Oct 22, 2008
Executives
Myrna Vance - Director of Investor Relations George Jones - President and CEO Peter Bartholow - Chief Financial Officer
Analysts
Erika Penala – Merrill Lynch John Pancari – JP Morgan Charlie Ernst – Sandler O’Neill Andrea Jao – Barclays Capital Michael Rose – Raymond James Andy Stapp – B. Riley & Co.
Operator
Welcome to the Texas Capital Bancshares third quarter 2008 earnings conference call. (Operator Instructions) Now I would like to turn the conference over the Ms.
Myrna Vance, Director of Investor Relations.
Myrna Vance
Thank all of you for joining us today for our conference call. I will be happy to answer any questions or followup things that you want to talk about after the end of the call.
My number, for those of you who don't have it, is (214) 9326646. Now, before we get into our discussion, let me read the following statement.
Certain matters discussed on this call may contain forwardlooking 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 forwardlooking 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 forwardlooking statements, can be found in our annual report or Form 10K for the year ended December 31, 2007, and other filings made by Texas Capital Bancshares with the Securities and Exchange Commission.
With that done, let's begin our discussion. With me on the call today are George Jones, our President and CEO, and Peter Bartholow, our CFO.
After a few prepared remarks, our operator will facilitate our Q&A session. At this time, let me turn the call over to George.
George Jones
We believe that Texas Capital has had another good quarter in Q3. We had good growth in loans held for investment and good growth in demand deposits.
We did have some margin compression in Q3. Our business model is intact; and our equity capital raise, as you recall, of $55 million positions us, we believe, very well to take advantage of future growth and the opportunities that this market will give us.
As all of you know, there is an opportunity to participate in the U.S. Treasury's TARP and liquidity programs.
We are currently assessing whether we will participate or not. We will make a decision by November 14, as soon as more facts are known.
The Texas economy, while slowing, continues to outpace the nation in job growth. Our unemployment rate in all our markets is better than the national average.
We had net income of $7.6 million and that increased substantially over Q2 2008, but did decrease 14% compared to Q3 2007. Our EPS really showed similar comparisons.
We did experience a customer fraud in our mortgage warehouse group that had a onetime $0.02 negative impact on our Q3 earnings. I believe we have an opportunity over time to recover some or all of this loss.
Again, time will tell. The additional $0.01 impact was the issuance of additional shares related to the capital raise I mentioned just a moment ago.
Loans held for investment showed a nice 5% increase link quarter and an 18% increase compared to Q3 2007. 47% of that average loan growth came from our regions outside of the Dallas area.
We continue to see good production from all our regions, and we're very proud of the progress we've made over the last few years. Demand deposits showed a nice increase of 11% on linked quarter basis and 21% increase compared to Q3 2007.
Our energy lending group, our mortgage warehouse group, and Houston and Austin regions provided substantial growth in the DDAs. Margin did decline from 3.65% to 3.47%, and Peter will discuss that in more detail in just a moment.
We did provide a $4 million provision to the loan loss reserve in Q3. That was about 2.6 times net charge-offs of $1.5 million that we reported for the quarter.
We did see an increase in nonperforming loans, and I will discuss those in much more detail in just a moment. Right now, let me turn it over to our CFO, Peter Bartholow.
Peter Bartholow
We appreciate your participation in this call. As George mentioned, we had net income of $7.6 million, or $0.27 per share.
This we consider a very good result considering the economic environment and the problems confronting our industry. We saw an increase of 23% as George mentioned from Q2.
And though we are down slightly from Q3 of 2007, due primarily to margin pressure, we saw a link quarter reduction in provision though we did have an increase in the provision from Q3 2007 by $2 million or 100%. George mentioned that the stock sale in September of $55 million was very successful.
It did result in a $0.01 per share dilution during the quarter. In addition, as he mentioned, we suffered a $1 million or $0.02 plus per share fraud loss that arose out of a very unusual circumstance involving a single customer.
We believe it's not indicative in any way of systemic risk which would affect our future earnings power. Due to exceptional growth in loans, DDA, and equity, we saw very slight increase in link quarter net interest income, despite, as George mentioned, a compression of 18 basis points or 5% in net interest margin.
The favorable credit position is reflected in the substantial reduction in net charge-offs and a reduced provision for loan losses. As George mentioned, the equity offering of gross in average balances of 20% with a small impact only in the average balances from the September sale.
From Q2 2008, we had a link quarter absolute increase of 20% and over $96 million or 34% from a year ago quarter. This is, as George mentioned, a strong capital position to support our growth.
Tier one ratios are now 10.5% and the total capital ratio at 11.4%. Obviously well in excess of the well capitalized standard.
Turning to the next slide, I mentioned that net revenue increased only slightly from Q2 due to the decrease in margin, but we overcame a 5% reduction in net interest margin. We think this demonstrates the benefits of our growth model.
The decrease in net interest margin, which I will discuss in more detail, also masks very solid improvement in operating leverage, which remains a real priority at our company. We saw a reduction in the ratio of non-interest expense to earning assets, link quarter, of 10 basis points.
We were down 22 basis points in that very important measure from a year ago. Assuming stable net interest margin, today the efficiency ratio would be less than 60% before the $1 million fraud loss.
With loans involving the greatest exposure to actual loss out of the portfolio which resulted in the charge-offs in Q2 was the provision and the net charge-off levels fell sharply. Provision down 50% from the trailing quarter and net charge-offs of 15 basis points compared to 40 basis points in the link quarter.
We saw significant growth and income contribution from the mortgage warehouse group, despite the unique circumstances that created the fraud loss. We see there strong growth, favorable spreads, and despite the fact that the yield is down slightly due to changes in treasury rates.
Key ratios, return on assets, and return on equity improved from Q2 due primarily to the reduced provision, but were adversely affected by the decrease in net interest margin. Turning to slide 9, as George mentioned, we had remarkable growth in loans, balances that remain well ahead of plan for the year.
We had loans held for investment of 5% in the quarter, 18% over the prior year. The growth of $184 million in Q3 was due primarily to the strong growth in the final month of Q2.
The stronger growth in loans held for sale, total loans are up just under 6% and 22% yearoveryear. Loans directly related to, we believe, are directly related to the strength of TCB's position in the Texas market.
Growth rates are down from prior quarter and in recent past due to seasonal factors in Q3, tightening of credit standards, and obviously weaker economic trends nationally and in our market. The strongest contributors to loans held for investment growth were San Antonio, Houston, Dallas corporate, and Ft.
Worth. We did have remarkable growth in DDA.
I don't expect we'll see anybody that had link quarter growth of 11% nonannualized and 21% from the prior year. Growth in total deposits link quarter average of $295 million over 9% was primarily driven by growth near the end of Q2 and exceeded the growth in loans by more than $100 million.
We obviously with this kind of loan growth are continuing to see a shift in earning asset composition, with loans now comprising 92% of all earning assets. Turning to page 10, loans held for investment ended the quarter at $3.84 billion, again substantially ahead of plan.
Growth of $135 million on a date statement basis is less as I mentioned than recent quarters, an increase of under 2% from Q2 average, which I think is still very strong compared to industry trends. We do, as I mentioned, see some seasonal weakness in Q3, but the reduced growth mostly reflects tighter credit standards and our economic outlook.
Loans held for sale were up 4% from Q2 or almost triple the volume of yearoveryear balance. This is a highly liquid asset with a duration of less than 2 weeks.
Deposit growth showed seasonal weakness in Q3 typically compared to Q2. DDA totaling $561 million was comparable to the average for the quarter, but below the seasonally high level of $610 million at the end of Q2.
Growth of 19% over Q3 2007 is again very strong. We saw deposits down slightly from Q3 averages at the end of Q2 due to expected maturities.
Slide 11, more commentary on the net interest margin. At 3.47%, we had a reduction of 18 basis points or 5% link quarter and 38 basis points from the level a year ago when the core interest rates, Fed funds and so forth, were much higher.
Two major factors produced this result, each accounting for about half of the total decrease from Q2. Loans paid maturing over sold in Q2 and early in Q3 had higher rates than those loans generated in the same groups primarily throughout Q3.
This includes loans held for sale and other categories of commercial lending. This condition relates to as much as $600 million or more in loans on a link quarter basis and results in a lag affect from the decrease in average Fed funds rates from Q1 and Q2 which contributed to the stable net interest margin in Q2, but hurt Q3.
The increase in nonaccrual loans and ROE also affected the margin significantly, again, about half of the total. Most of that occurred near the end of the quarter resulting in an abnormal lumpiness in the reversal of interest compared to Q2 when those same loans were on full accrual.
We do, of course, expect that non-performing assets will reflect a drag on ongoing earnings, but we are unlikely, we believe, to see the lumpiness resulting from the level of reversal at the end of the quarter. The spread of LIBOR to Fed funds rate, which affects 25% of total floating rate loans, remains high.
Though it is down in recent days. I think in current recent days it still remains higher than it was on average for Q2 and Q3.
The spread to prime on floating rate portfolio was also better at the end of Q3 than in recent quarters. Funding costs obviously play an important part of margin.
We saw strong DDA growth and strong equity growth benefiting total funding costs, just not as much in a low rate environment. In terms of net interest margin and very low market rates, DDA and equity provide much less benefit.
Growth in DDA and equity, though, did produce a slight decrease in the overall funding costs, this despite the effect of the global demand for liquidity and impact on pricing of deposits and other interest-bearing liabilities throughout the entire system. By earning asset and funding composition, Texas Capital is much less rate-sensitive than it used to be.
When rates are very low, the cost of certain funding components cannot fall enough to compensate for reductions in floating rate loans, increasing the effects of asset sensitivity despite structurally being less sensitive. A prolonged period of low rates is clearly a negative for us, even when loan pricing continues to improve.
Turning to slide 12, we clearly continue to have a strong growth model in terms of core earnings power. Compound growth rate of net revenue is higher than the growth rate in expense by 500 basis points.
That trend did not hold true in Q3 because of the effect of margin. As I mentioned, the improvement in the ratio of non-interest expense to earning assets still is delivering results for us.
The category of net interest income is higher than expense growth by 700 basis points. Conditions evident in our industry have not changed our view of benefits of this business model.
Historically, as I think you are all aware, credit costs remain low compared to industry trends, and have been more than offset by the growth advantage. On slide 13, again, the growth model is confirmed.
Strong taggers for loans and deposits and our market opportunity, despite economic weakness and problems in the industry has improved due to those conditions.
George Jones
If you turn to slide 14, you will see the pie chart on the left. That's loan distribution by collateral type.
That has not changed much at all from Q2. I would like to focus your attention on the right side and discuss our nonaccrual loans in slightly more detail than you can get from the printout.
I really focus my remarks on the real estate loans because, as you can see, they comprise a significant portion of the nonaccruals, or about 95%. The increase in nonaccruals of approximately $30 million from Q2 really centers around four particular credits.
Let me talk through those with you. The first one is a $9 million construction loan to a large homebuilder to construct smaller homes in the greater Houston area.
While Texas really has remained their best market, their projects in Arizona and other areas have drained cash from the company. They are really unable to meet their obligations.
We put a specific reserve of $1 million allocated to that credit in Q3 and we foreclosed on the completed homes and lots this month. We reduced the carrying value by $1 million and we had fresh appraisals, and we believe the assets are properly valued today.
That million dollars that was allocated in Q3, as I mentioned before, was taken and charged down on that particular credit. We believe the $8 million on the books today is valued appropriately.
The second credit is a $9.4 million loan to a developer that we know quite well. He's been a good customer for a number of years.
This is a retail shopping center site in Austin, Texas. It's extremely well located within the city, but our customer lost his two large anchor tenant prospects and doesn't have the liquidity to carry to loan.
We put a specific reserve on this credit and; we believe there will be little, if any, loss on the loan because when we underwrote the credit, we took a large portion of cash equity up front before the loan was made and the location of the property gives us great confidence in the value on that particular collateral piece. The third loan is a $5 million loan to a townhouse developer in Dallas.
We have an interested party wanting to purchase the note at a small discount, and we hope to be able the complete that transaction by yearend. The fourth loan is a $4.5 million relationship secured by a building with exposure of approximately $1.1 million.
We think that exposure is real. We put a 90% allocated reserve to that exposure.
We will do our best to collect that million dollars. The majority of the balance of our nonaccrual loans is a development loan that we previously identified and discussed with you earlier this year.
It's $9 million; it has specific reserves assigned to it. It has a relatively current appraisal, and we feel good about the carrying value at this point in time.
The remaining $7 million to $8 million of NPLs are represented by smaller real estatetype properties that we believe are properly reserved with the right kind of appraisals. The message here, really, is that although our nonaccrual loans are increasing and this economy is definitely slowing, we don't see big losses at this point in that portfolio.
We believe we're properly reserved and that our losses are not large. Two basic reasons, and I will reiterate again, is because the way we underwrite those credits with a nice cash component up front typically on the real estate side and we're in the state of Texas, which we're blessed with that location.
Net charge-offs are a $1.5 million in Q3 and $7.6 million yeartodate. These charge-offs for Q3 represent 15 basis points for the quarter, 28 basis points yeartodate, and 28 basis points for the last 12 months.
Charge-offs were related to identified problems that we have seen in the past, and they were basically covered with allocated reserves in prior periods. Our increase in nonperformers really wasn't unexpected.
They continue to receive intense focus. Our provision of $4 million in Q3 increased our reserve to $1.07 million of loans held for investment.
We're continuing to tighten standards, as you might imagine, on loans that we make today. And we're working diligently on reducing the level of problem assets.
However, I suspect that all of us in our business, in the banking business, are going to have to deal with a higher level of NPAs until the economy returns to a much more normal state. In closing today, I would really call your attention again to another good quarter of growth.
We do have a cautious outlook for the Texas economy. It is slowing.
We are not immune to national events. The lower rate environment and the increased economic risk could impact our guidance in Q4.
As we said before during our capital raise in September, we continue that intense focus on maintaining credit quality, at the same time, though, exploiting the market for people and for customers. We do believe there is a good opportunity for that.
It makes a lot of sense for us to raise the capital we did. We're pleased with our position in the market at this point in time.
That really concludes our remarks today. We'll pause for a moment and see if there are any questions.
Operator
(Operator Instructions) Your first question is from Erika Penala Merrill Lynch.
Erika Penala Merrill Lynch
The $23 million in construction nonaccruals, how much of that is raw land or partially competed land versus fully completed projects?
George Jones
Basically it's either completed projects or it's development loans that have been developed waiting to be sold to builders. Or as in that $1 million new construction loan of $9 million, that's a number of finished houses and lots that I mentioned we foreclosed on in October.
Erika Penala Merrill Lynch
Can you give us a sense what the split is between fully completed and partially completed?
George Jones
The only one that really would be considered undeveloped land in that total relates to that $9 million loan we talked about in Austin, the shopping center site. That has not been developed, but they have all the entitlements to develop that property.
Erika Penala Merrill Lynch
Are you looking to dispose of this through a secondary market sale? If so, what's the demand like out there?
For lack of a better term, what's the bidask spread?
George Jones
It's very interesting. It's almost project-by-project to tell you the truth.
We would certainly look for these larger projects, if we could find a reasonable way to dispose of it in bulk, but again, we don't believe that we have large losses in any of these particular projects. For someone to come in and bid $0.50 on the dollar just to move it off our books, we just wouldn't do that.
We don't believe that we have that kind of loss in these particular projects. Again, we're always open, we're always looking for a way to move it off our balance sheet, but bulk sales with big losses just to clean up the balance sheet really doesn't make sense today when we have the collateral value that I think we do.
Erika Penala Merrill Lynch
Moving on in the deposit side, we're hearing from other Texas banks that deposit competition remains quite fierce in your footprint. Do you suspect that you will have to hold your deposit offering steady in the fourth quarter despite the rate cuts?
Peter Bartholow
Certain categories of deposits, you can't lower price on. We understand that.
The competition for deposits, I don't think, unless you're talking about retail with consumer deposits being pushed aggressively, pricing pushed aggressively, to justify the existence of overbranched networks, in many cases involving banks that have serious problems. That is at the retail level clearly driving high rates.
That is not a rate that really has much, if any, bearing on rates that we pay. More important to us is what is happening globally with the demand for liquidity.
That clearly has increased deposit prices, but we do not believe, based on recent evidence, we think prices can come down in borrowing categories, those prices have actually come down very sharply in the last week or two. Unfortunately, you can't lower the yield on a demand deposit.
For a bank of our character, the demand deposit and equity, while they cost nothing in nominal rate terms, the effect of not being able to reduce a 0 price and increase spread has the biggest single impact on net interest margin for us.
Erika Penala Merrill Lynch
In your footprint, how has, if at all, the flight of quality in deposit flows played into corporate banks in our market specifically?
Peter Bartholow
I would think every bank would tell you that they've experienced some. It would not be logical that any bank would not have, given all the publicity affecting the largest banks.
But in no way has it been an issue for us in terms of managing liquidity.
Operator
Your next question comes from John Pancari JP Morgan.
John Pancari JP Morgan
Quick question on credit, actually a couple quick questions, on the 30- to 89-day past dues, can you give us some indication of where they came in at this quarter?
George Jones
I will have to look at that. I am more focused on the 90day and over.
The 90day and over was $2.9 million, down $20 million. Of that, $2 million of the $2.9 million was our premium finance group that we're always going to run about $2 million.
Our 90day and over past dues came down dramatically. The 30 to 89day category really was pretty flat in terms of where it came in.
It was in the $9 million or so range.
John Pancari JP Morgan
And then separately in terms of loan participations, can you remind us the size of your shared national credit portfolio and then give us an update on some of the credit trends you're seeing there and if you're concerned about that book.
George Jones
We have about $350 million or so in the shared national credit portfolio. We age probably a third of that, something like that, around $150 million.
The home solutions credit was a credit that was a shared national credit. That's where we saw a lot of weakness.
Frankly, in the portfolio that we have today, that number I mentioned to you, we have virtually no problems.
John Pancari JP Morgan
So you are aging about $150 million?
George Jones
That's rough. I don't have the number in front of me but that's approximately it.
John Pancari JP Morgan
That portfolio in general, you indicate it's holding up well?
George Jones
Yes.
John Pancari JP Morgan
Then on the energy side, obviously I am sure you are getting a lot of questions, can you just talk a little bit about your view on the impact on the direct portfolio, but more importantly on the broader economies given the pullback in oil prices and what that means for your energy exposure.
George Jones
We're currently analyzing that right now. We are probably going to reduce our price deck here pretty soon.
We don't think it's going to be any dramatic pullback or shift. Our portfolio, we believe, is in good shape.
If you recall, it's basically all production oriented. We don't have any equipment financed, we don't have big refineries financed, those kinds of things.
It is a commoditybased project. Most of our customers are holding up well.
We're basically at a 60% advance rate, current prices today. Our clients make a good profit at these prices today.
We really, as I mentioned before, don't have any oil servicetype loans, companies financed. We think the portfolio will do just fine.
It will be interesting to see what oil prices do in the next 30 days, 60 days, 90 days. Gas prices also.
From our perspective, we think we underwrote conservatively. We have [advance] rates that have a sensitivity portion attached to it that gives us the ability to look at it lower than the prices today and still feel be about it.
We are watching it. We are moving our price deck down somewhat, but we're comfortable with our portfolio.
John Pancari JP Morgan
Where does your price deck stand right now?
George Jones
We're in the process of reviewing that right now. It has been as low as 50% of what prices were.
But we're in the process of adjusting that based on what the market is today. It will come down.
Operator
Your next question comes from Charlie Ernst – Sandler O’Neill.
Charlie Ernst – Sandler O’Neill
The $9 million construction credit, you guys have taken possession of the collateral in that credit, right? You no longer really have exposure to the company itself?
George Jones
That's right. The nice thing, Charlie, if there is any nice thing about a foreclosed asset is the homes and the lots are all in the Houston area.
That market is holding up fairly well.
Charlie Ernst – Sandler O’Neill
What sort of LTV was originally on that line?
George Jones
Loan to value was typically 80%. These are smaller homes.
They're not the big behemoths.
Charlie Ernst – Sandler O’Neill
Then, the $9.4 million developer loan, you said that there was a large cash equity component to it. Can you just comment as to how much cash there was in the deal?
George Jones
I want to say $2 million plus. Excuse me.
That's the one in Austin. That is closer to $3 million, roughly a third of that was put in in cash.
Charlie Ernst – Sandler O’Neill
And that was the property that you said is not developed?
George Jones
Not developed. That is a piece of land.
It's very well located right across the street from a very good retail development. We were perfectly comfortable moving ahead with the right kind of tenancy.
We had two large retail nationaltype tenants that basically fell out.
Charlie Ernst – Sandler O’Neill
And then the $4.5 million credit, can you just repeat the details on that credit again? I missed that.
George Jones
That's really a combination of two credits. We have one building behind it, and we think based on the collateral we have a gap of about a million dollars.
That's what we have reserved for.
Charlie Ernst – Sandler O’Neill
So that gap you have a reserve for?
George Jones
Yes.
Charlie Ernst – Sandler O’Neill
And what kind of properties were those?
George Jones
That was a building, a small office building.
Charlie Ernst – Sandler O’Neill
Can you just add a little bit more color to the million dollar fraud and why this was able to slip through, what can you maybe do the prevent this and things like this in the future.
George Jones
As Peter mentioned, we don't believe it is a systemic problem in the mortgage warehouse group. It involved more than just one customer.
It involved more than that. It was centered in one customer.
Peter Bartholow
But that customer's activities with other parties.
George Jones
The other parties were very interesting. We are in the middle, Charlie, of working through all that right now and as you might imagine, we can't get too descriptive in terms of defining it more than that.
We believe the million dollars is the outside of our exposure to that particular fraud. We think we have written off all of our exposure.
Charlie Ernst – Sandler O’Neill
And then on the margin. The margin I think was probably worse than what your guidance was.
Was it really that the deposit seasonality or decline was greater than what you expected?
Peter Bartholow
It wasn't the deposit seasonality; it was the pricing of loans that remained high in late Q1 and throughout Q2 that paid off in the course of Q2 and early Q3. That same type credit spread to prime for example still very strong, but not as strong as it had been because it was, there were in many cases, short duration fixedrate loans.
Charlie Ernst – Sandler O’Neill
I apologize, my last question. On the TARP, can you just say maybe two or three of the pros and cons when you think about it as far as picking up some of this preferred equity?
George Jones
We will take a stab at it because it changes every day, as you might imagine and as you know. We know the financial terms today.
In today's environment, the financial terms look pretty good compared to what is available in the marketplace today. That's assuming you need the capital or you want the capital.
We are very pleased with our capital raise back in September. Doesn't mean we're not going to take a look at participating on a go-forward basis.
But we're very pleased with what our capital levels are today. The devil is in the details.
We have got our law firm looking very actively at all pieces of this. As applications and requirements come out, we are trying to learn from that.
We will be as up to date as we possibly can by November 14 and we will make a decision prior to that time. We're all learning a lot as we go on a daily basis.
Operator
Your next question comes from Andrea Jao Barclays Capital.
Andrea Jao Barclays Capital
I was hoping you could share your interest rate outlook including how many cuts are you factoring in on the Fed funds target through 2009 and under the scenario how do you think about your margin? How will you manage your margin?
Peter Bartholow
The last time they did this, they took it to one, but didn't go below. It's hard to imagine they're going below 1%.
When I said most of the change resulted from two major components, that is obviously oversimplistic because there are at least eight major drivers of the margin for us. Spread LIBOR to prime, obviously the composition of the portfolio, we have certain categories that are producing much better spreads today than they were even three months ago.
I think there's a very high probability that they're going to take this to 1%. More important to us than the level is how long it stays there.
I don't think anybody to my knowledge is projecting a rate below one.
Andrea Jao Barclays Capital
Best you can tell, how long do you think, how long are you assuming interest rates remain very low? Then related to that, through 2009, unfair question, but how much more weakness do you think we'll see in the economy and how should we think about loan growth and deposit growth under those assumptions?
Peter Bartholow
I think we read the same things you do, and it might be hard for us to have a better view other than the fact that so far employment growth, there is real employment growth in Texas, albeit at a slower rate. And real absorption, which for our markets is obviously very important.
George Jones
Andrea, you also mentioned something about loan growth and deposit growth also. We have been able to up-price our product.
We have been able to structure the product better than we have been in the competitive markets that we have been in previously. I think that while probably our loan growth will be slightly less or somewhat less than our historical loan growth, I believe that you can watch our numbers and see we will outperform in terms of loan growth our peer group.
Operator
Your next question comes from Michael Rose Raymond James.
Michael Rose Raymond James
Are you seeing any opportunities yet out of the Wells Fargo/Wachovia merger? Secondarily, what are your hiring plans for the next couple quarters?
George Jones
We are seeing some people opportunities from that particular merger. We do believe that in many cases the people come first and the relationships follow the people.
Wachovia was extremely aggressive in our marketplace. We think that there will be some opportunities certainly from that merger.
That again is why we raised a significant or reasonable amount of capital almost a month ago or a little other a month ago. That we didn't do it to fill a hole; we did it to hopefully take advantage of lending deposit relationships that we can garner from our competition, Wachovia and Wells Fargo just being one.
Michael Rose Raymond James
Does your previous guidance of $30 million to $33 million hold at this point?
George Jones
We're not changing that at this point in time, but as I mentioned in my remarks, there are two or three things that put that at risk. We will be truthful with you and tell you we are looking at all that right now.
When you talk about the lower rate environment, the economy that we're dealing with, it's hard to put a factor on that right now.
Operator
Your next question comes from Andy Stapp B. Riley & Co.
Andy Stapp B. Riley & Co.
All my questions have been answered, thank you.
Operator
We show no further questions at this time. I would like to turn the conference back over to management for any closing remarks.
George Jones
We appreciate your time this afternoon. We're extremely pleased to be in this marketplace we're in today.
These are difficult times, no question about it. We are working hard for our shareholders' interests.
We believe that Texas will come out better in this economic downturn that we're seeing, but we won't be immune. Thanks again for your time, we appreciate your interest.
We will talk to you soon.
Operator
This conference is now concluded. Thank you for attending today's presentation.