expenses. Obviously, all of this has been driven by the growth in loans and deposits shown on Slide 11. George?

Thanks, Peter. Turning to Slide 12, the only real change in loan composition is an increase in loans held for sale of approximately $200 million. Commercial real estate market risk assets now make up about 19% of our growing loan book today, and this was opposed to the 20% and 20% plus in the previous quarter. Nonperforming real estate loans comprised 80% of our NPLs, and real estate nonperforming assets are 75% of all of our NPAs.

Moving to Slide 13, this outlines some of the specific improvements in credit quality, and Peter touched on a few of those early on. Total credit costs in Q1 were $5.7 million, significantly better linked quarter and year over year. Charge offs were only 6 basis points, or $828,000, compared to 25 basis points linked quarter and 58 basis points in 2011. Our nonperforming assets are at the lowest level since Q2 2009, having been reduced 54% from its peak level. The nonperforming ratio of 1.4 is -- today, as compared to Q4 2011 of 1.58 and Q1 2011 of 3.01. As mentioned earlier, we believe that we will see further reductions this year in our credit costs and nonperforming assets. And moving to Slide 14 -- this reflects our level of charge offs and our coverage ratios for problem assets. I believe our performance for the past five years will compare quite favorably to any peer group that is used.

In closing, let me summarize a few thoughts -- our strong core earnings and growth will continue in 2012 and beyond. We will maintain a capital position that allows us to continue to grow our business with an exceptional ROE. We will continue to improve credit quality and lower credit costs. We have an exceptionally strong pipeline for loans held for investment that will produce strong future earnings. Our mortgage warehouse group will see higher average balances this year than we saw in 2011, and our business model will continue to produce industry-leading results. Thank you very much. That is the end of our prepared remarks. And now, we will move into the Q&A session.

(Operator Instructions) Dave Rochester, Deutsche Bank.

On the participation program, real quick -- you said you participated out -- was it $72 million in the first quarter? Did I hear that right?

Yes, at the end of the first quarter.

That's right.

And how many banks were involved in that?

We had five banks, Dave. But I will tell you, we have been working on this program, as you recall, for a number of months.

Yes.

It's a very complicated product. We have well over 10 banks today -- or financial institutions or institutional investors that are very interested in the participation product. Peter said, I believe, that you will see a real pickup in that participation in Q2 -- you will, because most of these banks have to do their due diligence. There is onsite visits, it's something that takes a little bit longer than the normal participation cycle. But we have a minimum of $1 billion working interest at this point in time.

Wow, okay. So, on that volume that you are going to participate in the coming quarters, what is the yield on that earning asset to the participants? Is that roughly 3%, or 3.5%, something like that?

We don't really talk about that specifically. But there is basically an interest rate and then there is a servicing fee that our bank will collect for servicing the entire relationship.

Got you. In general, what are the ranges on those all-in fees? Would it be 50 basis points? 75 basis points? Just to get a sense for how quickly that brokered fee income line can ramp up.

Realistically, we don't break that specific servicing fee out. We are a little apprehensive about just talking about a particular fee for a particular service, because it is very competitive out there. It is a reasonable fee that we expect to collect; we expect to increase our net non-interest income fee over and above the normal fees we collect for the business.

Okay, thanks for that. Just one quick follow-up. Just in competition in general, we heard that a couple of other banks, or at least one that announced earlier today, was getting more competitive on rates this quarter. Are you seeing any spread compression at all, at this point?

Very little. We still have quite a number of floors in place, over 65% on our floating rate portfolio. We are seeing a little bit on our larger loans, where there tends to be a lot more competition. If you look at our overall yield on the total portfolio, we are basically flat quarter to quarter -- actually up a little bit.

Okay. In terms of the your variable-rate C&I product that is in the pipeline today, where is that being priced, roughly?

It's really, Dave, all over the board. As you know, it depends on the relationship.

Yes.

I mean, a big deposit relationship, a big treasury management relationship, that pricing can come down on the specific credit. But rates are definitely competitive today. We are definitely seeing pressure in the marketplace from a competitive nature. But we have been able to, as you can tell by looking at our rates, held pretty consistently. It's not -- we don't simply just sell a rate, we sell value added to the relationship; and that is being well-received by our customer base.

Okay. Great. Thanks, guys, appreciate it.

Brady Gailey, KBW.

I was a little surprised about the increase we saw in the comp line, up from about -- a little less than $27 million to $29 million. It's a little more than I had forecast. I know you guys are still hiring here and there, but it's not as aggressive as it once has been. Do you think that over the course of 2012, we see that comp line to continue to creep up little bit? Or do you think $29 million is a pretty good run rate, going forward?

Brady, if you will go back to prior history, we always have an increase in that line item in the first quarter, compared to fourth, because of the way the FICA gets treated in the incentive program. We also had a higher level of 123R cost this quarter, because of vesting that occurred. There are no fundamental changes in the nature of our compensation or no pressures that we are experiencing. So, it's hard to say with us, because we have good history in recruiting new people. You will only see the impact next quarter as the first full quarter of the impact of that hiring, but there are no fundamental issues with the compensation.

Okay. Then, following up on the warehouse, it sounds like you have decent demand for that product to go to other investors. How much are you willing to let go? I think in past conversations, you have said anything over about $1.5 billion you would be willing to participate out. Is that still a good ballpark number?

I don't think we have said it quite that way. It's when we see levels above $1.5 billion for an extended time period -- you never know when that time -- how long that time is going to last. It has actually been much stronger and lasted longer through two seasons than we would have anticipated. As George commented, it takes a while to get those programs up, because of the complexity. But we don't have a specific targeted balance of that.

We want to use that as a means -- obviously, of generating more income. We want to use that as the means of keeping larger customers, to service their needs as we expand market share in that business. So, that is how much we will have outstanding. It's directly related to the total product that we are processing, and it's a way for us to benefit in a capital return, other way.

As Peter mentioned earlier, it's important for us to continue to take market share from our competitors -- in all lines of business, this is just one. So, it's really important for us to add those new long-term customers, because refi will decline. We are processing over 50% of refis today in our portfolio, and that will come down. So, we want to be able to continue to add customers and add that stable -- that we talked about earlier, that stable, long-term, less volatile income stream that you and we can count on as we go forward.

Okay, and lastly -- (multiple speakers)

It's all a part of a plan.

-- syndicated loan balances, where did those finish in the quarter? I think they were about $945 million at the end of the year.

Right about there, it's $950 million -- $954, I think, was the exact number. As you say, it was flat from Q4.

Okay, great. Thanks, guys.

John Pancari, Evercore Partners.

Can you talk a little bit about the loan growth in the quarter and the help from investment portfolio? Where did you see the bulk of the growth, was it in energy and mid-market, or large corporate? And then, also, why do you think it kind of bucked the trend of the seasonality that you traditionally see in the quarter? Thanks.

Yes. First part of that question first -- we saw it in three or four specific lines of business, we had good participation across the board. But you are right, energy was a very good participant in growth. First of all, most of it was C&I, so we had a lot less in terms of real estate growth. But mostly C&I energy, which is considered C&I. Private client, which is anticipating and servicing the needs of our high net worth individuals, they are beginning to invest. We saw some healthcare fundings out of our Dallas corporate office. Lastly, it is a real estate component -- our builder finance group had a nice growth in Q1. Again, that is the team we were fortunate enough to attract from another bank, and put together a really great product line to address the great regional builders that didn't participate in the downturn.

So that is the scenario of where most of that growth came. It's interesting -- I don't have a real great answer for you in terms of -- why this quarter as opposed to Q2. But it probably had something to do with the economy and the way our customers are feeling, in terms of beginning to expand their businesses again. And we do see that. We are basically still growing from market share takeaway, but we are seeing selectively some of our customers beginning to expand their CapEx and lines of credit for 2012.

John, as I mentioned, a lot of the linked-quarter average balance growth came from the really high levels that we had at year-end.

Right, okay. Then, on the margin. Can you give us also some more color on your margin outlook, given the -- some of the pricing pressure you are starting to see in some of the larger paper and larger credits? Then, also, given the growth in the warehouse. So, can you give us some color, in how much more compression you think you can see through the year?

I wouldn't regard it as compression based on product type or anything like that; it's a function of markets, like the mortgage rate. I think that our overall earning asset yield varied only 5 basis points from a year-ago quarter, really from the end of 2010. It seems that it has been pretty damn good balancing the benefit of improving the funding costs. We don't see much further improvement in that category, but we continue to eke out a little more in demand deposit growth, even though the value of demand deposits is not high in this rate environment.

The benefit of floors has lasted as well or better than we would have anticipated, but we are not the Wal-Mart of banks in terms of loan pricing. The biggest compression in yields of pricing has happened at the high end, what we would consider the middle market. We had, had good growth in components outside of that toughest group. All that said, we know it's going to come down, offset by the very strong likelihood, in our judgment, that we will see improvement in the yield of held for sale over the course of this year.

Okay, great. All right, thank you.

Brad Milsaps, Sandler O'Neill.

Nice quarter, guys. Wanted to talk a little bit more about, George, some of your comments on capital. I know the ROE is now really at record levels, but the regulatory ratios have come down quite a bit. If I understand you correctly, you feel like the profitability, along with maybe some shrinkage in the held for sale book, due to the participations, you guys will be able to fund your growth internally and not need additional capital.

We feel comfortable in saying that, Brad -- this year, 2012. Our internal capital generation rate today at these levels is quite good. It's really keeping up with our growth, and we are going to manage the held for sale portfolio with the participation product that we have mentioned and talked about earlier.

So, with all those factors in place, we don't feel that we would need to add capital this year. But we prepare the Company to do that. We are watching the markets, we are looking at the debt markets, the equity markets. If we are fortunate enough to get a little excess growth over and above what we had planned for and it makes sense, we would not be opposed to looking at the capital markets, but probably in the debt category as opposed to equity. So, again, we are not out there beating the bushes today to raise additional capital.

Brad, as a practical matter, we have always been pretty aggressive in building capital when we see the growth opportunity. But it would have to be quite a bit stronger than we view today, to feel like that would be very important to us.

Got it. Then, just a second question -- George, you have talked about this quite a bit in the past, but in terms of your energy business. I would be curious to get your thoughts, particularly as it pertains to natural gas. I know you guys spend a lot of time hedging with your customers and understanding where the pressure points are with gas prices. But just to get your updated thoughts and see where you guys are with that at this point.

Okay. We have been conditioning our customers for the last 18 months, at least, for lower natural gas prices. So, we have had some time to work with them. We only have 5% of our portfolio in dry gas, which is where more risk is today, obviously -- that is like $30 million today. Small in comparison to the overall portfolio, a small piece. We have been pushing some of that segment to pay down their lines early on. We have been putting hedges in place for them. Today, you can hedge at about $2.75 out to 2013. Or you can put a collar in place to 2013 at $2.50 by $4.50. So, we have run sensitivity cases on that $30 million to $35 million to determine where these things need to be and how we need to put them into place.

The portfolio is performing quite well. We really don't have any significant problems in the energy portfolio. I believe the way we are trying to address the dry gas issues and the low gas prices, which could be with us for a while, is the right way to do it. So, we will continue to work with those customers, and again, run, run plenty of sensitivity cases to see where the weak points are. As you know, we have talked before. The rest of our practice is oil-related, but not oil service business. We don't do any oil service business. That is where we see some real weakness coming.

We have talked to some of our energy customers who are absolutely pulling rigs out of the ground right now, in a number of fields and they are going to stack these things. If you are financing the service business, you better have a backstop. We have never done that, and we don't plan to do that. I don't know if that gives you any sense of where we are and where the business is. I think gas prices could be low for some period of time. A lot of factors that weigh into that, but we believe we are well-prepared.

That is great color, George. I appreciate it.

Brett Rabatin, Sterne, Agee.

I wanted to ask -- I wanted to see if I understood right. Your guidance around the decline that you are looking for in the held for sale portfolio versus the growth of the held for investment portfolio. Does -- essentially the way it works is you are looking for the runoff -- or I should say, the decline in the held for sale portfolio to be offset by the growth that you are going to experience in the held for investment portfolio, and keep averages balances flattish? Or can you give us a little more color around how you see the interplay between those two lines.

We really break those into two significant parts. We think if you take the loans held for investment side, which is what we are spending a lot of time and effort growing. It's what we have said in the past, is we think you are going to see double-digit growth this year, mid teens-plus. The warehouse business is really hard to put a number on. We think it's in pretty good shape about where it is today, maybe a little bit less. But it moves up and down a lot. Particularly, as we have said, at the end of the month or certainly at the end of the quarter.

So, a 15%-plus growth in held for investment and fairly flattish type of loans held for sale. Where we are in effect taking in new clients, offsetting the refi, beginning to go down, and increasing our average outstanding, which is how you really have to measure this business -- well over averages for 2011. I don't know if that makes a lot of sense to you, but --

No, that is -- actually, that helps.

We need to break that up and look at it specifically. We think we have no problem in taking additional market share in the warehouse. We are just managing with the participation program where we want it to be on our balance sheet.

Yes. Then, George, it seems like everyone is talking about competition and lower rates and all that kind of stuff. So, there are obvious reasons for the -- everyone's margin to be under pressure. But as I think about your outlook maybe a year from now, if you have a lot higher proportion of held for investment loans versus held for sale loans on your balance sheet. It would actually seem to me like your margin relative to this quarter could be as high as it is today, or maybe even better, depending where your loan portfolio yield ends up. Do you have any thoughts?

What we have said on that is we don't get margin guidance; but within a reasonable range, we think that statement is pretty true, in terms of what you have said. We discussed it in terms of ranges, and we don't see any large swings up or down.

Okay. You touched on a little bit on -- just a minute ago. I was curious to hear any more color, if you care to provide it, around doing some debt issuances to bolster Tier 2 and the total res space capital ratio.

Well, what I said was that we are preparing the Company to be able to do that, if and when we desire to do that. We don't have any pressure from any source today to put additional capital in the bank. But based on our balance sheet composition, a subordinated debt issuance would not be out of the question to review, on a go-forward basis.

We still have our ATM in place, and we have about $27 million worth of room under our equity ATM too. If the stock price stays up, it might be a good opportunity to use some of that. We are not really there yet, because we don't think we need to be there, but we are looking at all avenues today. The thing we really don't want to have happen is to get to a point where we have to limit our growth by not putting enough capital in place and giving us the ability to grow.

Okay, great. Thanks for the color.

Let me give you one other comment. We now have in place a line of credit with a major commercial bank, that permits us to use additional debt placed in the bank by the parent as a subordinated capital debt, to act as a shock absorber, basically.

Okay, but you didn't have any outstanding this quarter, correct?

We did not at quarter-end. We do at -- shortly after quarter-end, just $5 million.

Okay, great. Thank you.

Michael Rose, Raymond James.

Most of my questions have been asked, but just wanted to get a little bit more color on the loan pipeline, quarter to quarter. Where you are still seeing strength on a geographic basis. Then, also, I think I asked this last quarter, but as it pertains to your -- the lenders that you hired over the past couple of years, where do they stand in their ramp-up process? What is your outlook for adding additional staff at this point? Thanks.

Well, we added a net three RMs in Q1. The pipeline, as I mentioned earlier, is quite good. It's tilted toward C&I. There is well over $100 million in that pipeline on a gross basis. On a net basis, after payoffs, we think it will be in the $75 million to $100 million payoff -- things it could fund within a short period of time, like 30 days.

So, we think that Dallas and Houston are two of the best locales, and have been represented in the pipeline as such. We plan to add RMs in several lines of business -- again, basically relating to the C&I category. That would be at the home office in Dallas, and that would also be in the regions outside of Dallas, also. We really believe that we are going to see some ability to grow organically, hopefully -- in sometime in 2012, but certainly in 2013. We will prepare the Company to be able to manage that, give us plenty of capacity to be very competitive.

All right. As a follow-up to that, I think you said that you -- most of your growth is still coming from market share takeaway. Did you see any modest increase in line utilization this quarter, among your existing customer base?

Sorry, repeat that. I didn't hear you. Did we see an increase in?

Just trying to get a sense on line utilization.

Line utilization. Some, but as I have said before, we don't give lines to people as backup lines or lines that we don't expect them to use. So, we will have a higher utilization than your typical large, regional bank. We will stay -- we are not full, but we will stay more loaned up with the level of customer we attract than maybe a backup line in New York. We have seen some increase in utilization, but we are really not a good model to look at. In terms of -- are we seeing a real ramp-up in usage, because we have always seen pretty good usage with our customers.

Great, thanks.

Matt Olney, Stephens Inc.

Can you guys give us an idea of how much the warehouse benefited from the government programs like HARP 2.0 in the first quarter? Or is that more of a Q2 event for you guys?

I don't have the specific numbers, and it will be much more of a Q2 than a Q1. But I can tell you that we are seeing some ramp-up of HARP 2.0 -- or we did see some ramp-up of HARP 2.0 in Q1. We think that it will be more evident in Q2. But it looks like we are going to see the benefit of that program through our warehouse line.

Okay. Just another question. Peter you made some previous comments about the compensation line item and how there is no real fundamental change with that. Will that also hold true if you get some more participations over the next few quarters? Or could that jump that up, hypothetically?

I don't see it having a significant effect on that aspect of the compensation expense. Compared to Q4, excluding the FDIC component, which -- excuse me, FICA component that I mentioned, we were up 1%. But we see in Q1 a higher number because of that and compared to the prior year, because of the buildup in new RMs and staffing to support growth over the past year.

Sure, okay. Very helpful. Thank you.

Jennifer Demba, SunTrust Robinson.

Thanks, my questions have been covered. Good quarter.

Thanks.

Gary Tenner, D.A. Davidson.

I had a couple questions following up on the warehouse business. In terms of the participations, you said, I think, $72 million at quarter-end. What do you think in the second quarter, at least as a short-term view -- does that grow by several times, on average, do you think, in the second quarter? Just based on where the period-end held for sale portfolio was and your expectations for the second quarter?

What we have said is, a number of our potential participants are large financial institutions, institutional-type investors that certainly would need and want to take a larger participation than simply a $5 million or $10 million participation. We don't know specifically what that number will be, but I feel very comfortable in telling you it will be at least twice what we have, probably more than that.

Okay. In terms of the mechanics of the way that the participations work, do you commit to utilizing some X dollar amount of a participant's line for some period of time? Or does the participant accept the volatility -- (multiple speakers)

That's a little bit deeper than what we typically go into on our call. Sometimes it's structured differently, but it's difficult to particularly draw a specific example. It's a competitive product, and we just really prefer not to get into that.

Okay, thank you.

David Bishop, Stifel Nicolaus.

During the prelude, did you say that the current level of provisioning has probably reached a normalization or near-term normalization level?

Well, just in terms of percent of LHI, it's down to a level that has been consistent with our longer-term history. Obviously, not over the last several -- but historically, our charge-offs, I think for the last 5 or 10 years, have averaged less than 30 basis points. So, a factor equal to that plus growth is relatively predictable.

Great. Thank you.

(Operator Instructions) There are no further questions. I would now like to turn the call back over to Management.

Thanks very much for your attention this afternoon. We appreciate the questions, and hopefully we answered them to your satisfaction. Thanks so much for being part of what we do. You can be assured that Management will continue to work hard for the benefit of the shareholders, and we look forward to talking to you next quarter. Thanks very much.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.