UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x		Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934.

~~For the quarterly period ended September 30, 2003~~

For the quarterly period ended March 31, 2004


o		Transition Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934.

~~For the transition period from~~ to

For the transition period from ________________ to ________________

Commission file number0-30533

TEXAS CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		75-2679109
(State or other jurisdiction of incorporation or organization)		~~75-2679109~~ (I.R.S. Employer Identification Number)

2100 McKinney Avenue, Suite 900, Dallas, Texas, U.S.A.		75201
(Address of principal executive officers)		~~75201~~ (Zip Code)

214/932-6600
(Registrant’s telephone number,
including area code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

Indicate by checkmark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesx Noo

~~APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY~~
~~PROCEEDINGS DURING THE PRECEDING FIVE YEARS:~~

Indicate by check whether the issuer has filed all reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yeso Noo

APPLICABLE ONLY TO CORPORATE ISSUERS:

On ~~October 31, 2003,~~April 30, 2004, the number of shares set forth below was outstanding with respect to each of the issuer’s classes of common stock:


Common Stock	~~24,634,044~~24,906,908
Series A-1 Non-voting Common Stock	~~304,000~~286,934

~~TABLE OF CONTENTS~~


	~~ITEM 1. FINANCIAL STATEMENTS~~
		~~CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED~~
		~~CONSOLIDATED BALANCE SHEETS — UNAUDITED~~
		~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY — UNAUDITED~~
		~~CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED~~
		~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED~~
		~~QUARTERLY FINANCIAL SUMMARY — UNAUDITED~~
	~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
	~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~
	~~ITEM 4. CONTROLS AND PROCEDURES~~
~~PART II — OTHER INFORMATION~~
	~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K~~
~~SIGNATURES~~
~~EXHIBIT INDEX~~
~~EX-31.1 Certification of CEO Pursuant to Sec. 302~~
~~EX-31.2 Certification of CFO Pursuant to Sec. 302~~
~~EX-32.1 Certification of CEO Pursuant to Sec. 906~~
~~EX-32.2 Certification of CFO Pursuant to Sec. 906~~

Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended ~~September 30, 2003~~March 31, 2004

Index


Part I. Financial Information
	Item 1.		Financial Statements
		Consolidated Statements of Operations -— Unaudited		3
		Consolidated Balance Sheets ~~- Unaudited~~		4
		Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity ~~- Unaudited~~		5
		Consolidated Statements of Cash Flows -— Unaudited		6
		Notes to Consolidated Financial Statements -— Unaudited		7
		Financial Summaries -— Unaudited		1310
	Item 2.	~~Management's~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		20
Item 4.		Controls and Procedures		21
Part II. Other Information
Item 6.		~~Results of Operations~~		15
	~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~				27
	~~Item 4.~~	~~Controls and Procedures~~				28
~~Part II. Other Information~~
	~~Item 6.~~	Exhibits and Reports on Form 8-K				2922
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS —- UNAUDITED
(Dollars in thousands except per share data)


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2003			2002			2003			2002			Three months ended March 31
													2004		2003
Interest income
Interest and fees on loans	$	16,114		$	14,219		$	46,791		$	39,545		$	16,706	$	14,696
Securities		4,832			3,815			15,517			10,320			7,551		5,360
Federal funds sold		20			25			150			204			15		87
Deposits in other banks		4			3			11			6			2		3

Total interest income		20,970			18,062			62,469			50,075			24,274		20,146
Interest expense
Deposits		5,041			5,617			16,020			15,650			4,743		5,382
Federal funds purchased		348			402			1,257			1,145			320		440
Repurchase agreements														2,085		2,359
Other borrowings		1,980			1,169			6,805			2,798			226		86
Long-term debt		250			—			630			—			256		137

Total interest expense		7,619			7,188			24,712			19,593			7,630		8,404

Net interest income		13,351			10,874			37,757			30,482			16,644		11,742
Provision for loan losses		475			2,380			3,325			4,359			750		1,250

Net interest income after provision for loan losses		12,876			8,494			34,432			26,123			15,894		10,492
Non-interest income
Service charges on deposit accounts		856			710			2,596			2,055			857		843
Trust fee income		350			235			937			727			437		281
Gain on sale of securities		—			1,375			686			1,375			—		341
Cash processing fees		—			—			973			993			587		900
Bank owned life insurance (BOLI) income		451			144			1,293			144			321		414
Mortgage warehouse fees		545			188			1,248			545			238		279
Gain on sale of mortgage loans														463		—
Other		310			211			924			680			409		269

Total non-interest income		2,512			2,863			8,657			6,519			3,312		3,327
Non-interest expense
Salaries and employee benefits		5,754			4,163			16,990			12,492			8,123		5,379
Net occupancy expense		1,265			1,214			3,651			3,767			1,332		1,187
Advertising and affinity payments		213			448			605			1,010			285		193
Legal and professional		744			724			2,253			2,175			789		579
Communications and data processing		767			717			2,223			2,117			859		720
Franchise taxes		37			34			111			81			97		37
Repurchase agreement penalties		—			—			6,262			—
Other		1,703			1,263			4,667			3,701			1,844		1,283

Total non-interest expense		10,483			8,563			36,762			25,343			13,329		9,378

Income before income taxes		4,905			2,794			6,327			7,299			5,877		4,441
Income tax expense (benefit)		1,573			700			(3,893	)		1,828
Income tax expense														1,940		1,410

Net income		3,332			2,094			10,220			5,471			3,937		3,031
Preferred stock dividends		(149	)		(280	)		(699	)		(817	)		—		(274	)

Income available to common stockholders	$	3,183		$	1,814		$	9,521		$	4,654		$	3,937	$	2,757

Earnings per share:
Basic	$	.15		$	.09		$	.47		$	.24		$	.16	$	.14
Diluted	$	.14		$	.09		$	.45		$	.24		$	.15	$	.14

Series A Series A-1
Convertible Non-voting
Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2001 753,301 $ 8 18,400,310 $ 184 741,392 $ 7
Comprehensive income:
Net income — — — — — —
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $3,683, net of reclassification amount of $1,375 — — — — — —
Total comprehensive income
Sale of Series A convertible preferred stock 303,841 3 — — — —
Sale of common stock — — 54,626 1 — —
Preferred dividends — — — — — —
Transfers — — 45,876 — (45,876 ) —
Purchase of treasury stock — — — — — —
Sale of treasury stock — — — — — —

Balance at December 31, 2002 1,057,142 11 18,500,812 185 695,516 7
Comprehensive income:
Net income — — — — — —
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,361, net of reclassification amount of $686 — — — — — —
Total comprehensive income
Sale of common stock — — 3,516,642 35 — —
Conversion of preferred stock (1,057,142 ) (11 ) 2,114,284 21 — —
Transfers — — 391,516 4 (391,516 ) (4 )
Preferred dividends — — — — — —

Balance at September 30, 2003 — $ — 24,523,254 $ 245 304,000 $ 3

[Continued from above table, first column(s) repeated]
Accumulated
Other
Compre-
Additional Treasury Stock hensive
Paid-in Accumulated
Deferred Income
Capital Deficit Shares Amount Compensation (Loss) Total
Balance at December 31, 2001 $ 127,378 $ (20,690 ) (87,516 ) $ (594 ) $ 573 $ (507 ) $ 106,359
Comprehensive income:
Net income — 7,343 — — — — 7,343
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $3,683, net of reclassification amount of $1,375 — — — — — 6,841 6,841
Total comprehensive income 14,184
Sale of Series A convertible preferred stock 5,247 — — — — — 5,250
Sale of common stock 350 — — — — — 351
Preferred dividends (1,097 ) — — — — — (1,097 )
Transfers — — — — — — —
Purchase of treasury stock — — (14,144 ) (103 ) — — (103 )
Sale of treasury stock 3 — 4,414 29 — — 32

Balance at December 31, 2002 131,881 (13,347 ) (97,246 ) (668 ) 573 6,334 124,976
Comprehensive income:
Net income — 10,220 — — — — 10,220
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,361, net of reclassification amount of $686 — — — — — (4,252 ) (4,252 )
Total comprehensive income 5,968
Sale of common stock 34,800 — — — — — 34,835
Conversion of preferred stock (10 ) — — — — — —
Transfers — — — — — — —
Preferred dividends (699 ) — — — — — (699 )

Balance at September 30, 2003 $ 165,972 $ (3,127 ) (97,246 ) $ (668 ) $ 573 $ 2,082 $ 165,080

The accounting and reporting policies of Texas Capital Bancshares, Inc. (the “Company”) conform to accounting principles generally accepted in the United States and to generally accepted practices within the banking industry. The Consolidated Financial Statements of the Company include the accounts of the Company and its subsidiary, Texas Capital Bank, National Association (the “Bank”). ~~The Company owns all of the outstanding common securities of Texas Capital Bancshares Statutory Trust I, a Connecticut business trust, and Texas Capital Statutory Trust II, a Delaware statutory trust.~~ Certain prior period balances have been reclassified to conform with the current period presentation.

The consolidated interim financial statements have been prepared without audit. Certain information and footnote disclosures presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the interim financial statements include all normal and recurring adjustments and the disclosures made are adequate to make interim financial information not misleading.

~~In December 2002, the Financial Accounting Standards Board issued FASB Statement No. 148,~~~~Accounting for~~ Stock-Based Compensation ~~— Transition and Disclosure~~~~. Statement 148 amends FASB Statement No. 123,~~~~Accounting for Stock-Based Compensation~~, to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of Statement 123 and APB Opinion No. 28,~~Interim Financial Reporting~~, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the Statement does not amend Statement 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of Statement 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of Statement 123 or the intrinsic value method of Opinion 25. The Company adopted the disclosure provisions of Statement 148 effective December

~~At September 30, 2003,~~2004, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to ~~Employee~~Employees,s, and related interpretations. No stock-based employee compensation cost for options is reflected in net income, as all options granted under ~~those plans~~the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation.

The fair value of these options was estimated at the date of grant using a Black-Scholes value option pricing model with the following weighted average assumptions used for ~~2003~~2004 and ~~2002,~~2003, respectively: a risk free interest rate of ~~3.33%~~3.56% and ~~4.07%~~2.85%, a dividend yield of 0%, a volatility factor of ~~.387~~.286 and .001, and an estimated life of five years.

(1) ACCOUNTING POLICIES (continued)

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

~~Financial Accounting Standards Board Interpretation (FIN) No. 45,~~Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34.FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and were adopted in our financial statements for the year ended December 31, 2002. Implementation of the remaining provisions of FIN 45 did not have a significant impact on our 2003 financial statements.

~~FIN No. 46,~~~~Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.~~FIN 46 establishes accounting guidance for consolidation of variable interest entities (VIE) that function to support the activities of the primary beneficiary. The primary beneficiary of a VIE entity is the entity that absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, as a result of ownership, controlling interest, contractual relationship or other business relationship with a VIE. Prior to the implementation of FIN 46, VIE’s were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. The provisions of FIN 46 were effective immediately for all arrangements entered into after January 31, 2003, and are otherwise effective at the beginning of the first interim or annual period ending after December 15, 2003. Texas Capital Statutory Trust II was formed subsequent to January 31, 2003 for the purpose of issuing $10 million of trust preferred securities and accordingly is currently subject to the requirements of FIN 46. Texas Capital Bancshares Statutory Trust I was formed prior to January 31, 2003 to issue $10 million of trust preferred securities and will be subject to FIN 46 in the fourth quarter of 2003. We currently believe the continued consolidation of Texas Capital Statutory Trust II is appropriate under FIN 46. However, the application of FIN 46 to this type of trust is an emerging issue and a possible unintended consequence of FIN 46 is the deconsolidation of these trusts. The deconsolidation of Texas Capital Bancshares Statutory Trust I and Texas Capital Statutory Trust II would not have a material effect on our consolidated balance sheet or our consolidated statement of operations. In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred

~~(1) ACCOUNTING POLICIES (continued)~~

securities in their Tier I capital for regulatory capital purposes until notice is given to the contrary. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary or warranted, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier I capital for regulatory capital purposes. As of September 30, 2003, assuming we were not allowed to include the $20 million in trust preferred securities issued by Texas Capital Bancshares Statutory Trust I and Texas Capital Statutory Trust II in Tier 1 capital, the Corporation would still exceed the regulatory required minimums for capital adequacy purposes.

~~SFAS No. 149,~~~~Amendment of Statement 133 on Derivative Instruments and Hedging Activities.~~SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133,~~Accounting for Derivative Instruments and Hedging Activities~~. The amendments (i) reflect decisions of the Derivatives Implementation Group; (ii) reflect decisions made by the Financial Accounting Standards Board in conjunction with other projects dealing with financial instruments; and (iii) address implementation issues related to the application of the definition of a derivative. SFAS 149 also modified various other existing pronouncements to conform with the changes made to SFAS 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003, with all provisions applied prospectively. Adoption of SFAS 149 on July 1, 2003 did not have a significant impact on our financial statements.

~~SFAS No. 150,~~~~“Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”~~SFAS 150 establishes standards for how an issuer classifies, measures and discloses in its financial statements certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify financial instruments that are within its scope as a liability, in most circumstances. Such financial instruments include (i) financial instruments that are issued in the form of shares that are mandatorily redeemable; (ii) financial instruments that embody an obligation to repurchase the issuer’s equity shares, or are indexed to such an obligation, and that require the issuer to settle the obligation by transferring assets; (iii) financial instruments that embody an obligation that the issuer may settle by issuing a variable number of its equity shares, if, at inception, the monetary value of the obligation is predominately based on a fixed amount, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares; and (iv) certain freestanding financial instruments. SFAS 150 is effective for contracts entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of SFAS 150 on July 1, 2003 did not have a significant impact on our financial statements.

(2) EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share (dollars in thousands except per share data):


			Three months ended September 30						Nine months ended September 30
			2003			2002			2003			2002			Three months ended March 31
															2004		2003
Numerator:	Numerator:
	Net income		$	3,332		$	2,094		$	10,220		$	5,471
	Preferred stock dividends			(149	)		(280	)		(699	)		(817	)
Net income															$	3,937	$	3,031
Preferred stock dividends																—		(274	)

Numerator for basic earnings per share-income available to common stockholders	Numerator for basic earnings per share-income available to common stockholders			3,183			1,814			9,521			4,654			3,937		2,757
Effective of dilutive securities:	Effective of dilutive securities:
	Preferred stock dividends²			149			—			699			—
Preferred stock dividends																—		274

Numerator for dilutive earnings per share-income available to common stockholders and assumed conversion	Numerator for dilutive earnings per share-income available to common stockholders and assumed conversion		$	3,332		$	1,814		$	10,220		$	4,654		$	3,937	$	3,031

Denominator:	Denominator:
	Denominator for basic earnings per share-weighted average shares			21,924,855			19,148,908			20,120,056			19,140,206
	Effective of dilutive securities:
		Employee stock options¹		1,137,947			573,922			580,593			332,666
		Convertible preferred stock²		1,103,104			—			1,773,521			—
Denominator for basic earnings per share-weighted average shares																25,108,746		19,194,023
Effective of dilutive securities:
Employee benefit plans⁽¹⁾																967,009		125,053
Convertible preferred stock																—		2,114,284

Dilutive potential common shares	Dilutive potential common shares			2,241,051			573,922			2,354,114			332,666			967,009		2,239,337

Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions	Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions			24,165,906			19,722,830			22,474,170			19,472,872			26,075,755		21,433,360

Basic earnings per share	Basic earnings per share		$	.15		$	.09		$	.47		$	.24		$	.16	$	.14
Diluted earnings per share	Diluted earnings per share		$	.14		$	.09		$	.45		$	.24		$	.15	$	.14

(1)

Excludes employee stock options with exercise price equal to or greater than ~~current~~average market ~~price.~~

~~(2)~~

~~Effects~~price of ~~convertible preferred stock are anti-dilutive~~$15.75 for 2004 and ~~are not included in September 2002. Effects of convertible preferred stock are dilutive and are included in September~~$7.25 for 2003.

(3) ~~SEGMENT DATA~~

During prior reporting periods, the Company has operated two principal lines of business under the Bank: the traditional bank and BankDirect, an internet only bank. During the third quarter of 2003, a new chief financial officer joined the Company. In connection with the addition to executive management and the assignment of responsibility for BankDirect to the new executive, the Company has re-evaluated its reportable segments and determined that BankDirect should not be reported as a separate line of business. Historically, while BankDirect has always been a division of the Bank, not a separate legal entity, the business strategy and operating results of BankDirect were previously reviewed by the Company as a business segment in assessing the performance and making decisions about financial, marketing and staffing resource allocations to BankDirect. Over the past two years, BankDirect has evolved primarily into an internet-based funding and services channel for the Bank and become less significant to the overall business and funding strategies of the Company. The deposit products and other services offered by BankDirect are substantially identical to those offered to other Bank customers. Accordingly, BankDirect is now evaluated by management in a manner similar to other funding sources and services of the Bank, rather than a clearly distinct business segment. Based on the foregoing, we have concluded that the Company currently has only one principal line of business that would be reportable as a segment: the Bank. We have restated our 2002 segment information consistent with the 2003 presentation.

~~BANK~~
~~(Dollars in thousands)~~

Three months ended September 30 Nine months ended September 30
2003 2002 2003 2002

Net interest income $ 13,601 $ 10,874 $ 38,387 $ 30,482
Provision for loan losses 475 2,380 3,325 4,359
Non-interest income 2,512 2,863 8,657 6,519
Non-interest expense 10,164 8,410 35,629 24,767

Pre-tax income $ 5,474 $ 2,947 $ 8,090 $ 7,875

~~Reportable segment reconciliation to the Consolidated Financial Statements for the three month and nine month periods ended September 30, 2003 are as follows (dollars in thousands):~~

Three months ended September 30, 2003

Net Interest Provision for Non-interest Non-interest
Income Loan Losses Income Expense

Total Bank $ 13,601 $ 475 $ 2,512 $ 10,164
Unallocated items:
Holding company (250 ) — — 319

The Company consolidated $ 13,351 $ 475 $ 2,512 $ 10,483

Nine months ended September 30, 2003

Net Interest Provision for Non-interest Non-interest
Income Loan Losses Income Expense

Total Bank $ 38,387 $ 3,325 $ 8,657 $ 35,629
Unallocated items:
Holding company (630 ) — — 1,133

The Company consolidated $ 37,757 $ 3,325 $ 8,657 $ 36,762
��

~~(3) SEGMENT DATA (continued)~~

~~Reportable segment reconciliation to the Consolidated Financial Statements for the three month and nine month periods ended September 30, 2002 are as follows (dollars in thousands):~~

Three months ended September 30, 2002

Net Interest Provision for Non-interest Non-interest
Income Loan Losses Income Expense

Total Bank $ 10,874 $ 2,380 $ 2,863 $ 8,410
Unallocated items:
Holding company — — — 153

The Company consolidated $ 10,874 $ 2,380 $ 2,863 $ 8,563

Nine months ended September 30, 2002

Net Interest Provision for Non-interest Non-interest
Income Loan Losses Income Expense

Total Bank $ 30,482 $ 4,359 $ 6,519 $ 24,767
Unallocated items:
Holding company — — — 576

The Company consolidated $ 30,482 $ 4,359 $ 6,519 $ 25,343

~~(4)~~ FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit which involve varying degrees of credit risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit-worthiness on a case-by-case basis.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.


		September 30,
(Dollars in thousands)	(Dollars in thousands)	2003		March 31, 2004

Financial instruments whose contract amounts represent credit risk:	Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit	$	373,970
	Standby letters of credit		18,369
Commitments to extend credit				$	464,973
Standby letters of credit					24,997

(1)

The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income.

~~(1)~~

~~The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Statements and financial analysis contained in this document that are not historical facts are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements describe our future plans, strategies and expectations and are based on certain assumptions. As a result, these forward looking statements involve substantial risks and uncertainties, many of which are beyond our control. The important factors that could cause actual results to differ materially from the forward looking statements include the following:

(1) Changes in interest rates

(2) Changes in the levels of loan prepayments, which could affect the value of our loans or investment securities

(3) Changes in general economic and business conditions in areas or markets where we compete

(4) Competition from banks and other financial institutions for loans and customer deposits

(5) The failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses

(6) The loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels

(7) Changes in government regulations

We have no obligation to update or revise any forward looking statements as a result of new information or future events. In light of these assumptions, risks and uncertainties, the events discussed in any forward looking statements in this quarterly report might not occur.

Results of Operations

Summary of Performance

The Company recorded net income of ~~$3.3~~$3.9 million or $.15 per diluted common share for the first quarter of 2004 compared to $3.0 million or $.14 per diluted common share for the ~~third~~first quarter of ~~2003 compared to $2.1 million or $.09 per diluted common share for the third quarter of 2002.~~2003. Return on average equity was ~~9.05%~~8.96% and return on average assets was ~~.64%~~.71% for the ~~third~~first quarter of ~~2003~~2004 compared to ~~6.95%~~9.68% and ~~.61%~~.67%, respectively, for the ~~third~~first quarter of ~~2002.~~2003.

The increase in net income and ~~continued~~ improvement in ~~returns~~return on ~~equity and~~ assets in ~~2003~~2004 are attributed to growth in net interest income, ~~and improved efficiency.~~which came from continued earning asset growth, as well as an improvement in net interest margin. The reduction in return on equity resulted from the effect of the $34 million increase in stockholders’ equity from the initial public offering of our common stock completed during the third quarter of 2003. Net interest income for the ~~third~~first quarter of ~~2003~~2004 increased by ~~$2.5~~$4.9 million or ~~22.8%~~41.7% from ~~$10.9~~$11.7 million to ~~$13.4~~$16.6 million over the ~~third~~first quarter of ~~2002.~~2003. The increase in net interest income was due to an increase in average earning assets of ~~$620.3~~$393.9 million or ~~47.8%~~23.4%, ~~which offset~~with a 5640 basis point ~~decrease~~increase in net interest margin.

Non-interest income, excluding gain on sale of securities, increased ~~$1.0 million~~$326,000 or ~~68.8%~~10.9% compared to the ~~third~~first quarter of ~~2002.~~2003. The Company benefited from growth in fees related to deposits and wealth management, ~~BOLI,~~ and gain on sale of mortgage ~~warehousing.~~

~~Non-interest expense increased $1.9 million or 22.4% compared~~loans, which is related to our residential mortgage lending division that was started in the third quarter of ~~2002.~~2003.

Non-interest expense increased $4.0 million or 42.1% compared to the first quarter of 2003. Salaries and employee benefits increased by ~~$1.6~~$2.7 million or ~~38.2%~~51.0%. Total full time employees increased from ~~214~~224 at ~~September 30, 2002~~March 31, 2003 to ~~271~~355 at ~~September 30, 2003;~~March 31, 2004; the increase related ~~primarily~~ to continued growth, staffing for the new Houston office and the start-up of the residential mortgage ~~origination group.~~lending division.

Basic and diluted earnings per share for the nine months ended September 30, 2003 were $0.47 and $0.45, respectively. Excluding the impact of reversing the valuation allowance, unwinding penalties and separation expense in the second quarter, basic and diluted income per share for the nine months ended September 30, 2003 would have been $0.40 and $0.39, respectively. Income per share excluding the impact of reversing the valuation allowance, unwinding penalties and separation expense is a non-GAAP financial measure. Please see the following discussion of why we believe this non-GAAP financial measure is useful to management and investors and the following table for a reconciliation of income per share excluding impact of reversing the valuation allowance, unwinding penalties and separation expense to income per share, which is the most directly comparable financial measure presented in accordance with GAAP.

~~Non-GAAP Financial Measures~~

Management believes that income per share excluding the impact of reversing the deferred tax asset valuation allowance, unwinding penalties relating to the unwinding of repurchase agreements prior to maturity and separation expense associated with the resignation of a senior officer, which is a non-GAAP financial measure, is useful to investors and to management because it provides additional information that more closely reflects our intrinsic operating performance and growth. Reversal of the entire valuation allowance was based on our assessment of our ability to generate earnings to allow the deferred tax assets to be realized which is supported by our current earnings trends. We unwound certain repurchase agreements, incurring the unwinding penalties, in order to take advantage of historical lows in interest rates, which had decreased on similar repurchase agreements by approximately 1.4% since the time we entered into the original repurchase agreements. Although we have experienced employee separations in the past, this was the first separation with an executive who had entered into an employment agreement with us. We currently have only four other employees with employment agreements. Since we have not had any reversals of valuation allowances, unwinding penalties or separation expenses related to employees who have employment agreements in our operating history, we believe that this non-GAAP financial measure is useful to investors and to management to understand the development of our income per share results since our founding and to help in comparing our intrinsic operating performance in different periods. Management also uses these measures internally to evaluate our performance and manage our results. This measurement should not be regarded as a replacement for the corresponding GAAP measure.

The following table reconciles income per share excluding the impact of reversing the valuation allowance, unwinding penalties and separation expense to income per share, which is the most directly comparable financial measure presented in accordance with GAAP.

~~Reconciliation of GAAP to income per share, excluding the impact of reversing the valuation allowance, unwinding penalties and separation expense.~~

(Dollars in thousands except per share data) Three months Nine months
ended ended
September 30, September 30,
2003 2003

(Unaudited)
Net income as reported $ 3,332 $ 10,220
Repurchase agreement unwinding penalties — 6,262
Executive separation — 250
Tax effect of repurchase agreement unwinding penalties and separation costs — (2,120 )
Impact of reversing deferred tax asset valuation allowance — (5,929 )

Net income excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense 3,332 8,683
Preferred stock dividends (149 ) (699 )

Numerator used to calculate basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense 3,183 7,984
Effect of dilutive securities 149 699

Numerator used to calculate diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense $ 3,332 $ 8,683

Denominator used for GAAP and basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense 21,924,855 20,120,056
Denominator used for GAAP and diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense 24,165,906 22,474,170
Basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense $ .15 $ .40
Diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense $ .14 $ .39

Net Interest Income

Net interest income was ~~$13.4~~$16.6 million for the ~~third~~first quarter of ~~2003,~~2004, compared to ~~$10.9~~$11.7 million for the ~~third~~first quarter of ~~2002.~~2003. The increase was due to an increase in average earning assets of ~~$620.3~~$393.9 million as compared to the ~~third~~first quarter of ~~2002, which offset~~2003 and a 5640 basis point ~~decrease~~increase in net interest margin. The increase in average earning assets included a ~~$270.3~~$204.6 million increase in average net loans and a ~~$347.4~~$212.8 million increase in average securities. For the quarter ended ~~September 30, 2003,~~March 31, 2004, average net loans and securities represented ~~66%~~63% and ~~34%~~37%, respectively, of average earning assets compared to ~~76%~~66% and ~~23%~~32% in the same quarter of ~~2002.~~2003. The decrease in loan percentage reflects management’s decision to tighten lending standards beginning in 2001 and continuing during ~~2002~~2003 pending clearer signs of improvement in the U.S. economy. While we continue to apply prudent lending standards, loan growth in the ~~third~~first quarter of ~~2003~~2004 in our core loan portfolio (excluding loans held for sale) totaled ~~$35 million. Our securities percentage has increased as we have continued to use additional securities to increase our earnings and improve our return on equity by taking advantage of market spreads.~~

Average interest bearing liabilities increased $553.6 million from the third quarter of 2002, which included a $233.4 million increase in interest bearing deposits and a $300.2 million increase in other borrowings. The increase in interest bearing deposits includes the purchase of deposit accounts from Bluebonnet Savings Bank, FSB in August 2003. The increase in average borrowings was primarily related to an increase in federal funds purchased and securities sold under repurchase agreements, and was used to supplement deposits in funding loan growth and securities purchases. The average cost of interest bearing liabilities decreased from 2.63% for the quarter ended September 30, 2002 to 1.85% for the same period of 2003, reflecting the reduction in market interest rates and a $112.9 million increase in average non-interest bearing deposits.

Net interest income was $37.8 million for the nine months ended September 30, 2003, compared to $30.5 million for the same period of 2002. The increase was due to an increase in average earning assets of $615.9 million as compared to 2002, which offset a 62 basis point decrease in net interest margin. The increase in average earning assets included a $270.3 million increase in average net loans and a $344.0 million increase in average securities. For the nine months ended September 30, 2003, average net loans and securities represented 65% and 34%, respectively, of average earning assets compared to 77% and 22% in the same period in 2002. The decrease in loan percentage reflected management’s decision to tighten lending standards beginning in 2001 and continuing during 2002 pending clearer signs of improvement in the U.S. economy. While we continue to apply prudent lending standards, loan growth in the third quarter of 2003 in our core loan portfolio (excluding loans held for sale) totaled $35$82.0 million. Our securities percentage has increased as we have continued to use additional securities to increase our earnings and improve our return on equity by taking advantage of market spreads.

Average interest bearing liabilities increased ~~$557.9~~$297.0 million from the ~~nine months ended September 30, 2002,~~first quarter of 2003, which included a ~~$228.6~~$162.4 million increase in interest bearing deposits and a ~~$313.0~~$124.4 million increase in other borrowings. ~~Average other borrowings were 26.0% of average total assets for the nine months ended September 30, 2003 compared to 15.3% for the same period in 2002.~~ The increase in average ~~other~~ borrowings was primarily related to an increase in ~~federal funds purchased and~~ securities sold under repurchase agreements and was used to supplement deposits in funding loan growth and securities purchases. The average cost of interest bearing liabilities decreased from ~~2.62%~~2.31% for the ~~nine months~~quarter ended ~~September 30, 2002~~March 31, 2003 to ~~2.12%~~1.73% for the same period ~~in 2003,~~of 2004, reflecting the reduction in market interest ~~rates and a $101.6 million increase in average non-interest bearing deposits.~~rates.

TABLE 1 — VOLUME/RATE ANALYSIS
(Dollars in thousands)


		Three months ended								Nine months ended
		September 30, 2003/2002								September 30, 2003/2002

					Change Due To⁽¹⁾								Change Due To⁽¹⁾
																		Three months ended March 31, 2004/2003
		Change			Volume		Yield/Rate			Change			Volume		Yield/Rate						Change Due To⁽¹⁾
																		Change			Volume			Yield/Rate
Interest income:	Interest income:
	Securities	$	1,017		$	4,349	$	(3,332	)	$	5,197		$	13,518	$	(8,321	)
	Loans		1,895			3,908		(2,013	)		7,246			11,658		(4,412	)
	Federal funds sold		(5	)		9		(14	)		(54	)		13		(67	)
	Deposits in other banks		1			2		(1	)		5			13		(8	)
Securities																		$	2,191		$	2,151		$	40
Loans held for sale																			(303	)		(561	)		258
Loans																			2,313			3,336			(1,023	)
Federal funds sold																			(72	)		(69	)		(3	)
Deposits in other banks																			(1	)		—			(1	)

Total	Total		2,908			8,268		(5,360	)		12,394			25,202		(12,808	)		4,128			4,857			(729	)
Interest expense:	Interest expense:
	Transaction deposits		(21	)		27		(48	)		(31	)		87		(118	)
	Savings deposits		(414	)		666		(1,080	)		(246	)		1,193		(1,439	)
	Time deposits		(141	)		776		(917	)		647			3,359		(2,712	)
	Borrowed funds		1,007			2,212		(1,205	)		4,749			6,704		(1,955	)
Transaction deposits																			20			56			(36	)
Savings deposits																			(141	)		522			(663	)
Time deposits																			(518	)		103			(621	)
Borrowed funds																			(135	)		736			(871	)

Total	Total		431			3,681		(3,250	)		5,119			11,343		(6,224	)		(774	)		1,417			(2,191	)

Net interest income	Net interest income	$	2,477		$	4,587	$	(2,110	)	$	7,275		$	13,859	$	(6,584	)	$	4,902		$	3,440		$	1,462

(1)

Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

Net interest margin, the ratio of net interest income to average earning assets, was ~~2.76%~~3.23% for the ~~third~~first quarter of 2004 compared to 2.83% for the first quarter of 2003. The increase was due to a slight decrease in the earning asset yield from the first quarter of 2003, ~~compared to 3.32% for~~and a much larger decrease in the ~~third quarter~~cost of 2002. The decrease was due primarily to the falling rate environment in which our balance sheet was asset sensitive, largely due to the concentration of assets in variable rate loans. In addition, a larger portion of our assets was invested in securities, which generally have a lower yield than loans.liabilities.

Non-interest Income

Non-interest income, excluding gain on sale of securities, increased ~~$1.0 million~~$326,000 compared to the same quarter of ~~2002. Service charges on deposit accounts increased $146,000.~~2003. This increase was due to the increase in deposits, which resulted in a higher volume of transactions. Trust fee income increased ~~$115,000,~~$156,000, due to continued growth of trust assets in ~~2003. BOLI income for the quarter ended September 30,~~ 2003 was $451,000 compared to $144,000 for the same period in 2002. Our BOLI investment originated in August 2002. The current policy provides life insurance for 25 executives, naming us as beneficiary. Mortgage warehouse fees increased by $357,000 due to the continued growth in the mortgage warehouse business as a result of favorable mortgage rates and ~~growth in our customer base.~~

Non-interest income increased $2.1 million, or 32.8%, in the nine months ended September 30, 2003 compared to the same period in 2002. Service charges on deposit accounts increased $541,000 for the nine months ended September 30, 2003 as compared to the same period in 2002. This increase was due to the significant increase in non-interest deposits, which resulted in a higher volume of transactions. Trust fee income increased $210,000 due to continued growth of trust assets during the nine month period ended September 30, 2003. During the nine month period ended September 30, 2003, we had gain2004. Gain on sale of ~~securities of $686,000 compared to $1,375,000 during the same period in 2002 due~~mortgage loans totaled $463,000 and relates to our ~~ability to realize substantial profits from sales of fixed-rate debt securities as a result of rapid declines in overall interest rates.~~newly created residential mortgage lending division. Cash processing fees totaled ~~$973,000~~$587,000 for the ~~nine months ended September 30, 2003, which is comparable~~first quarter of 2004 compared to $900,000 for the same ~~period in 2002.~~quarter of 2003. These fees ~~were~~are related to a special project that has occurred ~~during~~in the first quarter of 2002, 2003 and ~~2002~~2004. 2004 fees are lower than 2003 fees due to smaller participation and will not be recurring in future quarters of 2003. We had BOLI income of $1.3 million during the first nine months of 2003 compared to $144,000 during the same period in 2002. Our BOLI investment originated in August 2002. The current policy provides life insurance for 25 executives, naming us as beneficiary. Mortgage warehouse fees increased by $703,000 for the nine months ended September 30, 2003 as a result of favorable mortgage rates and growth in our customer base.more competitive pricing.

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.

TABLE 2 —– NON-INTEREST INCOME
(Dollars in thousands)


	Three Months Ended				Nine months Ended
	September 30				September 30
	2003		2002		2003		2002				Three months ended March 31
											2004		2003
Service charges on deposit accounts	$	856	$	710	$	2,596	$	2,055	$	857	$	843
Trust fee income		350		235		937		727		437		281
Gain on sale of securities		—		1,375		686		1,375		—		341
Cash processing fees		—		—		973		993		587		900
Bank owned life insurance (BOLI) income		451		144		1,293		144		321		414
Mortgage warehouse fees		545		188		1,248		545		238		279
Gain on sale of mortgage loans												463		—
Other		310		211		924		680		409		269

Total non-interest income	$	2,512	$	2,863	$	8,657	$	6,519	$	3,312	$	3,327

Non-interest expense for the ~~third~~first quarter of ~~2003~~2004 increased ~~$1.9~~$4.0 million or ~~22.4%~~42.1% compared to the ~~third~~first quarter of ~~2002.~~2003. Salaries and employee benefits increased by ~~$1.6~~$2.7 million or ~~38.2%~~51.0%. Total full time employees increased from ~~214~~224 at ~~September 30, 2002~~March 31, 2003 to ~~271~~355 at ~~September 30, 2003.~~March 31, 2004. Additional employees include employees hired in the ~~recently opened~~new Houston office, employees in our recently created residential mortgage ~~origination group~~lending division as well as ~~some~~ additional employees in our lending and support functions.

Advertising expense ~~decreased $235,000~~increased $92,000 or ~~52.5%~~47.7%. Advertising expense for the three months ended ~~September 30, 2003~~March 31, 2004 included ~~$37,000~~$27,000 of direct marketing and branding ~~for the traditional bank~~ and ~~$176,000~~$258,000 for the purchase of miles related to the American Airlines AAdvantage® program, compared to ~~$264,000~~$31,000 of direct marketing and branding ~~for the traditional bank~~ and ~~$184,000~~$162,000 for the purchase of miles during the same period for ~~2002.~~2003.

Net occupancy expense for the three months ended ~~September 30, 2003~~March 31, 2004 increased by ~~$51,000~~$145,000 or ~~4.2%~~12.2% compared to the same quarter in ~~2002.~~2003 and is related to our continued growth, the new Houston office and the start-up of the residential mortgage lending division. Legal and professional expense for the three months ended March 31, 2004 increased $210,000 or 36.3% compared to the same quarter in 2003. Communications and data processing expense for the three months ended ~~September 30, 2003~~March 31, 2004 increased ~~$50,000~~$139,000 or ~~7.0%~~19.3% compared to the same quarter in ~~2002.~~2003. Both increases are due to continued growth.

Non-interest expense for the nine months ended September 30, 2003 increased $11.4 million, or 45.1%, compared to the same period of 2002. This increase included $6.3 million in penalties related to our restructuring of the maturities and pricing of our repurchase agreements in June 2003 in order to take advantage of historical lows in interest rates, which had decreased on similar repurchase agreements by approximately 1.4% since the time we entered into the original repurchase agreements. We unwound approximately $139 million in repurchase agreements prior to their maturities and entered into new repurchase agreements with respect to a significant portion of that amount, with the remainder replaced with overnight funds. A significant portion of these overnight funds were replaced with deposits when we completed our planned acquisition of the outstanding deposit accounts of Bluebonnet Savings Bank FSB, which occurred in August 2003. Salaries and employee benefits increased by $4.5 million or 36.0%. Total full time employees increased from 214 at September 30, 2002 to 271 at September 30, 2003. Also included in salaries and benefits for the nine months ended September 30, 2003, is $250,000 in separation costs related to the resignation of a senior officer in the second quarter. In addition, we experienced losses related to forged checks of approximately $300,000 in the first nine months of 2003. We have taken steps to attempt to reduce these types of losses in the future.13

~~Net occupancy expense for the nine months ended September 30, 2003 decreased by $116,000, or 3.1%, due to a decrease in depreciation as many of our fixed assets are becoming fully depreciated.~~

Advertising expense for the nine months ended September 30, 2003 decreased $405,000, or 40.1%, compared to 2002. Advertising expense for the nine months ended September 30, 2003 included $99,000 of direct marketing and branding for the traditional bank and $506,000 for the purchase of miles related to the American Airlines AAdvantage® program compared to direct marketing and branding of $553,000 and $457,000 for the purchases of American Airlines miles during the same period in 2002. 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 expenses increased $78,000 or 3.6%, mainly related to continued legal expenses incurred with our non-performing loans and leases. Communications and data processing expense for the nine months ended September 30, 2003 increased $106,000, or 5.0%, due to growth in our loan and deposit base and increased staff.

The Company had a gross deferred tax asset of $7.8 million at September 30, 2003. In 2003, as a result of our reassessment of our ability to generate sufficient earnings to allow the utilization of our deferred tax assets, we believe it is more likely than not that the deferred tax assets will be realized. Accordingly, in compliance with Statement of Financial Accounting Standards No. 109, we reversed the valuation allowance and certain related tax reserves during the quarter ended June 30, 2003.

The aggregate loan portfolio at ~~September 30, 2003~~March 31, 2004 increased ~~$98.6~~$73.8 million from December 31, ~~2002~~2003 to ~~$1.2~~$1.39 billion. Commercial loans increased ~~$46.0~~$44.9 million and real estate loans increased ~~$28.3~~$17.4 million. Construction loans ~~increased $59.9 million and leases~~ and consumer loans ~~decreased $4.8~~increased $18.5 million and ~~$6.4~~$2.8 million, ~~respectively.~~respectively, and leases decreased $1.8 million.

We continue to lend primarily in Texas. As of ~~September 30, 2003,~~March 31, 2004, 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 individual leases and loan and lease pools (primarily commercial and industrial equipment and vehicles), as well as selected loan participations and USDA government guaranteed loans.

~~SUMMARY OF LOAN LOSS EXPERIENCE~~Summary of Loan Loss Experience

The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled ~~$17.3~~$18.0 million at ~~September 30, 2003, $14.5~~March 31, 2004, $17.7 million at December 31, ~~2002~~2003 and ~~$13.8~~$15.9 million at ~~September 30, 2002.~~March 31, 2003. This represents ~~1.41%~~1.30%, ~~1.30%~~1.35% and ~~1.31%~~1.35% of total loans at ~~September 30, 2003,~~March 31, 2004, December 31, ~~2002~~2003 and ~~September 30, 2002,~~March 31, 2003, 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. The Company recorded a provision of ~~$475,000~~$750,000 for the quarter ended ~~September 2003~~March 2004 and ~~$2.4~~$1.3 million for the same quarter in ~~2002.~~2003. These provisions were made to reflect management’s assessment of the risk of loan losses specifically including ~~risk associated with~~ the ~~continued rapid~~significant growth in ~~the loan portfolio and the unseasoned nature~~outstanding loans during each of ~~the current portfolio.~~these periods.

The reserve for loan losses is comprised of specific reserves ~~assigned to classified~~for impaired loans and ~~general reserves.~~an estimate of losses inherent in the portfolio at the balance sheet date, but not yet identified with specified loans. We ~~continuously~~regularly evaluate our reserve for loan losses to maintain an adequate level to absorb estimated loan losses inherent in the loan portfolio. Factors contributing to the determination of specific reserves include the credit worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. All loan commitments rated substandard or worse and greater than $1,000,000 are specifically reviewed and a specific allocation is assigned based on the losses expected to be realized from those loans. For purposes of determining the general reserve, the portfolio is segregated by product types to recognize differing risk profiles among categories, and then further segregated by credit grades. Credit grades are assigned to all loans greater than $50,000. Each credit grade is assigned a risk factor, or reserve allocation percentage. These risk factors are multiplied by the outstanding principal balance and risk-weighted by product type to calculate the required reserve. A similar process is employed to calculate that portion of the required reserve assigned to unfunded loan commitments.

The reserve allocation percentages assigned to each credit grade have been developed based on an analysis of the Company’s historical loss rates and historical loss rates at selected peer banks, adjusted for certain qualitative factors. Qualitative adjustments for such things as general economic conditions, changes in credit policies and lending standards, and changes in the trend and severity of problem loans, can cause the estimation of future losses to differ from past experience. The unallocated portion of the general reserve serves to compensate for additional areas of uncertainty and considers industry trends. In addition, the reserve considers the results of reviews performed by independent third party reviewers as reflected in their confirmations of assigned credit grades within the portfolio.

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be dynamic and responsive to changes in ~~actual~~portfolio credit quality and anticipated future credit losses. The changes are reflected in the general reserve and in specific reserves as the collectibility of larger classified loans is continuously recalculated with new information. As our portfolio matures, historical loss ratios are being closely monitored, and our reserve adequacy will rely primarily on our loss history. Currently, the review of reserve adequacy is performed by executive management and presented to ~~the Board~~our board of ~~Directors~~directors for their review, consideration and ratification on a quarterly basis.

(2)

Subsequent to March 31, 2004, a $6.0 million past due loan was refinanced resulting in a reduction of total non-performing loans to $7.2 million and increasing the allowance to non-performing loans ratio from 136.42% to 250.05%.

~~NON-PERFORMING ASSETS~~Non-performing Assets

Non-performing assets include non-accrual loans and leases, accruing loans 90 or more days past due, restructured loans, and other repossessed assets. ~~We had non-accrual loans and leases of $11,026,000, $2,776,000 and $6,474,000 at September 30, 2003, December 31, 2002 and September 30, 2002, respectively. At September 30, 2003,~~The table below summarizes our non-accrual loans ~~and leases consisted of $4,350,000 in commercial loans, $4,762,000 in construction loans, $375,000 in real estate loans, $115,000 in consumer loans and $1,424,000 in leases.~~ by type:


	March 31,		December 31,		March 31,
	2004		2003		2003
	(In thousands)
Non-accrual loans:
Commercial	$	157	$	4,124	$	815
Construction		5,191		4,562		95
Real estate		375		375		1,261
Consumer		142		105		12
Leases		1,088		1,051		1,586

Total non-accrual loans	$	6,953	$	10,217	$	3,769

At ~~December~~March 31, ~~2002, our non-accrual loans and leases consisted of $641,000 in commercial loans, $1,367,000 in real estate, $26,000 in consumer loans and $742,000 in leases. At September 30, 2003,~~2004, we had ~~$1,095,000~~$6,250,000 in loans past due 90 days and still accruing ~~interest which are fully guaranteed by the U.S. Government.~~interest. Subsequent to March 31, 2004, a $6.0 million past due loan was refinanced resulting in a reduction of total non-performing loans. At ~~September 30, 2003,~~March 31, 2004, we had ~~$189,000~~$64,000 in other repossessed assets.

Generally, we place loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. As of ~~September 30, 2003,~~March 31, 2004, approximately $8$4.0 million of our non-accrual loans were earning on a cash basis.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. Reserves on impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral.

~~LIQUIDITY AND CAPITAL RESOURCES~~Liquidity and Capital Resources

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies, which are formulated and monitored by our senior management and our bank’s Balance Sheet Management Committee (BSMC), and which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. For the year ended December 31, ~~2002~~2003 and for the ~~nine~~three months ended ~~September 30, 2003,~~March 31, 2004, our principal source of funding has been our customer deposits, supplemented by our short-term and long-term borrowings, primarily from securities sold under repurchase agreements and federal funds purchased from our downstream correspondent bank relationships (which consist of banks that are considered to be smaller than our bank).

Since early 2001, our liquidity needs have primarily been fulfilled through growth in our core customer deposits. Our goal is to obtain as much of our funding as possible from deposits of these core customers, which as of ~~September 30, 2003,~~March 31, 2004, comprised ~~$1,285.7~~$1,405.8 million, or ~~90.0%~~94.0%, of total deposits. These deposits are generated principally through development of long-term relationships with customers and stockholders and our retail network which is mainly through BankDirect, our internet banking facility.

In addition to deposits from our core customers, we also have access to incremental deposits through brokered retail certificates of deposit, or CDs. As of ~~September 30, 2003,~~March 31, 2004, brokered retail CDs comprised ~~$141.4~~$90.1 million, or ~~10.0%~~6.0%, of total deposits. Our dependence on retail brokered CDs is limited by our internal funding guidelines, which as of ~~September 30, 2003,~~March 31, 2004, limited borrowing from this source to 10-20% of total deposits.

2417

Additionally, we have borrowing sources available to supplement deposits and meet our funding needs. These borrowing sources include federal funds purchased from our downstream correspondent bank relationships (which consist of banks that are smaller than our bank) and from our upstream correspondent bank relationships (which consist of banks that are larger than our bank), securities sold under repurchase agreements, treasury, tax and loan notes, and advances from the Federal Home Loan Bank, or FHLB. As of ~~September 30, 2003,~~March 31, 2004, our borrowings consisted of a total of ~~$401.2~~$416.4 million of securities sold under repurchase agreements, ~~$103.7~~$90.2 million of downstream federal funds purchased, ~~$17.5~~$15.9 million from customer repurchase agreements, and ~~$5.3~~$2.0 million of treasury, tax and loan notes. Credit availability from the FHLB is based on our bank’s financial and operating condition and borrowing collateral we hold with the FHLB. At ~~September 30, 2003,~~March 31, 2004, we had no borrowings from the FHLB. Our unused FHLB borrowing capacity at ~~September 30, 2003~~March 31, 2004 was approximately ~~$450.0~~$200.0 million. As of ~~September 30, 2003,~~March 31, 2004, we had unused upstream federal fund lines available from commercial banks of approximately $72.6 million. During the ~~nine~~three months ended ~~September 30, 2003,~~March 31, 2004, our average other borrowings from these sources were ~~$506.7~~$621.0 million or ~~26.0%~~28.0% of average assets, which is well within our internal funding guidelines, which limit our dependence on borrowing sources to 25-30% of total assets. In September 2003, we unwound approximately $139 million of these term repurchase agreements and replaced a significant portion of that amount with new securities repurchase agreements subject to lower interest rates, with the remainder replaced with overnight funds. A significant portion of these overnight funds were replaced with deposits when we completed our acquisition of the outstanding deposits accounts of Bluebonnet Savings Bank, FSB in August 2003. The maximum amount of borrowed funds outstanding at any month-end during the first ~~nine~~three months of ~~2003~~2004 was ~~$546.3~~$622.5 million, or ~~26.8%~~27.8%, of total assets.

As of ~~September 30, 2003,~~March 31, 2004, our significant fixed and determinable contractual obligations ~~and commercial commitments, other than deposit liabilities,~~to third parties were as follows:


(Dollars in thousands)			After One		After Three
	Within		but Within		but Within		After Five
	One Year		Three Years		Five Years		Years		Total				After One		After Three
											Within		but Within		but Within		After Five
(Dollars in thousands)											One Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity⁽¹⁾											$	955,760	$	—	$	—	$	—	$	955,760
Time deposits⁽¹⁾												405,395		114,948		19,788		—		540,131
Federal funds purchased	$	103,726	$	—	$	—	$	—	$	103,726		90,203		—		—		—		90,203
Securities sold under repurchase agreements		163,652		226,300		11,200		—		401,152		267,016		138,150		11,200		—		416,366
Customer repurchase agreements		17,453		—		—		—		17,453		15,925		—		—		—		15,925
Treasury, tax and loan notes		5,282		—		—		—		5,282		2,008		—		—		—		2,008
Operating lease obligations		3,150		9,604		7,457		1,289		21,500		3,178		6,429		6,120		4,203		19,930
Long-term debt		—		—		—		20,000		20,000		—		—		—		20,620		20,620

Total contractual obligations	$	293,263	$	235,904	$	18,657	$	21,289	$	569,113	$	1,739,485	$	259,527	$	37,108	$	24,823	$	2,060,943

The contractual amount of our financial instruments with off-balance sheet risk expiring by period at ~~September 30, 2003~~March 31, 2004 is presented below:

Due to the nature of our unfunded loan commitments, including unfunded lines of credit, the amounts presented in the table above do not necessarily represent amounts that we anticipate funding in the periods presented above.

Our equity capital averaged ~~$134.0~~$176.8 million for the ~~nine~~three months ended ~~September 30, 2003~~March 31, 2004 as compared to ~~$115.3~~$126.9 million for the same period in ~~2002.~~2003. This increase reflects our retention of net earnings during this period and the IPO proceeds. We have not paid any cash dividends on our common stock since we commenced operations and have no plans to do so in the near future.

The Securities and Exchange Commission (SEC) recently issued guidance for the disclosure of “critical accounting policies.” The SEC defines “critical accounting policies” as those that are most important to the presentation of a company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

We follow financial accounting and reporting policies that are in accordance with ~~generally accepted~~ accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 1 to the consolidated financial statements in our ~~2002~~2003 Form 10K filed with the SEC. Not all these significant accounting policies require management to make difficult, subjective, or complex judgments. However, the policies noted below could be deemed to meet the SEC’s definition of critical accounting policies.

Management considers the policies related to the allowance for loan losses as the most critical to the financial statement presentation. The total allowance for loan losses includes activity related to allowances calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 114,Accounting by Creditors for Impairment of a Loan, and SFAS No. 5,Accounting for Contingencies. The allowance for loan losses is established through a provision for loan losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the loan losses inherent in the loan portfolio. The allowance for loan losses is comprised of specific reserves assigned to certain classified loans and general reserves. Factors contributing to the determination of specific reserves include the credit-worthiness of the borrower, and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. For purposes of determining the general reserve, the portfolio is segregated by product types in order to recognize differing risk profiles among categories, and then further segregated by credit grades. See “Summary of Loan Loss Experience” for further discussion of the risk factors considered by management in establishing the allowance for loan losses.

Management considers the policies related to income taxes to be critical to the financial statement presentation. The Company utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation reserve is provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized.

~~We had a gross deferred tax asset of $7.8 million at September 30, 2003.~~ In 2003, as a result of a reassessment of our ability to generate sufficient earnings to allow the utilization of our deferred tax assets, we ~~believe~~believed it iswas more likely than not that the deferred tax assets will be realized. Accordingly, in compliance with SFAS No. 109, we reversed the valuation allowance and certain related tax reserves during the period.

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading purposes or held for other than trading.

The Company is subject to market risk primarily through the effect of changes in interest rates on its portfolio of assets held for purposes other than trading. The effect of other changes, such as foreign exchange rates, commodity prices, and/or equity prices do not pose significant market risk to the Company.

The responsibility for managing market risk rests with the BSMC, which operates under policy guidelines established by ~~the Board~~our board of ~~Directors.~~directors. The negative acceptable variation in net interest revenue due to a 200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits. They also establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is the ongoing responsibility of the BSMC, with exceptions reported to the full ~~Board~~board of ~~Directors~~directors on a quarterly basis.

Interest Rate Risk Management

We perform a sensitivity analysis to identify interest rate risk exposure on net interest income. We quantify and measure interest rate risk exposure using a model to dynamically simulate the effect of changes in net interest income relative to changes in interest rates over the next twelve months based on three interest rate scenarios. These are a “most likely” rate scenario and two “shock test” scenarios.

The “most likely” rate scenario is based on the consensus forecast of future interest rates published by independent sources. These forecasts incorporate future spot rates and relevant spreads of instruments that are actively traded in the open market. The Federal Reserve’s Federal Funds target affects short-term borrowing; the prime lending rate and the London Interbank Offering Rate are the basis for most of our variable-rate loan pricing.

The 10-year mortgage rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. These are our primary interest rate exposures. We are currently not using derivatives to manage our interest rate exposure.

The two “shock test” scenarios assume a sustained parallel 200 basis point increase or decrease, respectively, in interest rates. As short-term rates have continued to fall since 2001 we could not assume interest rate changes of 200 basis points as the results of the decreasing rates scenario would be negative rates. Therefore, our “shock test” scenarios with respect to decreases in rates now assume a decrease of 100 basis points in the current interest rate environment. We will continue to evaluate these scenarios as interest rates change, until short term rates rise above 2.0%.

Our interest rate risk exposure model incorporates assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest bearing transaction accounts and savings accounts) for a given level of market rate changes. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Changes in prepayment behavior of mortgage-backed securities, residential, and commercial mortgage loans in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of planned growth and new business activities is factored into the simulation model.

This modeling indicated interest rate sensitivity is as follows:

TABLE 7 —– INTEREST RATE SENSITIVITY
(Dollars in thousands)

Anticipated Impact Over the Next Twelve Months
as Compared to Most Likely Scenario

200 bp Increase 100 bp Decrease
September 30, 2003 September 30, 2003

Change in net interest income $ 11,736 $ (7,934 )


	Anticipated Impact Over the Next Twelve Months
	as Compared to Most Likely Scenario
	200 bp Increase		100 bp Decrease
	March 31, 2004		March 31, 2004
Change in net interest income	$	10,343	$	(5,825	)

The estimated changes in interest rates on net interest income are within guidelines established by our ~~Board~~board of ~~Directors~~directors for all interest rate scenarios.

The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows, and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies, among other factors.

We expect our balance sheet will continue to be asset sensitive over the next twelve months, largely due to the concentration of assets in variable rate loans. If, as we expect will occur, interest rates rise in 2004, this asset-sensitivity will tend to result in an increase in our interest margin, all other factors being equal. In the event of a rising rate environment, management may choose to fund investment securities purchased with term liabilities/deposits to lock in a return. Investment securities are generally held in the “available-for-sale” category so that gains and losses can be realized as appropriate. At certain times, we use the “held-to-maturity” category if we are not planning to sell these securities before maturity.

ITEM 4. CONTROLS AND PROCEDURES

Our management, including our chief executive officer and chief financial officer have evaluated ~~the Company’s~~our disclosure controls and procedures as of ~~September 30, 2003~~March 31, 2004 and concluded that those disclosure controls and procedures are effective. There have been no changes in ~~the Company’s~~our internal controls or in other factors known to ~~the Company~~us that could significantly affect these controls subsequent to their evaluation, nor any corrective actions with regard to significant deficiencies and material weaknesses. While ~~the Company believes~~we believe that ~~its~~our existing disclosure controls and procedures have been effective to accomplish these objectives, ~~the Company intends~~we intend to continue to examine, refine and formalize ~~its~~our disclosure controls and procedures and to monitor ongoing developments in this area.

2821


			Current report filed on Form 8-K regarding Item ~~5 (Other Events and Regulation FD Disclosure) and Item~~ 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 12 (Results of Operations and Financial Condition) dated ~~August 4, 2003.~~January 27, 2004.

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			September 30,			December 31,			March 31,			December 31,
			2003			2002			2004			2003
									(Unaudited)
Assets	Assets
Cash and due from banks	Cash and due from banks		$	78,900		$	88,744		$	55,203		$	69,551
Federal funds sold										4,620			–
Securities, available-for-sale	Securities, available-for-sale			811,968			553,169			752,861			775,338
Loans, net	Loans, net			1,108,552			988,019			1,293,500			1,212,046
Loans held for sale	Loans held for sale			91,686			116,106			72,789			80,780
Premises and equipment, net	Premises and equipment, net			3,695			3,829			4,635			4,672
Accrued interest receivable and other assets	Accrued interest receivable and other assets			54,211			41,919			48,031			48,992
Goodwill, net	Goodwill, net			1,496			1,496			1,496			1,496

Total assets	Total assets		$	2,150,508		$	1,793,282		$	2,233,135		$	2,192,875

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity
Liabilities:	Liabilities:
Deposits:
Non-interest bearing									$	309,927		$	301,886
Interest bearing										1,131,598			1,094,534
Interest bearing in foreign branches										54,366			48,610
	Deposits:
		Non-interest bearing	$	295,902		$	238,873
		Interest bearing		1,131,205			957,662

	Total deposits			1,427,107			1,196,535
	Accrued interest payable			2,530			3,826
	Other liabilities			8,178			8,485
	Federal funds purchased			103,726			83,629
	Repurchase agreements			418,605			302,083
	Other borrowings			5,282			63,748
	Long-term debt			20,000			10,000
Total deposits										1,495,891			1,445,030
Accrued interest payable										2,226			3,468
Other liabilities										7,309			6,247
Federal funds purchased										90,203			78,961
Repurchase agreements										432,291			432,255
Other borrowings										2,008			34,538
Long-term debt										20,620			20,620

Total liabilities	Total liabilities			1,985,428			1,668,306			2,050,548			2,021,119
Stockholders’ equity:	Stockholders’ equity:
	Series A convertible preferred stock, $.01 par value, 6%:
		Authorized shares - 10,000,000
		Issued shares - 1,057,142 at December 31, 2002		—			11
	Common stock, $.01 par value:
		Authorized shares - 100,000,000
		Issued shares - 24,523,254 and 18,500,812 at September 30, 2003 and December 31, 2002, respectively		245			185
	Series A-1 non-voting common stock, $.01 par value:
		Issued shares - 304,000 and 695,516 at September 30, 2003 and December 31, 2002, respectively		3			7
	Additional paid-in capital			165,972			131,881
	Accumulated deficit			(3,127	)		(13,347	)
	Treasury stock (shares at cost: 97,246 at September 30, 2003 and December 31, 2002)			(668	)		(668	)
	Deferred compensation			573			573
	Accumulated other comprehensive income			2,082			6,334
Common stock, $.01 par value:
Authorized shares – 100,000,000
Issued shares – 24,858,683 and 24,715,607 at March 31, 2004 and December 31, 2003, respectively										248			247
Series A-1 non-voting common stock, $.01 par value:
Issued shares – 286,934 and 293,918 at March 31, 2004 and December 31, 2003, respectively										3			3
Additional paid-in capital										169,074			167,751
Retained earnings										4,424			487
Treasury stock (shares at cost: 84,274 at March 31, 2004 and December 31, 2003)										(573	)		(573	)
Deferred compensation										573			573
Accumulated other comprehensive income										8,838			3,268

Total stockholders’ equity	Total stockholders’ equity			165,080			124,976			182,587			171,756

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity		$	2,150,508		$	1,793,282		$	2,233,135		$	2,192,875


			Nine Months Ended
			September 30
			2003			2002						Three months ended March 31
												2004			2003
Operating activities	Operating activities
Net income	Net income		$	10,220		$	5,471		$	3,937		$	3,031
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Provision for loan losses			3,325			4,359
	Depreciation and amortization			1,060			1,299
	Amortization and accretion on securities			7,803			1,258
	Bank owned life insurance (BOLI) income			(1,293	)		(144	)
	Gain on sale of securities			(686	)		(1,375	)
	Originations of loans held for sale			(1,899,622	)		(744,241	)
	Proceeds from sales of loans held for sale			1,924,496			711,952
	Impact of reversing valuation allowance			(5,929	)		—
	Changes in operating assets and liabilities:
		Accrued interest receivable and other assets		(4,840	)		(3,947	)
		Accrued interest payable and other liabilities		961			(2,429	)
Provision for loan losses													750			1,250
Depreciation and amortization													394			366
Amortization and accretion on securities													1,376			1,975
Bank owned life insurance (BOLI) income													(321	)		(414	)
Gain on sale of securities													—			(341	)
Originations of loans held for sale													(359,016	)		(452,891	)
Proceeds from sales of loans held for sale													367,166			446,047
Changes in operating assets and liabilities:
Accrued interest receivable and other assets													1,282			(1,735	)
Accrued interest payable and other liabilities													(2,751	)		(1,867	)

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities			35,495			(27,797	)		12,817			(4,579	)
Investing activities	Investing activities
Purchases of available-for-sale securities	Purchases of available-for-sale securities			(609,127	)		(329,361	)		(11,552	)		(145,660	)
Proceeds from sales of available-for-sale securities	Proceeds from sales of available-for-sale securities			42,914			41,471			—			10,694
Maturities and calls of available-for-sale securities	Maturities and calls of available-for-sale securities			9,700			4,700			1,800			1,800
Principal payments received on securities	Principal payments received on securities			283,782			49,723			39,422			63,550
Net increase in loans	Net increase in loans			(124,701	)		(122,832	)		(82,420	)		(50,408	)
Purchase of premises and equipment, net	Purchase of premises and equipment, net			(768	)		(129	)		(300	)		5
Purchase of BOLI				—			(25,000	)

Net cash used in investing activities	Net cash used in investing activities			(398,200	)		(381,428	)		(53,050	)		(120,019	)
Financing activities	Financing activities
Net increase in checking, money market and savings accounts	Net increase in checking, money market and savings accounts			200,619			83,473			118,065			65,503
Net increase in certificates of deposit				29,953			150,042
Sale of common stock				34,835			193
Net increase (decrease) in certificates of deposit													(67,204	)		34,108
Issuance of common stock													896			100
Net other borrowings	Net other borrowings			58,056			201,489			(32,494	)		(10,418	)
Net federal funds purchased	Net federal funds purchased			20,097			3,000			11,242			65,100
Sale of preferred stock				—			5,250
Purchase of treasury stock, net				—			(70	)
Trust preferred				10,000			—
Dividends paid	Dividends paid			(699	)		(563	)		—			(280	)

Net cash provided by financing activities	Net cash provided by financing activities			352,861			442,814			30,505			154,113

Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents			(9,844	)		33,589			(9,728	)		29,515
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period			88,744			56,620			69,551			88,744

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period		$	78,900		$	90,209		$	59,823		$	118,259

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:
	Cash paid during the period for interest		$	25,919		$	20,162
	Cash paid during the period for income taxes			5,720			—
Cash paid during the period for interest												$	8,872		$	9,380
Cash paid during the period for income taxes													200			—
Non-cash transactions:	Non-cash transactions:
	Transfers from loans/leases to other repossessed assets			230			342
	Transfers from loans/leases to premises and equipment			158			279
Transfers from loans/leases to other repossessed assets													—			16
Transfers from loans/leases to premises and equipment													57			40


		For the three months ended								For the three months ended
		September 30, 2003								September 30, 2002
																		For the three months ended								For the three months ended
		Average		Revenue/			Yield/			Average		Revenue/			Yield/			March 31, 2004								March 31, 2003
		Balance		Expense (1)			Rate			Balance		Expense (1)			Rate			Average		Revenue/			Yield/			Average		Revenue/			Yield/
																		Balance		Expense (1)			Rate			Balance		Expense (1)			Rate
Assets	Assets
Taxable securities		$	652,082	$	4,832			2.94	%	$	304,724	$	3,815			4.97	%
Securities																		$	758,966	$	7,551			4.00	%	$	546,120	$	5,360			3.98	%
Federal funds sold	Federal funds sold		8,090		20			0.98	%		5,903		25			1.68	%		6,058		15			1.00	%		29,394		87			1.20	%
Deposits in other banks	Deposits in other banks		1,118		4			1.42	%		621		3			1.92	%		829		2			0.97	%		979		3			1.24	%
Loans held for sale																			61,177		1,157			7.61	%		100,177		1,460			5.91	%
Loans	Loans		1,275,311		16,114			5.01	%		1,000,356		14,219			5.64	%		1,265,840		15,549			4.94	%		1,019,507		13,236			5.27	%
	Less reserve for loan losses		17,573		—			—			12,871		—			—
Less reserve for loan losses																			17,720		—			—			14,944		—			—

Loans, net of reserve	Loans, net of reserve		1,257,738		16,114			5.08	%		987,485		14,219			5.71	%		1,309,297		16,706			5.13	%		1,104,740		14,696			5.39	%

Total earning assets	Total earning assets		1,919,028		20,970			4.34	%		1,298,733		18,062			5.52	%		2,075,150		24,274			4.70	%		1,681,233		20,146			4.86	%
Cash and other assets	Cash and other assets		143,765								69,876								146,414								144,205

Total assets	Total assets	$	2,062,793							$	1,368,609							$	2,221,564							$	1,825,438

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity
Transaction deposits	Transaction deposits	$	64,137	$	102			0.63	%	$	52,478	$	123			0.93	%	$	88,635	$	132			.60	%	$	59,584	$	112			0.76	%
Savings deposits	Savings deposits		477,158		1,466			1.22	%		352,364		1,880			2.12	%		504,530		1,499			1.19	%		381,587		1,640			1.74	%
Time deposits	Time deposits		548,288		3,473			2.51	%		451,391		3,614			3.18	%		534,981		3,112			2.34	%		524,622		3,630			2.81	%

Total interest bearing deposits	Total interest bearing deposits		1,089,583		5,041			1.84	%		856,233		5,617			2.60	%		1,128,146		4,743			1.69	%		965,793		5,382			2.26	%
Other borrowings	Other borrowings		527,658		2,328			1.75	%		227,420		1,571			2.74	%		620,982		2,631			1.70	%		496,617		2,885			2.36	%
Long-term debt	Long-term debt		20,000		250			4.96	%		—		—			—			20,620		256			4.99	%		10,310		137			5.39	%

Total interest bearing liabilities	Total interest bearing liabilities		1,637,241		7,619			1.85	%		1,083,653		7,188			2.63	%		1,769,748		7,630			1.73	%		1,472,720		8,404			2.31	%
Demand deposits	Demand deposits		269,891								156,950								265,039								213,991
Other liabilities	Other liabilities		9,592								8,417								10,013								11,784
Stockholders’ equity	Stockholders’ equity		146,069								119,589								176,764								126,943

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,062,793							$	1,368,609							$	2,221,564							$	1,825,438

Net interest income	Net interest income			$	13,351							$	10,874							$	16,644							$	11,742
Net interest income to earning assets	Net interest income to earning assets							2.76	%							3.32	%							3.23	%							2.83	%

Provision for loan losses	Provision for loan losses				475								2,380								750								1,250
Non-interest income	Non-interest income				2,512								2,863								3,312								3,327
Non-interest expense	Non-interest expense				10,483								8,563								13,329								9,378

Income before taxes	Income before taxes				4,905								2,794								5,877								4,441
Income tax expense	Income tax expense				1,573								700								1,940								1,410

Net income	Net income			$	3,332							$	2,094							$	3,937							$	3,031

Earnings per share:	Earnings per share:
	Net income
	Basic			$	.15							$	.09
	Diluted			$	.14							$	.09
Net income
Basic																				$	.16							$	.14
Diluted																				$	.15							$	.14
Return on average equity	Return on average equity				9.05	%							6.95	%							8.96	%							9.68	%
Return on average assets	Return on average assets				.64	%							.61	%							.71	%							.67	%
Equity to assets	Equity to assets				7.08	%							8.74	%							7.96	%							6.95	%


		For the nine months ended								For the nine months ended
		September 30, 2003								September 30, 2002

		Average		Revenue/			Yield/			Average		Revenue/			Yield/
		Balance		Expense (1)			Rate			Balance		Expense (1)			Rate

Assets
Taxable securities		$	606,535	$	15,517			3.42	%	$	262,584	$	10,320			5.25	%
Federal funds sold			16,823		150			1.19	%		15,813		204			1.72	%
Deposits in other banks			1,007		11			1.46	%		316		6			2.54	%
Loans			1,201,507		46,791			5.21	%		927,936		39,545			5.70	%
	Less reserve for loan losses		16,215		—			—			12,903		—			—

Loans, net of reserve			1,185,292		46,791			5.28	%		915,033		39,545			5.78	%

Total earning assets			1,809,657		62,469			4.62	%		1,193,746		50,075			5.61	%
Cash and other assets			136,016								70,165

Total assets		$	1,945,673							$	1,263,911

Liabilities and Stockholders’ Equity
Transaction deposits		$	62,082	$	335			0.72	%	$	50,177	$	366			0.98	%
Savings deposits			422,293		4,735			1.50	%		340,706		4,981			1.95	%
Time deposits			549,498		10,950			2.66	%		414,413		10,303			3.32	%

Total interest bearing deposits			1,033,873		16,020			2.07	%		805,296		15,650			2.60	%
Other borrowings			506,709		8,062			2.13	%		193,711		3,943			2.72	%
Long-term debt			16,374		630			5.14	%		—		—			—

Total interest bearing liabilities			1,556,956		24,712			2.12	%		999,007		19,593			2.62	%
Demand deposits			243,773								142,130
Other liabilities			10,990								7,485
Stockholders’ equity			133,954								115,289

Total liabilities and stockholders’ equity		$	1,945,673							$	1,263,911

Net interest income				$	37,757							$	30,482
Net interest income to earning assets								2.79	%							3.41	%

Provision for loan losses					3,325								4,359
Non-interest income					8,657								6,519
Non-interest expense					36,762								25,343

Income before taxes					6,327								7,299
Income tax expense (benefit)					(3,893	)							1,828

Net income				$	10,220							$	5,471

Earnings per share:
	Net income
	Basic			$	.47							$	.24
	Diluted			$	.45							$	.24
Return on average equity					10.20	%							6.34	%
Return on average assets					.70	%							.58	%
Equity to assets					6.88	%							9.12	%


	September 30,		December 31,
	2003		2002		March 31,		December 31,
					2004		2003
Commercial	$	555,523	$	509,505	$	653,458	$	608,542
Construction		232,314		172,451		274,597		256,134
Real estate		311,010		282,703		356,511		339,069
Consumer		17,812		24,195		19,349		16,564
Leases		12,727		17,546		11,363		13,152
Loans held for sale		91,686		116,106		72,789		80,780

Total	$	1,221,072	$	1,122,506	$	1,388,067	$	1,314,241


	Series A										Series A-1
	Convertible										Non-voting
	Preferred Stock						Common Stock				Common Stock
	Shares			Amount			Shares		Amount		Shares			Amount
Balance at December 31, 2002		1,057,142		$	11			18,500,812	$	185		695,516		$	7
Comprehensive income:
Net income		—			—			—		—		—			—
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,760, net of reclassification amount of $666		—			—			—		—		—			—
Total comprehensive income
Tax benefit related to exercise of stock options		—			—			—		—		—			—
Issuance of common stock		—			—			3,698,913		37		—			—
Conversion of preferred stock		(1,057,142	)		(11	)		2,114,284		21		—			—
Preferred dividends		—			—			—		—		—			—
Transfers		—			—			401,598		4		(401,598	)		(4	)
Sale of treasury stock		—			—			—		—		—			—

Balance at December 31, 2003		—			—			24,715,607		247		293,918			3
Comprehensive income:
Net income (unaudited)		—			—			—		—		—			—
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $2,999 (unaudited)		—			—			—		—		—			—
Total comprehensive income
Tax benefit related to exercise of stock options (unaudited)		—			—			—		—		—			—
Issuance of common stock (unaudited)		—			—			136,092		1		—			—
Transfers (unaudited)		—			—			6,984		—		(6,984	)		—

Balance at March 31, 2004 (unaudited)		—		$	—			24,858,683	$	248		286,934		$	3



																Accumulated
																Other
																Compre-
		Additional						Treasury Stock								hensive
		Paid-in			Accumulated									Deferred		Income
		Capital			Deficit			Shares			Amount			Compensation		(Loss)			Total

Balance at December 31, 2001		$	127,378		$	(20,690	)		(87,516	)	$	(594	)	$	573	$	(507	)	$	106,359




Comprehensive income:




	Net income		—			7,343			—			—			—		—			7,343




	Change in unrealized gain (loss) on available-for-sale securities, net of tax of $3,683, net of reclassification amount of $1,375		—			—			—			—			—		6,841			6,841




Total comprehensive income																				14,184




Sale of Series A convertible preferred stock			5,247			—			—			—			—		—			5,250




Sale of common stock			350			—			—			—			—		—			351




Preferred dividends			(1,097	)		—			—			—			—		—			(1,097	)




Transfers			—			—			—			—			—		—			—




Purchase of treasury stock			—			—			(14,144	)		(103	)		—		—			(103	)




Sale of treasury stock			3			—			4,414			29			—		—			32

Balance at December 31, 2002			131,881			(13,347	)		(97,246	)		(668	)		573		6,334			124,976




Comprehensive income:




	Net income		—			10,220			—			—			—		—			10,220




	Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,361, net of reclassification amount of $686		—			—			—			—			—		(4,252	)		(4,252	)




Total comprehensive income																				5,968




Sale of common stock			34,800			—			—			—			—		—			34,835




Conversion of preferred stock			(10	)		—			—			—			—		—			—




Transfers			—			—			—			—			—		—			—




Preferred dividends			(699	)		—			—			—			—		—			(699	)

Balance at September 30, 2003		$	165,972		$	(3,127	)		(97,246	)	$	(668	)	$	573	$	2,082		$	165,080


															Accumulated
															Other
				Retained											Compre-
	Additional			Earnings			Treasury Stock								hensive
	Paid-in			(Accumulated									Deferred		Income
	Capital			Deficit)			Shares			Amount			Compensation		(Loss)			Total
Balance at December 31, 2002	$	131,881		$	(13,347	)		(97,246	)	$	(668	)	$	573	$	6,334		$	124,976
Comprehensive income:
Net income		—			13,834			—			—			—		—			13,834
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,760, net of reclassification amount of $666		—			—			—			—			—		(3,066	)		(3,066	)

Total comprehensive income																			10,768
Tax benefit related to exercise of stock options		412			—			—			—			—		—			412
Issuance of common stock		36,167			—			—			—			—		—			36,204
Conversion of preferred stock		(10	)		—			—			—			—		—			—
Preferred dividends		(699	)		—			—			—			—		—			(699	)
Transfers		—			—			—			—			—		—			—
Sale of treasury stock		—			—			12,972			95			—		—			95

Balance at December 31, 2003		167,751			487			(84,274	)		(573	)		573		3,268			171,756
Comprehensive income:
Net income (unaudited)		—			3,937			—			—			—		—			3,937
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $2,999 (unaudited)		—			—			—			—			—		5,570			5,570

Total comprehensive income																			9,507
Tax benefit related to exercise of stock options (unaudited)		428			—			—			—			—		—			428
Issuance of common stock (unaudited)		895			—			—			—			—		—			896
Transfers (unaudited)		—			—			—			—			—		—			—

Balance at March 31, 2004 (unaudited)	$	169,074		$	4,424			(84,274	)	$	(573	)	$	573	$	8,838		$	182,587


		Three months ended September 30, 2003

		Net Interest			Provision for		Non-interest		Non-interest
		Income			Loan Losses		Income		Expense

Total Bank		$	13,601		$	475	$	2,512	$	10,164
Unallocated items:
	Holding company		(250	)		—		—		319

The Company consolidated		$	13,351		$	475	$	2,512	$	10,483


		Nine months ended September 30, 2003

		Net Interest			Provision for		Non-interest		Non-interest
		Income			Loan Losses		Income		Expense

Total Bank		$	38,387		$	3,325	$	8,657	$	35,629
Unallocated items:
	Holding company		(630	)		—		—		1,133

The Company consolidated		$	37,757		$	3,325	$	8,657	$	36,762
��


		Three months ended September 30, 2002

		Net Interest		Provision for		Non-interest		Non-interest
		Income		Loan Losses		Income		Expense

Total Bank		$	10,874	$	2,380	$	2,863	$	8,410
Unallocated items:
	Holding company		—		—		—		153

The Company consolidated		$	10,874	$	2,380	$	2,863	$	8,563


		Nine months ended September 30, 2002

		Net Interest		Provision for		Non-interest		Non-interest
		Income		Loan Losses		Income		Expense

Total Bank		$	30,482	$	4,359	$	6,519	$	24,767
Unallocated items:
	Holding company		—		—		—		576

The Company consolidated		$	30,482	$	4,359	$	6,519	$	25,343


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	(2)		Changes in the levels of loan prepayments, which could affect the value of our loans or investment securities


	(3)		Changes in general economic and business conditions in areas or markets where we compete


	(4)		Competition from banks and other financial institutions for loans and customer deposits


	(5)		The failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses


	(6)		The loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels


(Dollars in thousands except per share data)	Three months			Nine months
	ended			ended
	September 30,			September 30,
	2003			2003

	(Unaudited)
Net income as reported	$	3,332		$	10,220
Repurchase agreement unwinding penalties		—			6,262
Executive separation		—			250
Tax effect of repurchase agreement unwinding penalties and separation costs		—			(2,120	)
Impact of reversing deferred tax asset valuation allowance		—			(5,929	)

Net income excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense		3,332			8,683
Preferred stock dividends		(149	)		(699	)

Numerator used to calculate basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense		3,183			7,984
Effect of dilutive securities		149			699

Numerator used to calculate diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense	$	3,332		$	8,683

Denominator used for GAAP and basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense		21,924,855			20,120,056
Denominator used for GAAP and diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense		24,165,906			22,474,170
Basic income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense	$	.15		$	.40
Diluted income per share excluding the impact of reversing the valuation allowance, unwinding penalties, and separation expense	$	.14		$	.39


		Nine months ended			Nine months ended			Year ended
		September 30,			September 30,			December 31,			Three months ended			Three months ended			Year ended
		2003			2002			2002			March 31,			March 31,			December 31,
											2004			2003			2003
Beginning balance	Beginning balance	$	14,538		$	12,598		$	12,598		$	17,727		$	14,538		$	14,538
Loans charged-off:	Loans charged-off:
	Commercial		50			2,085			2,096
	Real estate		200			—			—
	Consumer		2			6			11
	Leases		511			1,042			1,740
Commercial												—			—			50
Real estate												—			—			402
Consumer												—			—			5
Leases												493			13			618

Total	Total		763			3,133			3,847			493			13			1,075
Recoveries:	Recoveries:
	Commercial		78			—			42
	Consumer		—			11			—
	Leases		98			9			116
Commercial												—			78			78
Leases												27			40			161

Total recoveries	Total recoveries		176			20			158			27			118			239

Net charge-offs			587			3,113			3,689
Net charge-offs (recoveries)												466			(105	)		836
Provision for loan losses	Provision for loan losses		3,325			4,359			5,629			750			1,250			4,025

Ending balance	Ending balance	$	17,276		$	13,844		$	14,538		$	18,011		$	15,893		$	17,727

Reserve for loan losses to loans outstanding at end of period	Reserve for loan losses to loans outstanding at end of period		1.41	%		1.31	%		1.30	%		1.30	%		1.35	%		1.35	%
Net charge-offs to average loans¹			.07	%		.45	%		.38	%
Provision for loan losses to average loans¹			.37	%		.63	%		.58	%
Net charge-offs (recoveries) to average loans⁽¹⁾												.14	%		(.04	)%		.07	%
Provision for loan losses to average loans⁽¹⁾												.23	%		.45	%		.33	%
Recoveries to gross charge-offs	Recoveries to gross charge-offs		23.07	%		.64	%		4.11	%		5.48	%		907.69	%		22.23	%
Reserve as a multiple of net charge-offs	Reserve as a multiple of net charge-offs		29.4x			4.5x			3.9x			38.7	x		—			21.2	x
Non-performing and renegotiated loans:	Non-performing and renegotiated loans:
	Loans past due (90 days)	$	1,095		$	1,686		$	135
	Non-accrual		11,026			6,474			2,776
Loans past due (90 days)⁽²⁾											$	6,250		$	38		$	7
Non-accrual												6,953			3,769			10,217

Total	Total	$	12,121		$	8,160		$	2,911		$	13,203		$	3,807		$	10,224

Reserve as a percent of non-performing and renegotiated loans			142.53	%		169.66	%		499.42	%
Reserve as a percent of non-performing and renegotiated loans⁽²⁾												136.42	%		417.47	%		173.39	%


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


	Anticipated Impact Over the Next Twelve Months
	as Compared to Most Likely Scenario

	200 bp Increase		100 bp Decrease
	September 30, 2003		September 30, 2003

Change in net interest income	$	11,736	$	(7,934	)


			31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2003.

			31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2003.

			32.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002,~~2003, filed herewith.

			32.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002,~~2003, filed herewith.


		TEXAS CAPITAL BANCSHARES, INC.

Date: ~~November 14, 2003~~May 10, 2004		/s/Peter B. Bartholow

		Peter B. Bartholow Chief Financial Officer (Duly authorized officer and principal financial officer)


~~Exhibit Number~~

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2003.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2003.

32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002,~~2003, filed herewith.

32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002,~~2003, filed herewith.