Texas Capital Bancshares, Inc. (TCBI) Q3 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Texas Capital BancShares Third Quarter Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. And I would now like to turn the conference over to Ms. Myrna Vance. Please go ahead.

Welcome to our third quarter call. For those of you that I've not met, I'm Myrna Vance, Head of Investor Relations. And if you have any follow-up questions, please give me a call at (214) 932-6646. Now before we get into our discussion, let me read the following statements. Certain matters discussed on this call may contain forward-looking statements, which are subject to risks and uncertainties, and are based on Texas Capital's current estimates or expectations of future events or future results. Texas Capital is under no obligation and expressly disclaims such obligation to update, alter or revise its forward-looking statements, whether as a result of new information, future events or otherwise. A number of factors, many of which are beyond Texas Capital'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 condition, 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 the prospectus supplement, the annual report on Form 10-K and other filings made by Texas Capital with the Securities and Exchange Commission. Now let's begin. With me on the call today are George Jones, our CEO; Peter Bartholow, our CFO; and Keith Cargill, who is currently President and CEO of Texas Capital Bank, but he will be taking over as CEO of Texas Capital BancShares from George at the end of the year. After a few prepared remarks, our operator, Amy, will facilitate a Q&A session. And now, let me turn the call over to George.

Good. Thank you, Myrna. Good afternoon, everyone, and welcome. I thought I would start our call with a few facts about our company since our IPO in 2003. As many of you know, Texas Capital BancShares just celebrated its 10th anniversary being a public company this quarter. Since that time, the compound annual rate of return from the IPO stock price of $11 has exceeded 15.5%. Let me talk about a few other facts that really helped define our superior performance at Texas Capital. Quarterly income in Q3 2003 was $3.3 million. That's compared to the $35 million in Q3 2013. That's a compound annual growth rate of almost 27%. Total loans at Q3 2003 was $1.2 billion and $10.3 billion in Q3 2013, a CAGR of 24%. Total deposits of $1.4 billion in Q3 '03 versus $9 billion in Q3 2013, again, a CAGR of 21%. Demand deposits of $270 million in Q3 '03 versus $3.2 billion in 2013 reflect a CAGR of 28%. Return on assets in 2003 was 0.64%. Now today, it has doubled to 1.3% in Q3 2013. And finally, our tangible book value per share, $6.65 at the IPO date, now is $21.82 after 3 offerings of common stock since the IPO. One other thing that I think is interesting to note is that our company has achieved these levels of performance and growth organically, without acquiring any financial institutions. It's my pleasure to report another operating earnings record for Texas Capital. Net income for the quarter was $33.4 million compared to $24.1 million for a linked quarter increase of 39%. This was driven mainly by $7.6 million increase in net interest income and a $6.7 million decrease in noninterest expenses that were related to succession planning and performance-driven incentive compensation expenses that we discussed…

Thank you, George. George said we had a charge of $3 million, and I'll discuss that a bit more in a second. But before that nonoperating, nonrecurring charge, net income -- operating net income was $35.4 million. That represented an increase of 23% from Q2 2013 or in that number, again, the nonoperating charge of -- excuse me, the nonrecurring charge included a $7.7 million number. We also reported an increase of 8.7% compared to the year ago quarter. George mentioned the FDIC assessment occurred really at the end of Q3 on September 30 and was assessed due to the restatement of call reports. As he mentioned, it applied to Q4 of 2011 and Q4 of 2012. So there's no relationship to current operations in any way. Obviously, the company had means to avoid that condition had we had any notice that the held for sale risk, the risk weight could've changed or that the restatement could possibly have caused an increase in the assessment. Obviously, we think the risk profile of the assets, the performance of the company and the facts about the situation clearly support our view that the assessment was not warranted. We will dispute the charge, and if we're successful, any refund will be applied to reduce noninterest expense in the quarter in which the matter is resolved. We did report from operating EPS of $0.79 per share compared to $0.64, again, before the special charge in the second quarter. Strong quarter in terms of growth, operating leverage, core earnings power and net interest margin. George mentioned we had exceptional growth in loans held for investment, $580 million or 8% in a quarter that's been historically quite soft. This is a record quarter, as he mentioned, in terms of average balance growth, linked quarter, building off…

Thank you, Peter. George gave you some highlights of our financial performance since our IPO 10 years ago. And before I cover Slides 10 through 15, I'd like to just make a few comments and share with you some highlights since George became CEO of our company. George took over as CEO in 2008, the year that the banking industry sustained the worst downturn since the Great Depression. During his tenure as CEO, Texas Capital is one of only 2 publicly traded banks we can identify that grew organically throughout the crisis and never posted a quarterly loss. Further, since May 2008, the stock price has a compounded annual rate of return of 19%. Finally, let me give you a few numbers to compare, Q1 '08 to third quarter 2013. Quarterly income in Q1 '08 was $8 million. In Q3 2013, $35 million. Total loans were $3.7 billion versus $10.3 billion now, a CAGR exceeding 20%. Total deposits were $3.2 billion in Q1 '08 versus $9 billion now, again another CAGR exceeding 20%. Demand deposits were $504 million versus $3.2 billion now, a CAGR slightly greater than 39%. ROA was 0.76% versus 1.3% now. And tangible book value per share was $11.40 versus $21.82 today. While George will be the first to acknowledge that he didn't produce these results, our Texas Capital team and clients made this happen. However, his leadership has clearly been stellar, and all of us on the Texas Capital team are grateful to work for this exceptional CEO and exceptional organization. We look forward to great years ahead in part because of his strong leadership through a challenging 5-plus years. Now let's take a quick look at Slides 10 through 15. On Slide 10, you will see in bar chart format our revenue, noninterest expense and…

Thanks, Keith. Appreciate it. Didn't realize you were going to do that. Thank you very much, you and Peter and the rest of the team. I want to share to shareholders on the call that you have the best management team in place going forward that you could have running your company. So I am very pleased that we have this team in place, and they'll do a terrific job. Before we finish, let me just make 4 brief points to leave you with before we get to Q&A. As we always do, we talk about certain things that we think our company really performs extremely well. Strong core earnings power, profitability and growth. We see that continue in 2013 and beyond. Our credit quality, as Keith said, continues to be positive, and we expect it to continue to be positive in the future. We have a strong loan held for investment pipeline. We have new commitments that really present great opportunity for potential growth. And finally, our loans held for sale average balances. As we have told everyone in the past, we believe that they will remain in line with expectations for flat year-over-year averages, and we've seen that happen in Q3. That's all the prepared remarks we have today. Thanks for participating in our call. We'll move to Q&A, and then I'll be back briefly with some closing comments. Thank you.

[Operator Instructions] Our first question comes from Brad Milsaps, Sandler O'Neil. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Just wanted to see if you could talk a little bit more about the loan growth in the quarter, maybe by category. I know you mentioned it was broad-based, but just any additional color there would be greatly appreciated.

Brad, this is Keith. Typically, we would have a couple of categories that would be a bit lumpy and really lead the charge. But more than any quarter, I recollect for the last several, our growth was really spread both geographically and by line of business and industry category. So that's very encouraging. We continue to see some good pickup, specifically, some very strong growth in Houston as we have been seeing. We continue to see some good strong growth in energy as we have been seeing. But again, this time, we've seen across the company some nice healthy pickup in other areas. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Great. I know you guys have invested heavily in that builder finance group, and the construction loans have ramped up quite a bit over the last 12 months. Just kind of curious, kind of what those did during the quarter end. Do you anticipate that when those projects finish that you'll be able to keep a number of those loans on the books where they set up to refinance out into the secondary market or to someone that would offer longer-term, fixed-rate financing?

Our builder finance group, by focus on the interim construction component and then some very select lot and development financing for our builders, just to feed their turnover of inventory and buildout of their projects. We've had very strong growth. This has been consistent since this team -- we brought them on board 3.5 years ago. Consistent and increasingly a stronger contributor. Now we couldn't be more pleased with this team and the quality of what they've produced. In fact, of each of our various business units, if you look at overall credit grade, there's no one that has a higher -- more high-quality credit grade mix than our builder finance team. So again, what causes Texas Capital to be able to sustain high performance, as I alluded to earlier in my comments, is very true of new businesses, new teams that we bring on. Everyone understands that the key core driver for our company is quality. And then if you deliver quality, then good growth happens. If you deviate on quality, you have issues. And this team has just been superb on the quality. This is a single-family product, as I think you know, and we're really extremely pleased with where they're -- how they're progressing. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Okay, great. And then just one final question before I'm back in the queue. The -- Peter, you mentioned that you expect maybe the yield on the mortgage warehouse but to move up a little bit, can you talk about that a little more given the move we've seen in longer-term rates over the last 90 or 180 days. Anything else kind of holding that down that wouldn't make that maybe go up more than it did in the third quarter?

We are, obviously, experiencing issues with competition. The industry that was so heavily committed to the refinancing market has become, I guess, it's almost fair to say, desperate. We are seeing pricing pressure, and we're going to respond to our best customers. And we did have -- I think the lag effect is longer than we might had thought as well. So it's a little hard to predict where they're going to go in Q4, the overall business mix, because -- partly because of the deposit mix is also having some impact on the yield but is obviously, contributing to the net interest margin.

Our next question comes from Ebrahim Poonawala at Bank of America.

I just had a question in terms of the held for sale balances. And just looking out means I appreciate the guidance for the fourth quarter and for year-over-year balance to be flat. But as we look out into next year, how comfortable do you feel that these balances can continue to grow and sort of sustain that 20% to 25% range of total average loans? And I'm just going to -- sort of get a sense around the market share opportunity beyond the -- like, what [indiscernible] utility that we've seen because of interest rates?

This is Keith. Our fourth quarter will be challenging in that category as it is every year just because of seasonality in that particular business, especially with the purchase business being the key driver the last few quarters. The good news is we have a very, very strong purchase client mix. And even though there's some seasonal softening, we continue to show very, very good ability to take away market share. And that continues to be the forecast we could give you, is that we -- we'll outperform peer, overall, on averages, as we said we would at a beginning of the year. We believe we'll still finish 2013 very close to flat, relative to 2012 on average. And relative to peer, we're very, very proud of the performance of our team. I think it's a reflection, again, of the right client mix, very loyal client mix and great service delivery. We do see '14 as a challenging year. I think everyone in the business is going to see '14 to be a challenging year. And I'm not ready to give you a prediction on '14, but I think we're all going to see, again, a year when so much is going to depend on the right trend. And we are optimistic that the housing recovery has legs and that our position as a percentage of overall client base being heavily purchase-driven mortgage companies will favor us. So we still would expect we'll definitely outperform peer, but it won't be an easy year in this category.

I think, one thing that -- this is George, that supports what Keith's talking about is just the fact that if we look at the marketplace today and see how much our competitors are reporting being down in this category. And while we are down point-to-point, our average balances on a linked quarter basis are basically pretty flat, and that's probably about as good as you're going to see in the industry anywhere. So I think it's important to note that all of the things that we have talked about in the past, whether it would be participations, whether it would be customer acquisition, whether it would be consolidation of customers, market share takeaway, all the things that we talked about doing to preserve this business on a go-forward basis is working, and is working in a very dramatically positive way even in a market that is going to be very difficult, as Keith said, in 2014. We still have confidence in the business and the ability to perform well.

Good. And I just had one follow-up for Keith in terms of -- if you can share with us in terms of how the hiring trends were this quarter. I know second quarter was a record quarter for hiring, and I'm just trying to get a sense of how the third quarter was and looking into sort of the end of the year and just sort of tying that in terms of the outlook for sort of expense growth from 3Q levels.

We hired a total of 11 RMs during this quarter, which was the same as our hiring number the last quarter. However, last quarter, some of those RMs were in fact very senior leadership level positions. But we're continuing to see very, very strong hiring pipeline and expect that we'll continue to be able to build out the company as we have for the last several years and have had a lot of success this year, and we see that continuing.

The next question comes from Emlen Harmon at Jefferies.

Just going back to the mortgage warehouse balances, could you guys let us know if you brought any of those participations onto the balance sheet yet? And just kind of, historically, you have said that the participations are around $350 million. Just give us a sense of where those stand today given what's going on with just origination volumes, broadly.

Yes, we have been able to bring those back in. In fact, as we mentioned, I think, last call, we continue to see the participation amounts drift down as our overall average has drifted down some on a customer-by-customer basis. Again, not counting the market share takeaway, we've been successful bringing in to the overall portfolio. And -- but we have been able to bring those back on our balance sheet and that's going to be helpful in the fourth quarter, as we engineered it to be used when the refi had tapered off. So we're pleased that we're going to get some pickup. It's not going to be an enormous amount of pickup, but somewhere in the neighborhood of $150 million or so net that we'll pick up from that.

Got you. And then -- so that help will be -- I guess, you didn't get any help from that in the third quarter, that should be entirely kind of a fourth quarter benefit.

A small -- this is Peter, Emlen. It's a small portion in Q4 and the only -- excuse me, in Q3 but only at the very end. It's more help to the average balance in Q3.

Got it, got it. All right, thanks. And then, just what -- broadly, what was the refi and purchase mix at the end of the quarter in mortgage warehouse?

We were at 28% on refi and the balance purchase.

Got you. And then, one last quick one for me. Just on the -- you talked about the held for investment pipeline in the third quarter being kind of 11% above where it's been year-to-date. Could you give me a sense of where that is a versus the second quarter? And, I guess, when you talk about it being higher year-to-date, I mean, is that a figure that's measured quarterly? Kind of monthly? Just trying to get a sense for how granular that historic pipeline is?

That's the -- it's -- the quarter end balance is 11% higher than the year-to-date daily average balance for loans held for investment. I don't recall what that number was, but it was quite a bit smaller than that at the end of the second quarter, partly because Q1 is seasonally weak and most of the growth would've occurred -- most of the growth did occur the very end of the quarter.

The next question comes from Michael Rose of Raymond James. Michael Rose - Raymond James & Associates, Inc., Research Division: Just a question on the loan growth this quarter. How much of it came from SNC, because I know last quarter you really didn't have much growth.

We had some growth year-over-year in SNC, Michael. The good news -- and this is just what we had strategized and tried to tactically execute with bringing on that syndications theme about 1.5 years ago, the good news is all the growth in SNC year-over-year was agent-led deals. And that was up about $95 million year-over-year. Michael Rose - Raymond James & Associates, Inc., Research Division: Okay. And then of the 11 people you hired last quarter, did they contribute anything to this quarter's growth or is it too soon, and they're still getting their business online with you guys?

Some of them are listening, and of course, they are immediate contributors. And some have actually booked some quality business and others have a great pipeline they're building, and I'm sure will bring a lot of business. But as a rule, it takes a period of time, 6 to 9 months, again, to really bring over business. And many of your best clients wait till year 2 to be sure that the RM is pleased with where they've landed in -- at the organization, in fact, they'll functions as well as they've been told. And so we're going to see for quite some time a pickup in this business from this new hiring group. And of course, we don't look for them to grow for 2 years. We look for them to grow their business every year, and they're quite good at that. Michael Rose - Raymond James & Associates, Inc., Research Division: And just one final question, if I could. As it relates to the energy business, one of your competitors this morning announced pretty significant growth there. They said they're working with you more and more often in participations. But where does the energy business stand as a percentage of total loans? And where do you think it could go to over the next couple of years? I guess, where would be comfortable -- it going as a percentage of loans held for investment?

It's a 9% of total loans today. We would be quite comfortable with this business growing to 14%, 15%. But it has to be in our fairway. And what we do is E&P. We don't do the oil service and a lot of the ancillary energy business. But if the opportunities are there, we'd like it to grow.

Our next question comes from John Pancari at Evercore.

In terms of the actual growth, I want to see if you can give us a little bit more granularity behind the loan growth in HFI by those loan buckets. Do you have the actual linked quarter growth that you saw in the premium finance business as well as the builder finance and lender finance?

We don't really have that information or, really, even want to share it in that level of detail because of competitive reasons in some of our businesses. And if I give you only a few of the businesses, you don't get the full picture. But it really was very broad growth and more so than in most quarters.

John, I agree with Keith, totally. But, again, builder finance he mentioned, the premium finance business was good growth. Houston grew quite nicely. Energy and private banking, I guess, were kind of our top 5 areas that had the most linked quarter growth. But as Keith said also, much more broad-based than that. And that was exceedingly good for us to see. We're pleased with that because we're operating on almost all cylinders.

I give all the credit to our regional execs, their teams and their line of business managers and leaders, but most importantly, to our front-line RMs across the company and their assistance. I mean, we have got a great team effort executing in each of our markets. And as George said, we're very encouraged to see the breadth.

Okay. And then in terms of the competition you're seeing in driving that growth, can you talk about where the new money yields are on new loan originations in some of these portfolios? Can you give us that color just to give an idea of what type of competition you're seeing?

John...

Competition remains very, very strong, and it's not markedly different than the last few quarters. And it does vary market by market as to who is the most aggressive in terms of price and overall structure. But again, while we have to compete in this environment, always have to compete in a pretty healthy competitive environment in Texas with our growth the last many years. We know what client fits us, and we're looking for an appropriate return for the value we bring and an appropriate credit risk. And as I mentioned earlier, it's all about credit quality with us. And while it's a very aggressive market, our people are doing an outstanding job, again, finding those strategic clients that match up with us and they want a long-term relationship and therefore, don't want the very most leverage they could possibly get against their companies and their orders. They rather have their company and not have the worry in a slippage or downturn.

John, I think -- this is Peter. I think you can tell from the linked quarter movement that the held for investment yields are holding up extremely well. And it does vary by line of business and by product set and by market. But overall, we're getting the yields that we expect and can generate the right returns for our shareholders.

Okay. And then lastly, can you just comment a little bit more on the strong deposit growth that you saw in the quarter, where that came from? Is there any way you can help us bucket that?

It was extremely wide spread.

It's just -- it was more broad than we've seen before. I'm glad you mentioned that because as we look at our loan pipeline, we always look at our deposit pipeline right alongside it. And in both cases, it's just heads up as strong on the deposit side and it's very broad across geography and line of business. So I'm just pleased that we're getting everyone contributing that to the level they are.

[Operator Instructions] Would you like to take additional questions? Our next question comes from Brady Gailey at KBW. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: So when I look at the broker loan fee income line, the way that I look at it as a percentage of the average warehouse, it's been running about 80 basis points for the first half of the year and that dipped to about 68 basis points in 3Q. Well, why the decline there? Are you all starting to waive some of those brokered loan fees for the warehouse customers?

No, just volume. Volume's down somewhat.

It is somewhat more competitive, too. But as George said, it's a function of both. We're going to always relationship price, Brady, whether it's in our mortgage finance group or whether it's in our C&I -- one of our C&I core groups, it doesn't matter. And so in those cases where we have clients that are keeping significant demand deposits and moving more money to us, we're going to relationship price, and that can affect the fees as well. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then, ViewPoint reported earnings last night, and they just had a comment in their press release how regulators are potentially moving -- or they're wanting the banks to move the mortgage warehouse from classified as held for sale to classified as held for investment loans. If you all were asked to do that, would that change anything for you guys, related to the balance sheet or your capital ratios or anything?

No, Brady. This is Peter. It is one of -- it's an issue, not a problem. The comptroller issued on October 7, I think it was, the new call report instructions that deal with that. And frankly, we don't understand it. We don't think it fairly presents the way we operate the business. It doesn't mean that gap can't be changed to fit wrap, but today, we would report that there's a gap wrap difference. Again, because no impact on the balance sheet. It's strictly geography. We show in all the materials you see, in total loans, that wouldn't change. We've already conceded the issue of risk weight on that portfolio. So, well, a year ago, there was a distinction and somebody could say, "Well, held for sale, that's 50% and held for investment is 100%." That distinction is gone. So there is no impact on consolidated balance sheet other than geography and no income -- no impact on capital and no income -- no effect whatsoever on operating results.

Our next question comes from Matthew Clark at Crédit Suisse. Matthew T. Clark - Crédit Suisse AG, Research Division: I guess on the -- on your HFI loan growth guidance in the past, I think you've talked about mid double-digit to high-teens. I mean, obviously, things are running a lot better than that this year. Any sense for whether or not you might rethink that guidance? Or are we going to wait until next year? Just curious how you're feeling about activity relative to expectations?

We'll wait until next year. We're feeling good, though. Pipeline, again, is a strong report, I mentioned earlier, Matthew, in both loans and in deposits. We feel very good about how we'll finish the year. But it's a competitive market. We'll have to execute and find a quality business. I think we will.

We've had 2, as you can tell, excellent back-to-back quarters. And it's obviously too early, and we wouldn't comment on Q4. But we're feeling, as Keith said, pretty good about what we see. Matthew T. Clark - Crédit Suisse AG, Research Division: Okay. And then on the deposit growth and the period up fairly significantly, anything seasonal in there that we should be aware of?

Really not. We should see a seasonal pickup this quarter.

Again, following the loan patterns, historically, Q3 has been a little soft.

There's a lot of success with market takeaway.

Right. And then, I guess, on the margin. I think you had mentioned maybe a little bit follow through in terms of relief on the yields on held for sale here maybe in the fourth quarter. But just curious, I guess, with the lag effect and what market rates have done subsequently with the tenure down -- back down to 250 or so, just curious as to how you might think about whether or not we might see that, I guess, maybe in the first quarter or second quarter next year?

It's really too hard to say for the reasons that we've already outlined. The relationship pricing, competitive pressure and where rates go. Now we've -- actually, with the rates dipping down, we'd love to see a mini boom in the held for sale and refinancing. But we're not projecting that, that will occur.

Our next question comes from Dave Rochester at Deutsche Bank.

Can you talk about the timing of that hiring you did in 3Q and if there's possibly a component of those expenses that will come into the run rate in 4Q? Or most of those are already in the run rate for 3Q?

No, our hires were pretty well spread across the quarter. So while you get a full run rate in Q4, we'll probably be doing the very same thing in Q4 that we've done the last couple of quarters. And so I don't expect to see something that significantly different.

Got you. And the loan yield on the held for investment book had some nice stability this quarter. I was just wondering what the driver was there and if you think that, that should remain stable here, given where your loan production yields are?

I think it is. It's been very stable. And, obviously, we're benefiting from the book that has floors. The level of those has remained basically flat for 5 or 6 quarters in dollar terms. But with the growth in the held for investment, it's declined as a percent of the total. The yield has come down slightly over the last couple of quarters, down a little more sharply over the last year but holding very well. There were no significant drivers from the growth that had the impact that was distortive to the trends.

Got you. That's helpful. And on the fee side, given that the participations came back at the end of 3Q, do you anticipate there being another impact on broker fees in 4Q? Or is that impact already baked into that 3Q?

It's very little. I mean, that fee is not that significant in the first place. We did benefit from some reduction in participations at the end -- basically, at the end of the quarter. The balance will come in, basically, over the month of October with a minor -- very minor impact on fees.

Got you. And just one last one to follow up on the previous question on the warehouse being reclassified. If you do need to shift those to held for investment, would you have to take a reserve against those through the provision line?

No. Based on the character of the credit and our experience, certainly, anything that's in the unallocated will be more than sufficient to deal with. I mean, we've never had -- I say never -- I can't recall an actual charge-off in that portfolio.

The risk in that portfolio doesn't change just by moving it from one line to another line. So we use our methodology to evaluate that portfolio and the loans held for investment portfolio at the same and reserve and charge-off when we need to do it.

Our next question comes from Brett Rabatin at Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Wanted to just make sure that there weren't any prepayment fees that impacted the held for investment yield this quarter, especially. And then I was just hoping to get a little more color around the warehouse in terms of -- if you gave it, I missed it. But just maybe thinking about client adds this quarter and sort of the outlook, or potentially, the utilization -- or underlying utilization rates this quarter versus last.

I don't recall ever having a prepayment fee. I'm not saying it didn't occur but...

We did see a little fixed rate financing, Brett, but that's really not a material revenue item for us. However, we are seeing some of our lending areas be more effective on generating fees. One of those areas is our syndications group, as we lead more of these credits. So we hope that it's just the beginning of a very long trend. But that is perhaps what is helping us along with the loans held for sale yield pickup that we saw.

I think your other question about the warehouse is -- it's going to be a competitive fourth quarter. We, again, think we're going to get to the point that we told you we would get to at the end of the year. 2014 is a little more murky. We'll continue to add customers. We'll continue to see a lot of things in the marketplace that are moving our way. But volume in '14 is going to be tough.

The whole issue really is at what point do the lines cross, where the refi slide is overtaken by the increase in the housing recovery and purchase mortgage lending? And we're in a great place with our core clients being primarily purchase mortgage companies. And we do believe the housing recovery, again, has legs. We'll have to see how rates affect that and consumer confidence and job growth, of course. But there will be a point, perhaps sometime in '14, perhaps as late as early '15. We're hopeful at '14, we'll see those lines cross and begin to see some growth there in addition to what we've been successful doing and continue to do on market takeaway to mitigate the refi slide.

Fortunately, as Keith said and we've all said, the loans held for investment are really picking up. And we're seeing exceptional growth for the last 2 quarters, and that has been a good addition to the loan growth.

That's one of the keys that we've been working on for 2 years, as you guys know, is investing some the profits on refi business, if you will, that was part of the mix in LHS and investing some of those profits and really creating more RM capacity and more LHI growth drivers. And it's really showing up in the last quarter and then again this quarter.

Our next questions come from Andy Stapp at Merion Capital Group.

To what extent will the failure of one of your capital ratios not meeting the well capital -- capitalized threshold impact your deposit insurance cost?

No meaningful impact whatsoever. We haven't calculated, but it's a historical thing. It doesn't exist today, so there's no ongoing effect.

It was just a look back issue when they changed our capital requirement on LHS.

And quite frankly, Andy, if we'd known about it, at that point in time, we had the capacity to add the capital to the bank. We just didn't know about it.

Sure. Yes, I understand. Okay. And you talked about the refi versus purchase mix at quarter end. Was it materially different on an average basis?

It continues to trend down as it has for the last -- over a year now. And I just think, to our guys' credit, they didn't believe it could last forever as maybe some competitors were hoping it might, but they knew it wouldn't either. But our guys were much more progressive over the last 2 years, again, building more of the purchase core mortgage company client base, which has been harder. It is more blocking and tackling there. The refi clients were available. That trend just continues. It's not been markedly different.

Okay. And do you have a feel for what the current yield is on new loans coming into your mortgage warehousing business?

No, it's really very similar to what we saw last quarter. Roughly, now, it's running around 3.8, it would be a good guess. Our yield...

Our yield on the loan side, but that does not include deposit credit and the fee component.

Right.

Okay. Do you have a feel what that is? Or...

No, we look at it more in terms on return on the invested capital. I think you may have heard from our previous call, we normally allocate capital with an after-tax cost of less than 5%, business is producing returns between 20% and 25% after tax.

Our next question comes from Gary Tenner at D.A. Davidson. Gary P. Tenner - D.A. Davidson & Co., Research Division: My questions have already been answered. Just out of curiosity, and this hasn't been a much of a headwind, apparently, based on your loan growth, but could you just kind of tell us what the gross new loan production was in the quarter versus the net growth?

Well, I don't have that number. Although we watch it from week-to-week on a client-by-client basis. We'd rather not probably go there and begin to give you that much detail. Gary P. Tenner - D.A. Davidson & Co., Research Division: Could you talk in general terms just about the level of competition, how much you're having to concede whether it be on price or anything else to keep...

Absolutely. I see your key issue. We don't lose clients. It's very, very rare for us to lose a client, even in this environment now. Are there times when we'll have to go in and reprice to some extent? Absolutely. But we will not be a target and be easy picking for somebody to come in and take a client. We're going to make it absolutely not worth their time to pursue a client. But largely, that has to be a function of the service delivery, the RM quality. In fact, we keep our Relationship Managers. They're just top caliber, and the business owners and CFOs really like doing business with us. The support staff is excellent. So it shouldn't be a matter of us losing a client over price. We've stay competitive on price but we're never going to be somebody nor do we ever depict ourselves to be somebody that is a low-price bank. That's not our market. And so, we're doing quite well on defending clients. In fact, we continue to take away market share with our value proposition.

Our next question comes from Michael Rose at Raymond James. Michael Rose - Raymond James & Associates, Inc., Research Division: Two quick follow-ups. Does the change in mortgage warehouse business with the call report issue, does that alter the ability to fund the warehouse with the FHA beeline in any way?

No. Michael Rose - Raymond James & Associates, Inc., Research Division: Okay, good. And then the litigation recovery that you had this quarter, I assume that relates to the Oklahoma case from last year. Would you expect any additional recovery there?

We have 2 other claims pending. One related indirectly to Oklahoma and other related to another credit loss that we're continuing to pursue.

Our next question from Matt Olney at Stephens.

All my questions have been addressed.

I show no further questions at this time. Would you like to make any closing remarks?

Sure. Thanks, Amy. Well, I just wanted to tell you that, we, at Texas Capital, again, very much appreciate your interest and your questions today. They have been very informative. Hopefully, for you also. This being my last conference call before my retirement in December, I wanted to take a moment to say goodbye and to sincerely thank all of our supporters of this and other calls: our shareholders, our analysts, our friends, customers and employees, really, for your loyalty and goodwill over the past 15 years. Texas Capital BancShares is quite a unique company that could not have been successful without all of your support. I speak for the entire management team in pledging to you our best efforts in continuing our successful performance for our shareholders. Again, we are much appreciative. We thank you for your attention today and be seeing you soon. Thank you.

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