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Article by DailyStocks_admin    (10-06-08 03:38 AM)

Filed with the SEC from Sep 18 to Sep 24:

Texas Capital Bancshares (TCBI)
Sandler O'Neill Asset Management reported owning 1,823,000 shares (5.91%), after buying 948,000 from July 16 to Sept. 11 at $14.01 to $18.11 each.

BUSINESS OVERVIEW

Mryna Vance

As always, if you have any follow-up questions, give me a call at 214-932-6646.

Now 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' control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include the risk of adverse impacts from general economic conditions, competition, interest rate sensitivity, and exposure to regulatory and legislative changes.

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2007, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Now, let's begin our discussion. With me on the call today are George Jones, our President and CEO; and Peter Bartholow, our CFO. As Amy said, after a few prepared remarks, she will facilitate a Q&A session.

Let me turn the call over to George.

George Jones

Texas Capital Banc had another good quarter of growth. You’ll see that in just a few moments, when we reveal the specific numbers for Q2. Our margin stabilized during the quarter, and we did not see any deterioration from Q1 2008. We are, though, modestly adjusting guidance for annual net income to a range of $30 million to $33 million, and we’re confident about the remainder of 2008.

The Texas economy is certainly the bright spot in the economy today. While we don’t have all the numbers in for the second quarter, we can see that our economy continues to show resilience. The markets where we’re located continue to outperform national averages. The unemployment rate is below the national average in May for 4 out of our 5 markets, and equal to the national average in the Dallas/Fort Worth area. The annual job growth rate was better in each of our markets than the national average. Houston, as an example, added more jobs in the trailing 12 months ending March 31 than any other city in the nation. New housing inventory, May 2008 over May 2007 in all our markets, declined significantly, and we believe that Texas is beginning to show that market absorption of excess inventory is beginning to take place.

Peter will cover Q2 results in more depth, but let me touch on some of the numbers briefly. Net income in Q2 was $5.8 million, or $0.22 per share. It decreased 27% compared to Q1 2008, and a 29% decrease compared to Q2 2007. The major contributing factor to the decrease was our provision for loan losses, which I’ll discuss in much more depth in just a few moments.

We had excellent growth in total loans, 5% link quarter, a 22% increase compared to Q2 2007. I’m particularly pleased with our demand deposit growth, on a link quarter basis of 9%, a 12% increase compared to Q2 2007. Another positive element of core operating results was our net interest margin remaining stable at 365, compared to Q1. As I mentioned before, we provided $8 million to our loan loss reserve in Q2 2008, supporting growth and risk rate changes in our loan portfolio. I will discuss charge-offs, EPS and ORE in some detail after Peter reviews our financial performance.

I’ll turn it over to Peter.

Peter Bartholow

Talking about the performance drivers in the second quarter that produced a net income of $5.8 million, reflecting what we believe is very good performance, especially in core earning power, and especially, also, in light of industry conditions. We did experience 28% decrease in earning per share, for the reasons George has already mentioned, but the stable net interest margin – and I’ll comment more on this in a moment – we did see improvement again in net operating leverage, a reversal of the Q4 to Q1 situation when we experienced a reduction in net increase margin.

The modest change in guidance obviously reflects changes in the industry since January of this year. While net interest margin was stable in Q2, the rapid change in short term rates was not anticipated when we gave guidance. I think we commented earlier that the pace and level of change was greater than we had anticipated. We are experiencing some impact, obviously, of the factors affecting the entire industry – only to a much more moderate degree. Provision through Q2 is clearly larger than anticipated, and guidance about which George will comment in much more detail.

Due to the strong growth we experienced, we may have maintained guidance if only one of the two factors had changed – either net interest margin, or provision, but not both. The wider range we have provided, we believe is appropriate due the uncertainty in the market today, and industry conditions.

I would like to emphasize, while it’s not reflected on the slide, that we had really good growth in stockholders’ equity, strong equity position we have to support growth, and we have no intangibles that are foregoing, have become, and may become a bigger issue in our industry. If you’ll forgive us, we have apparently, construction taking place on the floor above us as we speak.

Turning to the next slide, as I said, good core earnings power reflected in net revenue growth, link quarter growth 4.3% and year over year of 10.9%. Loan growth, link quarter of 5% and 22% over the previous year, obviously were major factors in the growth and net interest income. Reversing the position from Q4 to Q1, where we, for the first time, had actually seen net decrease in net interest income. Non-interest income growth was good at 4.3%, and that was due primarily to significant improvements in service charges and mortgage warehouse fees. Expense growth of 3.7% in the link quarter, and 7.3% in the year over year periods show that we are making progress in the ratio of non-interest expense turning assets, and more modestly on the efficiency ratio compared to prior years. The core operating expense growth was less than 2%. Professional and other expenses contributed to most of the link quarter increase of just over $1 million.

Provision expense of $8 million was the obvious variance from which we anticipated in the guidance originally given. We saw in the quarter, significant contributions of the mortgage warehouse group, strong growth, meaningful yield improvement, and an ability to increase these in this market.

Turning to slide 9, the strong growth is obviously evident in the balances on average basis for loans held for investment and loans held for sale. Link quarter growth of 5%, or just under $200 million, year over year growth of almost $700 million, or 22%. As stated in earlier calls, this does reflect much improvement in the productivity of REMs, something that’s been planned for 2007 and 2008. The link quarter growth in loans held for investment is consistent with our view that growth rates in 2008 would be less than those for 2004 to 2007, but still very strong compared to industry and Texas peers. We have higher return threshold built into the models today, and we are imposing much tighter credit standards than in previous years.

The loans held for sale category is up sharply due to our position in that industry, and things that are driving business our way. Obviously the continued shift in earning asset composition is important to us, and is driven by strong loan growth, with loans to earning asset now in excess of 90%.

Total deposits, we mentioned, up 3% link quarter and 6% year over year. DDA growth was exceptional, link quarter up 9% - and actually most of that occurred in the last half of the quarter. EDA growth year over year of 12%.

The next slide – June 30 loans held for investment were $3.7 billion, obviously a record for us at quarter end. An increase of -- that reflects actually an increase of 3% from the average levels of Q2 2008, again implies an annualized growth rate, on that basis, of 24%. I will say that Q2 has been historically very strong in terms of loan growth.

Total loss peaked at $4 billion for the first time. Loan link quarter increase of over $300 million. The strongest contributors to loans held for investment were Energy and Dallas Corporate, and had strong support also from Houston, San Antonio and Austin. We also saw deposits grow at a record level. Q2 is, again, historically a strong period for deposit growth. With DDA, though, reaching $610 million, it was really extraordinary. The link quarter increase of 21% and a year over year increase of 23% is something that, I think, is really remarkable in light of an all organic growth business model.

Total deposits at quarter end – $3.6 billion, an increase of $438 million, again a record. We believe that our performance reflects some weaknesses in the large competitors that operate in our market. Strongest contributors on deposit growth are Dallas – in various lines of business, Austin, San Antonio.

The next slide we’re back to margin. The 365, same as Q1 2008, and obviously a major contributor, was the strength of DDA balance growth. We also have had good re-pricing of interest bearing liabilities and all interest bearing liabilities – interest bearing deposits and all liabilities, essentially the same as loans. We saw a spread improvement due to greater pricing flexibility now evident in our marketplace, and we also benefited from the spread between LIBOR and Fed Funds, a contribution that was greater than that during Q1 of this year.

The NEM contribution of Mortgage Warehouse was also important. Historically, that category of lending has been among the lowest yielding in our portfolio. The conditions in that marketplace have seen spreads widen significantly, and we have also been able to increase fees in that business. As indicated, the company is much less asset sensitive than in years past, but growth will constrain that interest margin. Stability of rates, as demonstrated, is obviously very helpful, and the DDA contribution going forward, depending on the growth rate in DDA, will obviously have a significant effect at the margin. Rising rates, obviously, will be helpful, even if asset sensitivity, as I said, isn’t as big a factor.

Also contributing to net interest margin, earning asset composition with strong loan growth, and with continued run-off at securities, and obviously fixed rate earning assets are having a bigger impact today. We have seen, as I commented earlier, such a steep decrease in the speed and the level of Fed Funds, that it has had an effect on our margin expectations this year. Also, the private pricing, especially if a bank is growing, have become more significant to us and to the industry because, we think, primarily of a global demand for liquidity given the problems in our industry.

Turning to the next slide, I’ll say simply that we think, again, this is a very strong growth model, and one that supports the view and the commitments we’ve made. A very strong core earnings power reflected on that slide. Conditions did not change in our view of that business model, and I will comment that, while we have higher than normal provisions so far this year, historically, credit costs have been maintained at very low levels compared to the industry and to our peers, and have been more than offset by the growth advantage of our business model and the focus on organic growth and not acquisitions.

Slide 13 – The taggers for DDA and total deposits have actually increased from the earlier periods. Strong growth in the recent past has been, obviously, a big contributor. No change in the tagger for the loans held for investment. Again, the growth model is confirmed and we believe the market opportunity remains very strong today.

And, with that, I’ll turn it back to George for more comments about credit.

George Jones

You’ll see a new slide in the presentation – the loan portfolio statistics. Let me make a couple quick changes before we discuss it. The residential real estate market risk is 7%, rather than 10%. The commercial real estate market risk is 20%, and our business assets are 32%. We had a transposition of a couple of numbers there and I want to clarify that before we discuss. We’ll send a new slide out for your use.

We classify our portfolio a number of ways, but this way is shown by loan collateral type, which will give you a slice of what our portfolio looks like. We classify as C&I loans the business asset segment, the energy segment, a portion of the highly liquid assets – those loans secured by cash, marketable securities, those kinds of things – other assets, and unsecured, for approximately 55% of the portfolio we deem to be C&I exposure. Our mortgage warehouse totals about 8%, and is included in the liquid asset category. We classify as real estate, as you see here, commercial real estate, market risk real estate non-residential at 20%, owner occupied at 10%, and residential market risk at 7%.

If you move to the next slide, we show our non-pass, or classified grade loans, by type. This includes the non-performing loans also, and is broken down as follows, as you can see: 71% being the C&I portfolio – again, this category includes corporate credit, business assets, energy leasing, and other lines of business. Our residential related exposure here is 24% related to single family, market risk – these are builders and lot developers. The third category, commercial real estate, at 5% includes every type of commercial, market-risk real estate other than residential. And as we’ve said before, and we’ll say again, you can tell that the commercial real estate portfolio is performing extremely well.

If you turn to the next slide, we’ll talk about our credit in specifics. Our credit experience remains good. Net charge-offs were $3.6 million in Q2 2008, and $6.1 million year to date. 53%, or $3.2 million of the year to date charge-offs of $6.1 million was one credit, Home Solutions, that we identified and reserved in Q4 2007. 48% or $1.7 million of the Q2 2008 charge-off – again, that same credit – was in that total. 89% of Q2 charge-offs were represented by just 2 credits. As we mentioned earlier, the charge-offs related to specific problems were substantially covered with allocated reserves in 2007.

Net charge-offs represent 40 basis points for the quarter, 35 basis points year to date, and 25 for the last 12 months. We have seen an increase in non-performing loan levels that we believe are not excessive, but require – and are receiving – intense focus from management. Overall, we are seeing risk grade increases, and increases from non-accruals, but we do not currently foresee significant charge-offs in the second half of the year.

As mentioned previously, of great help to us, frankly, in reducing charge-off potential in Q3 and Q4 is the disposition of 3 problem credits that were resolved in Q2. The largest problem loan over the last 3 quarters has been related to the Home Solutions credit. We received payment for the outstanding balance of that loan earlier this month, July. That loan represented approximately $5 million in charge-offs of the total $8.6 million charge-offs over the last 3 quarters. The exposure in that loan was substantially reserved for in Q4 2007. The remaining exposure was covered by provision in Q1 2008 as the borrower’s restructuring plan was developed.

The second problem loan was a C&I loan for which a substantial reserve was applied at year end 2007. That was covered all but approximately $250,000. We were able to sell that loan, and we did not provide any financing to accomplish that transaction, at a discount of $1,450,000. The sale of that loan eliminated the need for a protracted work out that really would have increased expense and exposure to additional loss.

Third, one additional loan in Houston, which we’ve discussed before, had a substantial reserve that had been allocated at year end 2007, was charged off in the amount of $1.5 million dollars. The balance of that loan was repaid.

Let me take a moment to give a little more transparency and color, as it relates to our non-performing loans, our ORE, and our 90 day past dues. Non-approval loans and ORE are up from $17 million in Q1 to $22 million in Q2. The larger, non-accrual loans that make up, really, over 85% of that total, are the ones I’ll talk about right now. Home solutions at $2 million – that was paid in early July, and as I mentioned, we took a charge-off of $1.7 million. Again, that has been reserved in Q1. Secondly, residential mortgage loans of $4 million that have been marked to market and allocated with proper reserves. Third, there was a lot development loan in the amount of $8.8 million dollars, with a current appraisal supporting our collateral value. But, in addition, we have also put additional reserves behind this particular loan. We have a number of prospects today for sale of this property.

This particular loan is really a good example, frankly, of the need for cash equity upfront on a real estate development loan. We had 35% hard cash equity invested by the owners upfront, and made a 65% loan to cost ratio on the project. While this really doesn’t guarantee the value of the collateral will fully liquidate the loan, the loan balance carried on our books today is supported by an appraisal. Even in a down market, the value of cash equity is very important.

ORE totals have moved up to $5.6 million in Q2, from $3.1 million in Q1, and one half of that amount is represented by a commercial site near Houston that we’ve talked about before. We have a current appraisal supporting our carrying value today, and we’re actively marketing the property with some success. The other one half of our ORE portfolio is represented by single family product and a small office building, all in Texas. We have 12 homes and 10 lots today, and we’ve sold 3 homes and 4 lots as of 06/30/08. We’ve got 9 of the 10 remaining lots under contract for sale, and 1 house is under contract for sale. This is all cash. No financing required to accomplish these transactions. We believe that all of our ORE portfolio is properly valued on our books today. Also, I will mention that in the sales of those particular properties we have not recognized any loss.

In looking at our loans over 90 days past due – that total is $23 million – the increase of $16 million from Q1 really represents 2 loans. Frankly, one is a non-criticized $5.9 million real estate loan to a good customer that carries an above average credit grade, and that loan has already been renewed in early July – absolutely no problem, but did slip into the 90 day past due category. Secondly, a C&I loan of $9.6 million that is criticized, but has not been placed on non-accrual today because the company and the guarantors can still service the loan. It was being held past due to help in our restructure process. We believe the loan has the proper amount of reserves allocated to it at this time. The balance of the 90 day past due category we’ve really talked about before – premium finance loans of $1.8 million that are not problems, but represent cancelled insurance policies waiting for returned premiums to pay the loans, C&I loans of $1 million are waiting to be paid or renewed that are not criticized, and then we do have $3 million of real estate loans that are less than past credits, but again believe they are properly reserved.

As we’ve mentioned, Peter’s mentioned and I have, we made up a loss provision of $8 million in Q2 08. This provision increased our loan loss reserve balance to $38.5 million, or 1.04% of loans held for investment. The provision was ahead of our guidance because, as we’ve said before, based on our methodology we’ve applied all loans, especially MPAs; our reserve balance should always be increased by more than our expected loss exposure at that time. When we identify a weakness in a loan and we downgrade it, or classify it, even if we cannot identify any amount of loss at that time, our formula drives a certain precautionary percentage that can be increased or decreased over time as loss exposure is recognized.

We certainly believe that conditions today in our industry continue to warrant intense focus and further tightening of standards. We’ve done this across our different lines of business so we’re always evaluating what we need to strengthen underwriting.

If you move to the next slide, it graphs net charge-offs to average loans. As mentioned before, year to date charge-offs are 35 basis points, and our loan loss reserve to average loans held for investment is 1.04%. As you can see, that percentage is as large as it’s been since 2004, but frankly today’s environment dictate higher reserves. We believe that 45 basis points of non-accrual loans are slightly higher than we’d like to see, but we also believe that most all banks are going to see this ratio climb while the financial community is dealing in this economic environment.

So let me close the credit discussion -- I'd like to summarize with 4 or 5 bullet points: Non-performing assets now represent less than 1% of total loans, or 86 basis points, today; Provision is driven by consistent application of the methodology – that’s growth, and that’s change in grade; Losses have historically been substantially below allocated resources; Our charge-off potential for Q3 and Q4 has been reduced with the disposition of the 3 problem loans I discussed in Q2; Real estate exposure is more than 90% in the Texas market.

I’d like to make a few closing comments before I open the call for questions. We believe that we had another good quarter of growth and operating. We’ve increased our loan loss provision above our previous guidance, but we believe that’s prudent and really necessary in this economy. We continue to be cautious about the near term future for the economy, but we do believe that Texas, and the markets within Texas where we’re located, will perform better than the rest of the country. We have changed the guidance to a range of $30 to $33 million, or approximately 10% below guidance given earlier this year. We’re continually, and are continuing, our intense focus on maintaining good credit quality. And frankly, something we have not discussed today, we want to exploit our market opportunities that we see today for people and customers. We believe that banks with good credit quality, adequate capital, and good people can certainly take advantage of opportunities that will arise in extremely difficult economic times – we plan to do just that.

Thanks again for your support, and be assured that Texas Capital will be working hard to be the bank of choice in the Texas market. Now we’ll take a few moments for questions.

CEO BACKGROUND

Joseph M. (Jody) Grant has been the Chairman of the Board and Chief Executive Officer since the Company commenced operations in 1998. In addition, he currently serves as the Chairman of the Board of the Bank. Prior to co-founding the Company, Mr. Grant served as Executive Vice President, Chief Financial Officer and a member of the board of directors of Electronic Data Systems Corporation from 1990 to March 1998. From 1986 to 1989, Mr. Grant had served as the Chairman and Chief Executive Officer of Texas American Bancshares, Inc.

George F. Jones, Jr. has served as the Chief Executive Officer and President of the Bank since its inception in December 1998. Mr. Jones was also a founder of Resource Bank, the predecessor bank. From 1993 until 1995, Mr. Jones served as an Executive Vice President of Comerica Bank, which acquired NorthPark National Bank in 1993. From 1986 until Comerica’s acquisition of NorthPark in 1993, Mr. Jones served as either NorthPark’s President or President and Chief Executive Officer.

Peter B. Bartholow has served as the Chief Financial Officer since October 6, 2003. Mr. Bartholow had served as a Managing Partner with Hat Creek Partners, a Dallas, Texas private equity firm from January 1999 to October 2003. Prior to joining Hat Creek Partners, he was Vice President of Corporate Finance of EDS and also served on A.T. Kearney’s board of directors during that time.

Frederick B. Hegi, Jr. has been a director since June 1999. He has been a partner of Wingate Partners, an investment company, since he co-founded it in 1987. Mr. Hegi currently serves as Chairman of the board of directors of United Stationers, Inc. and as a director of Drew Industries Incorporated.

Larry L. Helm has been a director since January 2006. He currently serves as executive vice president-finance and administration of Houston-based Petrohawk Energy Corporation, a company engaged in the acquisition, development, production and exploration of natural gas and oil properties located in North America. Prior to joining Petrohawk, Mr. Helm spent 14 years with Bank One, most notably as Chairman and CEO of Bank One Dallas.

J. R. Holland, Jr. has been a director since June 1999. He has served as the President and Chief Executive Officer of Unity Hunt, Inc., a diversified holding company, since 1991. He has also served as Chief Trustee of the Lamar Hunt Trust Estate since 1991. Mr. Holland currently serves on the board of directors of Placid Holding Company and International Surface Preparation Corporation.

W. W. McAllister III has been a director since June 1999. He served as Chairman of the Texas Insurance Agency Group of Companies, a group of affiliated property and casualty insurance agencies, from 1992 until his retirement in March 2002.

Lee Roy Mitchell has served as a director since June 1999. He has served as Chairman of the board of directors and Chief Executive Officer of Cinemark USA, Inc., a movie theater operations company, since 1985.

Steven P. Rosenberg has served as a director since September 2001. He is President of SPR Ventures, Inc., a private investment company, and President of SPR Packaging LLC, a manufacturer of flexible packaging for the food industry. He was a director of Texas Capital Bank from 1999 to September 2001.

John C. Snyder has served as a director since June 1999. He has also served as Chairman of Snyder Operating Company LLC, an investment company, since June 2000. From 1977 to 1999, Mr. Snyder served as Chairman of the board of directors and Chief Executive Officer of Snyder Oil Corporation, an energy exploration and production company. In 1999, Snyder Oil Corporation was merged into Santa Fe Snyder Corporation, an energy exploration and production company, where Mr. Snyder served as Chairman of the board of directors through June 2000 when it was merged into Devon Energy Corporation. He also currently serves as a director of SOCO International plc, a UK oil and gas exploration company and advisory director of 4-D Global Energy, a French private equity company, focused on international energy investments.

Robert W. Stallings has served as a director since August 2001. He has also served as Chairman of the board of directors and Chief Executive Officer of Stallings Capital Group, an investment company, since March 2001. From 1991 to 2001, Mr. Stallings served as Chief Executive Officer of Pilgrim Capital Group, an investment company. He is currently Executive Chairman of the Board of Gainsco, Inc.

Ian J. Turpin has been a director since May 2001. Since 1992, he has served as President and director of The LBJ Holding Company and various companies affiliated with the family of the late President of the United States, Lyndon B. Johnson, which are involved in radio, real estate, private equity investments and managing diversified investment portfolios.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview of Our Operating Results

We commenced operations in December 1998. An important aspect of our growth strategy has been our ability to service and effectively manage a large number of loans and deposit accounts in multiple markets in Texas. Accordingly, we created an operations infrastructure sufficient to support state-wide lending and banking operations.

The following discussions and analyses present the significant factors affecting our financial condition as of December 31, 2007 and 2006 and results of operations for each of the three years in the period ended December 31, 2007. This discussion should be read in conjunction with our consolidated financial statements and notes to the financial statements appearing later in this report. Please also note the below description about our discontinued operations and how it is reflected in the following discussions of our financial condition and results of operations.

On October 16, 2006, we completed the sale of our residential mortgage lending division (RML). The sale was effective as of September 30, 2006, and, accordingly, all operating results for this discontinued component of our operations were reclassified to discontinued operations. All prior periods were restated to reflect the change. Subsequent to the end of the first quarter of 2007, Texas Capital Bank and the purchaser of its residential mortgage loan division (RML) agreed to terminate and settle the contractual arrangements related to the sale of the division. We have completed the exiting of RML’s activities. Our mortgage warehouse operations were not part of the sale, and are included in the results from continuing operations. Except as otherwise noted, all amounts and disclosures throughout this document reflect only the Company’s continuing operations.

On March 30, 2007, Texas Capital Bank completed the sale of its TexCap Insurance Services subsidiary; the sale was, accordingly, reported as a discontinued operation. Historical operating results of TexCap and the net after-tax gain of $1.09 million from the sale are reflected as discontinued operations in the financial statements and schedules. All prior periods have been restated to reflect the change. Except as otherwise noted, all amounts and disclosures throughout this document reflect only the Company’s continuing operations.

Year ended December 31, 2007 compared to year ended December 31, 2006

We recorded net income of $31.4 million for the year ended December 31, 2007 compared to $29.0 million for the same period in 2006. Diluted income per common share was $1.18 for 2007 and $1.10 for the same period in 2006. Returns on average assets and average equity were 0.80% and 11.51%, respectively, for the year ended December 31, 2007 compared to 0.88% and 12.62%, respectively, for the same period in 2006.

The increase in net income for the year ended December 31, 2007 over the same period of 2006 was primarily due to an increase in net interest income and non-interest income, offset by an increase in non-interest expense and provision for loan losses. Net interest income increased by $22.9 million, or 19.4%, to $140.7 million for the year ended December 31, 2007 compared to $117.8 million for the same period in 2006. The increase in net interest income was primarily due to an increase of $609.1 million in average earning assets, offset by a 2 basis point decrease in the net interest margin.

Non-interest income increased by $2.7 million, or 15.9%, during the year ended December 31, 2007 to $19.7 million, compared to $17.0 million during the same period in 2006. The increase was primarily due to an increase in equipment rental income, which increased $2.2 million to $6.1 million for the year ended December 31, 2007, compared to $3.9 million for the same period in 2006 related to expansion of our operating lease portfolio. Trust income increased by $901,000 to $4.7 million during the year ended December 31, 2007 compared to $3.8 million for the same period in 2006, due to continued growth in trust assets. Offsetting these increases was the reduced contribution from mortgage warehouse, including brokered loan fees and mark to market adjustments of $1.3 million.

Non-interest expense increased by $11.7 million, or 13.5%, to $98.6 million during the year ended December 31, 2007 compared to $86.9 million during the same period in 2006. This increase is primarily related to a $6.0 million increase in salaries and employee benefits resulting primarily from growth. Occupancy expense increased by $447,000 to $8.4 million during the year ended December 31, 2007 compared to the same period in 2006 and is related to our general business growth. Leased equipment depreciation increased $1.9 million to $5.0 million during the year ended December 31, 2007 from $3.1 million related to expansion of our operating lease portfolio. Marketing expense decreased $78,000 to $3.0 million during the year ended December 31, 2007 from $3.1 million during the same period in 2006. Legal and professional expense increased $759,000 to $7.2 million during the year ended December 31, 2007, compared to $6.5 million for the same period in 2006 mainly related to growth and increased cost of compliance with laws and regulations.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Net Interest Income
Net interest income was $38.2 million for the second quarter of 2008, compared to $34.2 million for the second quarter of 2007. The increase was due to an increase in average earning assets of $606.9 million as compared to the second quarter of 2007. The increase in average earning assets included a $632.5 million increase in average loans held for investment and an increase of $54.0 million in loans held for sale, offset by a $79.3 million decrease in average securities. For the quarter ended June 30, 2008, average net loans and securities represented 90% and 10%, respectively, of average earning assets compared to 87% and 13% in the same quarter of 2007.
Average interest bearing liabilities increased $489.0 million from the second quarter of 2007, which included a $128.5 million increase in interest bearing deposits and a $360.5 million increase in other borrowings. The significant increase in average other borrowings is a result of the combined effects of maturities of transaction-specific deposits and growth in loans during the second quarter of 2008. The average cost of interest bearing liabilities decreased from 4.92% for the quarter ended June 30, 2007 to 2.56% for the same period of 2008.
Net interest income was $74.8 million for the first six months of 2008, compared to $65.7 million for the same period of 2007. The increase was due to an increase in average earning assets of $626.0 million as compared to 2007 offset by a 14 basis point decrease in net interest margin. The increase in average earning assets included a $673.7 million increase in average loans held for investment and an increase of $34.6 million in loans held for sale, offset by a $78.0 million decrease in average securities. For the six months ended June 30, 2008, average net loans and securities represented 90% and 10%, respectively, of average earning assets compared to 86% and 14% in the same period of 2007.
Average interest bearing liabilities increased $512.4 million compared to the first six months of 2007, which included a $49.9 million increase in interest bearing deposits and a $462.4 million increase in other borrowings. The significant increase in average other borrowings is a result of the combined effects of maturities of transaction-specific deposits and growth in loans during the first half of 2008. The average cost of interest bearing liabilities decreased from 4.91% for the six months ended June 30, 2007 to 3.03% for the same period of 2008.
The following table presents the changes (in thousands) in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities.

Net interest margin from continuing operations, the ratio of net interest income to average earning assets from continuing operations, was 3.65% for the second quarter of 2008 compared to 3.81% for the second quarter of 2007. The decrease in net interest margin resulted primarily from a 219 basis point decrease in the yield on earning assets while interest expense as a percentage of earning assets decreased by 203 basis points.
Non-interest Income

Non-interest income increased $363,000 compared to the same quarter of 2007. The increase is primarily related to a $335,000 increase in service charges on deposit accounts from $953,000 to $1.3 million, which is attributed to lower earnings credit rates based on market rates, certain price changes, and increase in demand deposit balances. Trust fee income increased $12,000 due to continued growth of trust assets.
Non-interest income increased $763,000 during the six months ended June 30, 2008 to $11.6 million compared to $10.9 million during the same period of 2007. The increase is primarily related to a $559,000 increase in service charges on deposit accounts from $1.8 million to $2.4 million, which is attributed to lower earnings credit rates based on market rates, certain price changes, and increase in demand deposit balances. Trust fee income increased $151,000 due to continued growth of trust assets.
While management expects continued growth in non-interest income, the future rate of growth could be affected by increased competition from nationwide and regional financial institutions. In order to achieve continued growth in non-interest income, we may need to introduce new products or enter into new markets. Any new product introduction or new market entry would likely place additional demands on capital and managerial resources.
Non-interest Expense

Non-interest expense for the second quarter of 2008 increased $1.9 million, or 7%, to $27.3 million from $25.4 million, and is primarily attributable to a $607,000 increase in salaries and employee benefits to $15.4 million from $14.8 million, which was primarily due to general business growth.
Occupancy expense for the three months ended June 30, 2008 increased $377,000, or 18%, compared to the same quarter in 2007 related to general business growth.

Marketing expense decreased $79,000, or 11%. Marketing expense for the three months ended June 30, 2008 included $80,000 of direct marketing and promotions and $385,000 for business development compared to direct marketing and promotions of $107,000 and business development of $405,000 during the same period for 2007. Marketing expense for the three months ended June 30, 2008 also included $184,000 for the purchase of miles related to the American Airlines AAdvantage ® program compared to $216,000 for the same period for 2007. Our direct marketing may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.
Legal and professional expense for the three months ended June 30, 2008 increased $923,000, or 53% compared to the same quarter in 2007 mainly related to business growth, increase in non-performing assets and continued regulatory and compliance costs.
Non-interest expense for the first six months of 2008 increased $4.0 million, or 8%, to $53.5 million from $49.5 million during the same period in 2006. This increase is primarily related to a $1.4 million increase in salaries and employee benefits to $30.7 million from $29.3 million, which was primarily due to general business growth.
Occupancy expense for the six months ended June 30, 2008 increased $722,000, or 18%, to $4.8 million from $4.1 million compared to the same period in 2007 related to general business growth.
Marketing expense decreased $159,000, or 11%, compared to the first six months of 2007. Marketing expense for the six months ended June 30, 2008 included $184,000 of direct marketing and promotions and $763,000 for business development compared to direct marketing and promotions of $216,000 and business development of $836,000 during the same period for 2007. Marketing expense for the six months ended June 30, 2008 also included $379,000 for the purchase of miles related to the American Airlines AAdvantage ® program, compared to $433,000 for the same period for 2007. Our direct marketing expense may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.
Legal and professional expense for the six months ended June 30, 2008 increased $1.1 million, or 32%, compared to the same period in 2007 mainly related to business growth, increase in non-performing assets and continued regulatory and compliance costs.

Analysis of Financial Condition
The aggregate loan portfolio at June 30, 2008 increased $390.7 million from December 31, 2007 to $4.0 billion. Commercial loans, construction, real estate and consumer loans increased $70.2 million, $85.4 million, $78.2 million and $7.3 million, respectively. Leases also increased $72,000. Loans held for sale increased $154.7 million.

We continue to lend primarily in Texas. As of June 30, 2008, a substantial majority of the principal amount of the loans in our portfolio was to businesses and individuals in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. We originate substantially all of the loans in our portfolio, except in certain instances we have purchased selected loan participations and interests in certain syndicated credits and USDA government guaranteed loans.
Summary of Loan Loss Experience
During the second quarter of 2008, the Company recorded net charge-offs in the amount of $3.6 million, compared to charge-offs of $27,000 for the same period in 2007. The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $38.5 million at June 30, 2008, $32.8 million at December 31, 2007 and $24.1 million at June 30, 2007. This represents 1.04%, 0.95% and 0.78% of loans held for investment (net of unearned income) at June 30, 2008, December 31, 2007 and June 30, 2007, respectively.
The provision for loan losses is a charge to earnings to maintain the reserve for loan losses at a level consistent with management’s assessment of the loan portfolio in light of current economic conditions and market trends. We recorded an $8.0 million provision for loan losses during the second quarter of 2008 compared to $1.5 million in the second quarter of 2007 and $3.8 million in the first quarter of 2008.

CONF CALL

Mryna Vance

As always, if you have any follow-up questions, give me a call at 214-932-6646.

Now 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' control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include the risk of adverse impacts from general economic conditions, competition, interest rate sensitivity, and exposure to regulatory and legislative changes.

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2007, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.

Now, let's begin our discussion. With me on the call today are George Jones, our President and CEO; and Peter Bartholow, our CFO. As Amy said, after a few prepared remarks, she will facilitate a Q&A session.

Let me turn the call over to George.

George Jones

Texas Capital Banc had another good quarter of growth. You’ll see that in just a few moments, when we reveal the specific numbers for Q2. Our margin stabilized during the quarter, and we did not see any deterioration from Q1 2008. We are, though, modestly adjusting guidance for annual net income to a range of $30 million to $33 million, and we’re confident about the remainder of 2008.

The Texas economy is certainly the bright spot in the economy today. While we don’t have all the numbers in for the second quarter, we can see that our economy continues to show resilience. The markets where we’re located continue to outperform national averages. The unemployment rate is below the national average in May for 4 out of our 5 markets, and equal to the national average in the Dallas/Fort Worth area. The annual job growth rate was better in each of our markets than the national average. Houston, as an example, added more jobs in the trailing 12 months ending March 31 than any other city in the nation. New housing inventory, May 2008 over May 2007 in all our markets, declined significantly, and we believe that Texas is beginning to show that market absorption of excess inventory is beginning to take place.

Peter will cover Q2 results in more depth, but let me touch on some of the numbers briefly. Net income in Q2 was $5.8 million, or $0.22 per share. It decreased 27% compared to Q1 2008, and a 29% decrease compared to Q2 2007. The major contributing factor to the decrease was our provision for loan losses, which I’ll discuss in much more depth in just a few moments.

We had excellent growth in total loans, 5% link quarter, a 22% increase compared to Q2 2007. I’m particularly pleased with our demand deposit growth, on a link quarter basis of 9%, a 12% increase compared to Q2 2007. Another positive element of core operating results was our net interest margin remaining stable at 365, compared to Q1. As I mentioned before, we provided $8 million to our loan loss reserve in Q2 2008, supporting growth and risk rate changes in our loan portfolio. I will discuss charge-offs, EPS and ORE in some detail after Peter reviews our financial performance.

I’ll turn it over to Peter.

Peter Bartholow

Talking about the performance drivers in the second quarter that produced a net income of $5.8 million, reflecting what we believe is very good performance, especially in core earning power, and especially, also, in light of industry conditions. We did experience 28% decrease in earning per share, for the reasons George has already mentioned, but the stable net interest margin – and I’ll comment more on this in a moment – we did see improvement again in net operating leverage, a reversal of the Q4 to Q1 situation when we experienced a reduction in net increase margin.

The modest change in guidance obviously reflects changes in the industry since January of this year. While net interest margin was stable in Q2, the rapid change in short term rates was not anticipated when we gave guidance. I think we commented earlier that the pace and level of change was greater than we had anticipated. We are experiencing some impact, obviously, of the factors affecting the entire industry – only to a much more moderate degree. Provision through Q2 is clearly larger than anticipated, and guidance about which George will comment in much more detail.

Due to the strong growth we experienced, we may have maintained guidance if only one of the two factors had changed – either net interest margin, or provision, but not both. The wider range we have provided, we believe is appropriate due the uncertainty in the market today, and industry conditions.

I would like to emphasize, while it’s not reflected on the slide, that we had really good growth in stockholders’ equity, strong equity position we have to support growth, and we have no intangibles that are foregoing, have become, and may become a bigger issue in our industry. If you’ll forgive us, we have apparently, construction taking place on the floor above us as we speak.

Turning to the next slide, as I said, good core earnings power reflected in net revenue growth, link quarter growth 4.3% and year over year of 10.9%. Loan growth, link quarter of 5% and 22% over the previous year, obviously were major factors in the growth and net interest income. Reversing the position from Q4 to Q1, where we, for the first time, had actually seen net decrease in net interest income. Non-interest income growth was good at 4.3%, and that was due primarily to significant improvements in service charges and mortgage warehouse fees. Expense growth of 3.7% in the link quarter, and 7.3% in the year over year periods show that we are making progress in the ratio of non-interest expense turning assets, and more modestly on the efficiency ratio compared to prior years. The core operating expense growth was less than 2%. Professional and other expenses contributed to most of the link quarter increase of just over $1 million.

Provision expense of $8 million was the obvious variance from which we anticipated in the guidance originally given. We saw in the quarter, significant contributions of the mortgage warehouse group, strong growth, meaningful yield improvement, and an ability to increase these in this market.

Turning to slide 9, the strong growth is obviously evident in the balances on average basis for loans held for investment and loans held for sale. Link quarter growth of 5%, or just under $200 million, year over year growth of almost $700 million, or 22%. As stated in earlier calls, this does reflect much improvement in the productivity of REMs, something that’s been planned for 2007 and 2008. The link quarter growth in loans held for investment is consistent with our view that growth rates in 2008 would be less than those for 2004 to 2007, but still very strong compared to industry and Texas peers. We have higher return threshold built into the models today, and we are imposing much tighter credit standards than in previous years.

The loans held for sale category is up sharply due to our position in that industry, and things that are driving business our way. Obviously the continued shift in earning asset composition is important to us, and is driven by strong loan growth, with loans to earning asset now in excess of 90%.

Total deposits, we mentioned, up 3% link quarter and 6% year over year. DDA growth was exceptional, link quarter up 9% - and actually most of that occurred in the last half of the quarter. EDA growth year over year of 12%.

The next slide – June 30 loans held for investment were $3.7 billion, obviously a record for us at quarter end. An increase of -- that reflects actually an increase of 3% from the average levels of Q2 2008, again implies an annualized growth rate, on that basis, of 24%. I will say that Q2 has been historically very strong in terms of loan growth.

Total loss peaked at $4 billion for the first time. Loan link quarter increase of over $300 million. The strongest contributors to loans held for investment were Energy and Dallas Corporate, and had strong support also from Houston, San Antonio and Austin. We also saw deposits grow at a record level. Q2 is, again, historically a strong period for deposit growth. With DDA, though, reaching $610 million, it was really extraordinary. The link quarter increase of 21% and a year over year increase of 23% is something that, I think, is really remarkable in light of an all organic growth business model.

Total deposits at quarter end – $3.6 billion, an increase of $438 million, again a record. We believe that our performance reflects some weaknesses in the large competitors that operate in our market. Strongest contributors on deposit growth are Dallas – in various lines of business, Austin, San Antonio.

The next slide we’re back to margin. The 365, same as Q1 2008, and obviously a major contributor, was the strength of DDA balance growth. We also have had good re-pricing of interest bearing liabilities and all interest bearing liabilities – interest bearing deposits and all liabilities, essentially the same as loans. We saw a spread improvement due to greater pricing flexibility now evident in our marketplace, and we also benefited from the spread between LIBOR and Fed Funds, a contribution that was greater than that during Q1 of this year.

The NEM contribution of Mortgage Warehouse was also important. Historically, that category of lending has been among the lowest yielding in our portfolio. The conditions in that marketplace have seen spreads widen significantly, and we have also been able to increase fees in that business. As indicated, the company is much less asset sensitive than in years past, but growth will constrain that interest margin. Stability of rates, as demonstrated, is obviously very helpful, and the DDA contribution going forward, depending on the growth rate in DDA, will obviously have a significant effect at the margin. Rising rates, obviously, will be helpful, even if asset sensitivity, as I said, isn’t as big a factor.

Also contributing to net interest margin, earning asset composition with strong loan growth, and with continued run-off at securities, and obviously fixed rate earning assets are having a bigger impact today. We have seen, as I commented earlier, such a steep decrease in the speed and the level of Fed Funds, that it has had an effect on our margin expectations this year. Also, the private pricing, especially if a bank is growing, have become more significant to us and to the industry because, we think, primarily of a global demand for liquidity given the problems in our industry.

Turning to the next slide, I’ll say simply that we think, again, this is a very strong growth model, and one that supports the view and the commitments we’ve made. A very strong core earnings power reflected on that slide. Conditions did not change in our view of that business model, and I will comment that, while we have higher than normal provisions so far this year, historically, credit costs have been maintained at very low levels compared to the industry and to our peers, and have been more than offset by the growth advantage of our business model and the focus on organic growth and not acquisitions.

Slide 13 – The taggers for DDA and total deposits have actually increased from the earlier periods. Strong growth in the recent past has been, obviously, a big contributor. No change in the tagger for the loans held for investment. Again, the growth model is confirmed and we believe the market opportunity remains very strong today.

And, with that, I’ll turn it back to George for more comments about credit.

George Jones

You’ll see a new slide in the presentation – the loan portfolio statistics. Let me make a couple quick changes before we discuss it. The residential real estate market risk is 7%, rather than 10%. The commercial real estate market risk is 20%, and our business assets are 32%. We had a transposition of a couple of numbers there and I want to clarify that before we discuss. We’ll send a new slide out for your use.

We classify our portfolio a number of ways, but this way is shown by loan collateral type, which will give you a slice of what our portfolio looks like. We classify as C&I loans the business asset segment, the energy segment, a portion of the highly liquid assets – those loans secured by cash, marketable securities, those kinds of things – other assets, and unsecured, for approximately 55% of the portfolio we deem to be C&I exposure. Our mortgage warehouse totals about 8%, and is included in the liquid asset category. We classify as real estate, as you see here, commercial real estate, market risk real estate non-residential at 20%, owner occupied at 10%, and residential market risk at 7%.

If you move to the next slide, we show our non-pass, or classified grade loans, by type. This includes the non-performing loans also, and is broken down as follows, as you can see: 71% being the C&I portfolio – again, this category includes corporate credit, business assets, energy leasing, and other lines of business. Our residential related exposure here is 24% related to single family, market risk – these are builders and lot developers. The third category, commercial real estate, at 5% includes every type of commercial, market-risk real estate other than residential. And as we’ve said before, and we’ll say again, you can tell that the commercial real estate portfolio is performing extremely well.

If you turn to the next slide, we’ll talk about our credit in specifics. Our credit experience remains good. Net charge-offs were $3.6 million in Q2 2008, and $6.1 million year to date. 53%, or $3.2 million of the year to date charge-offs of $6.1 million was one credit, Home Solutions, that we identified and reserved in Q4 2007. 48% or $1.7 million of the Q2 2008 charge-off – again, that same credit – was in that total. 89% of Q2 charge-offs were represented by just 2 credits. As we mentioned earlier, the charge-offs related to specific problems were substantially covered with allocated reserves in 2007.

Net charge-offs represent 40 basis points for the quarter, 35 basis points year to date, and 25 for the last 12 months. We have seen an increase in non-performing loan levels that we believe are not excessive, but require – and are receiving – intense focus from management. Overall, we are seeing risk grade increases, and increases from non-accruals, but we do not currently foresee significant charge-offs in the second half of the year.

As mentioned previously, of great help to us, frankly, in reducing charge-off potential in Q3 and Q4 is the disposition of 3 problem credits that were resolved in Q2. The largest problem loan over the last 3 quarters has been related to the Home Solutions credit. We received payment for the outstanding balance of that loan earlier this month, July. That loan represented approximately $5 million in charge-offs of the total $8.6 million charge-offs over the last 3 quarters. The exposure in that loan was substantially reserved for in Q4 2007. The remaining exposure was covered by provision in Q1 2008 as the borrower’s restructuring plan was developed.

The second problem loan was a C&I loan for which a substantial reserve was applied at year end 2007. That was covered all but approximately $250,000. We were able to sell that loan, and we did not provide any financing to accomplish that transaction, at a discount of $1,450,000. The sale of that loan eliminated the need for a protracted work out that really would have increased expense and exposure to additional loss.

Third, one additional loan in Houston, which we’ve discussed before, had a substantial reserve that had been allocated at year end 2007, was charged off in the amount of $1.5 million dollars. The balance of that loan was repaid.

Let me take a moment to give a little more transparency and color, as it relates to our non-performing loans, our ORE, and our 90 day past dues. Non-approval loans and ORE are up from $17 million in Q1 to $22 million in Q2. The larger, non-accrual loans that make up, really, over 85% of that total, are the ones I’ll talk about right now. Home solutions at $2 million – that was paid in early July, and as I mentioned, we took a charge-off of $1.7 million. Again, that has been reserved in Q1. Secondly, residential mortgage loans of $4 million that have been marked to market and allocated with proper reserves. Third, there was a lot development loan in the amount of $8.8 million dollars, with a current appraisal supporting our collateral value. But, in addition, we have also put additional reserves behind this particular loan. We have a number of prospects today for sale of this property.

This particular loan is really a good example, frankly, of the need for cash equity upfront on a real estate development loan. We had 35% hard cash equity invested by the owners upfront, and made a 65% loan to cost ratio on the project. While this really doesn’t guarantee the value of the collateral will fully liquidate the loan, the loan balance carried on our books today is supported by an appraisal. Even in a down market, the value of cash equity is very important.

ORE totals have moved up to $5.6 million in Q2, from $3.1 million in Q1, and one half of that amount is represented by a commercial site near Houston that we’ve talked about before. We have a current appraisal supporting our carrying value today, and we’re actively marketing the property with some success. The other one half of our ORE portfolio is represented by single family product and a small office building, all in Texas. We have 12 homes and 10 lots today, and we’ve sold 3 homes and 4 lots as of 06/30/08. We’ve got 9 of the 10 remaining lots under contract for sale, and 1 house is under contract for sale. This is all cash. No financing required to accomplish these transactions. We believe that all of our ORE portfolio is properly valued on our books today. Also, I will mention that in the sales of those particular properties we have not recognized any loss.

In looking at our loans over 90 days past due – that total is $23 million – the increase of $16 million from Q1 really represents 2 loans. Frankly, one is a non-criticized $5.9 million real estate loan to a good customer that carries an above average credit grade, and that loan has already been renewed in early July – absolutely no problem, but did slip into the 90 day past due category. Secondly, a C&I loan of $9.6 million that is criticized, but has not been placed on non-accrual today because the company and the guarantors can still service the loan. It was being held past due to help in our restructure process. We believe the loan has the proper amount of reserves allocated to it at this time. The balance of the 90 day past due category we’ve really talked about before – premium finance loans of $1.8 million that are not problems, but represent cancelled insurance policies waiting for returned premiums to pay the loans, C&I loans of $1 million are waiting to be paid or renewed that are not criticized, and then we do have $3 million of real estate loans that are less than past credits, but again believe they are properly reserved.

As we’ve mentioned, Peter’s mentioned and I have, we made up a loss provision of $8 million in Q2 08. This provision increased our loan loss reserve balance to $38.5 million, or 1.04% of loans held for investment. The provision was ahead of our guidance because, as we’ve said before, based on our methodology we’ve applied all loans, especially MPAs; our reserve balance should always be increased by more than our expected loss exposure at that time. When we identify a weakness in a loan and we downgrade it, or classify it, even if we cannot identify any amount of loss at that time, our formula drives a certain precautionary percentage that can be increased or decreased over time as loss exposure is recognized.

We certainly believe that conditions today in our industry continue to warrant intense focus and further tightening of standards. We’ve done this across our different lines of business so we’re always evaluating what we need to strengthen underwriting.

If you move to the next slide, it graphs net charge-offs to average loans. As mentioned before, year to date charge-offs are 35 basis points, and our loan loss reserve to average loans held for investment is 1.04%. As you can see, that percentage is as large as it’s been since 2004, but frankly today’s environment dictate higher reserves. We believe that 45 basis points of non-accrual loans are slightly higher than we’d like to see, but we also believe that most all banks are going to see this ratio climb while the financial community is dealing in this economic environment.

So let me close the credit discussion -- I'd like to summarize with 4 or 5 bullet points: Non-performing assets now represent less than 1% of total loans, or 86 basis points, today; Provision is driven by consistent application of the methodology – that’s growth, and that’s change in grade; Losses have historically been substantially below allocated resources; Our charge-off potential for Q3 and Q4 has been reduced with the disposition of the 3 problem loans I discussed in Q2; Real estate exposure is more than 90% in the Texas market.

I’d like to make a few closing comments before I open the call for questions. We believe that we had another good quarter of growth and operating. We’ve increased our loan loss provision above our previous guidance, but we believe that’s prudent and really necessary in this economy. We continue to be cautious about the near term future for the economy, but we do believe that Texas, and the markets within Texas where we’re located, will perform better than the rest of the country. We have changed the guidance to a range of $30 to $33 million, or approximately 10% below guidance given earlier this year. We’re continually, and are continuing, our intense focus on maintaining good credit quality. And frankly, something we have not discussed today, we want to exploit our market opportunities that we see today for people and customers. We believe that banks with good credit quality, adequate capital, and good people can certainly take advantage of opportunities that will arise in extremely difficult economic times – we plan to do just that.

Thanks again for your support, and be assured that Texas Capital will be working hard to be the bank of choice in the Texas market. Now we’ll take a few moments for questions.

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