UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2005


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

For the transition period from ___ to ___

Commission file number 0-30533

TEXAS CAPITAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware (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. (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. Yesþ Noo£

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ No£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

On ~~July~~October 31, 2005, the number of shares set forth below was outstanding with respect to each of the issuer’s classes of common stock:


~~Common Stock~~			~~25,638,219~~

Common Stock 25,690,049

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
(In thousands except share data)


									Three Months Ended				Nine Months Ended
	Three Months Ended June 30				Six Months Ended June 30				September 30				September 30
	2005		2004		2005		2004		2005		2004		2005		2004

Interest income
Interest and fees on loans	$	31,255	$	17,498	$	56,947	$	34,204	$	37,363	$	20,455	$	94,310	$	54,659
Securities		7,887		7,536		16,183		15,087		7,442		8,546		23,625		23,633
Federal funds sold		14		18		94		33		334		15		428		48
Deposits in other banks		11		4		130		6		7		3		137		9

Total interest income		39,167		25,056		73,354		49,330		45,146		29,019		118,500		78,349
Interest expense
Deposits		10,446		4,948		19,379		9,691		13,658		6,231		33,037		15,922
Federal funds purchased		1,374		294		2,235		614		989		437		3,224		1,051
Repurchase agreements		2,151		2,250		4,545		4,335		2,706		2,572		7,251		6,907
Other borrowings		354		56		358		282		451		112		809		394
Long-term debt		358		256		685		512		384		281		1,069		793

Total interest expense		14,683		7,804		27,202		15,434		18,188		9,633		45,390		25,067

Net interest income		24,484		17,252		46,152		33,896		26,958		19,386		73,110		53,282
Provision for loan losses		—		363		—		1,113		—		375		—		1,488

Net interest income after provision for loan losses		24,484		16,889		46,152		32,783		26,958		19,011		73,110		51,794
Non-interest income
Service charges on deposit accounts		793		891		1,574		1,748		816		825		2,390		2,573
Trust fee income		615		454		1,201		891		778		482		1,979		1,373
Cash processing fees		—		—		—		587		—		—		—		587
Bank owned life insurance (BOLI) income		291		329		579		650		267		346		846		996
Mortgage warehouse fees		195		274		414		512
Brokered loan fees										962		241		1,581		753
Gain on sale of mortgage loans		1,911		729		3,676		1,192		2,198		1,083		5,874		2,275
Other		889		439		1,429		851		769		486		1,993		1,337

Total non-interest income		4,694		3,116		8,873		6,431		5,790		3,463		14,663		9,894
Non-interest expense
Salaries and employee benefits		11,858		7,964		23,387		16,094		13,465		8,914		36,852		25,008
Net occupancy expense		1,875		1,341		3,558		2,675		1,937		1,443		5,495		4,118
Marketing		922		569		1,621		1,103		821		669		2,442		1,772
Legal and professional		1,097		779		2,194		1,572		1,183		755		3,383		2,327
Communications and data processing		914		995		1,569		1,854		658		764		2,227		2,618
Franchise taxes		45		56		90		153		49		52		139		205
Other		2,479		1,792		4,625		3,377		3,316		1,998		7,755		5,375

Total non-interest expense		19,190		13,496		37,044		26,828		21,249		14,595		58,293		41,423

Income before income taxes		9,988		6,509		17,981		12,386		11,499		7,879		29,480		20,265
Income tax expense		3,401		2,149		6,118		4,089		3,915		2,643		10,033		6,732

Net income	$	6,587	$	4,360	$	11,863	$	8,297	$	7,584	$	5,236	$	19,447	$	13,533


Earnings per share:
Basic	$	.26	$	.17	$	.46	$	.33	$	.30	$	.21	$	.76	$	.54
Diluted	$	.25	$	.17	$	.45	$	.32	$	.28	$	.20	$	.73	$	.52

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands except share data)


	June 30,			December 31,
	2005			2004			September 30,			December 31,
							2005			2004
	(Unaudited)						(Unaudited)			(Audited)
Assets
Cash and due from banks	$	107,982		$	78,490		$	105,584		$	78,490
Federal funds sold		5,000			—			38,110			—
Securities, available-for-sale		725,554			804,544			674,792			804,544
Loans held for sale		120,708			119,537			118,929			119,537
Loans held for investment (net of unearned income)		1,805,630			1,564,578			1,935,818			1,564,578
Less: Allowance for loan losses		18,774			18,698			18,908			18,698

Loans held for investment, net		1,786,856			1,545,880			1,916,910			1,545,880
Premises and equipment, net		5,398			4,518			6,916			4,518
Accrued interest receivable and other assets		60,124			56,698			63,203			56,698
Goodwill, net		6,417			1,496
Goodwill and intangible, net								8,218			1,496

Total assets	$	2,818,039		$	2,611,163		$	2,932,662		$	2,611,163


Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	475,516		$	397,629		$	457,333		$	397,629
Interest bearing		1,208,972			1,234,283			1,318,108			1,234,283
Interest bearing in foreign branches		286,517			157,975			536,904			157,975

Total deposits		1,971,005			1,789,887			2,312,345			1,789,887

Accrued interest payable		3,410			3,511			4,051			3,511
Other liabilities		6,870			6,879			16,827			6,879
Federal funds purchased		129,262			113,478			93,897			113,478
Repurchase agreements		354,159			478,204			271,044			478,204
Other borrowings		126,833			3,309			1,560			3,309
Long-term debt		20,620			20,620			20,620			20,620

Total liabilities		2,612,159			2,415,888			2,720,344			2,415,888

Stockholders’ equity:
Common stock, $.01 par value:
Authorized shares — 100,000,000
Issued shares — 25,616,829 and 25,461,602 at June 30, 2005 and December 31, 2004, respectively		256			255
Issued shares — 25,672,369 and 25,461,602 at September 30, 2005 and December 31, 2004, respectively								257			255
Additional paid-in capital		174,183			172,380			174,904			172,380
Retained earnings		31,910			20,047			39,494			20,047
Treasury stock (shares at cost: 84,274 at June 30, 2005 and December 31, 2004)		(573	)		(573	)		(573	)		(573	)
Deferred compensation		573			573			573			573
Accumulated other comprehensive income (loss)		(469	)		2,593			(2,337	)		2,593

Total stockholders’ equity		205,880			195,275			212,318			195,275

Total liabilities and stockholders’ equity	$	2,818,039		$	2,611,163		$	2,932,662		$	2,611,163

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands except share data)


					Series A-1																		Accumulated										Series A-1																		Accumulated
					Non-voting																		Other										Non-voting																		Other
	Common Stock				Common Stock										Treasury Stock								Compre-						Common Stock				Common Stock										Treasury Stock								Compre-
											Additional												hensive																Additional												hensive
											Paid-in		Retained								Deferred		Income																Paid-in										Deferred		Income
	Shares		Amount		Shares			Amount			Capital		Earnings		Shares			Amount			Compensation		(Loss)			Total			Shares		Amount		Shares			Amount			Capital		Retained Earnings		Shares			Amount			Compensation		(Loss)			Total

Balance at December 31, 2003		24,715,607	$	247		293,918		$	3		$	167,751	$	487		(84,274	)	$	(573	)	$	573	$	3,268		$	171,756			24,715,607	$	247		293,918		$	3		$	167,751	$	487		(84,274	)	$	(573	)	$	573	$	3,268		$	171,756
Comprehensive income:
Net income		—		—		—			—			—		19,560		—			—			—		—			19,560			—		—		—			—			—		19,560		—			—			—		—			19,560
Change in unrealized gain on available-for-sale securities, net of taxes of $363				—		—			—			—		—		—			—			—		(675	)		(675	)				—		—			—			—		—		—			—			—		(675	)		(675	)

Total comprehensive income																											18,885																												18,885
Tax benefit related to exercise of stock options		—		—		—			—			1,411		—		—			—			—		—			1,411			—		—		—			—			1,411		—		—			—			—		—			1,411
Issuance of common stock		452,077		5		—			—			3,218		—		—			—			—		—			3,223			452,077		5		—			—			3,218		—		—			—			—		—			3,223
Transfers		293,918		3		(293,918	)		(3	)		—		—		—			—			—		—			—			293,918		3		(293,918	)		(3	)		—		—		—			—			—		—			—

Balance at December 31, 2004		25,461,602		255		—			—			172,380		20,047		(84,274	)		(573	)		573		2,593			195,275			25,461,602		255		—			—			172,380		20,047		(84,274	)		(573	)		573		2,593			195,275
Comprehensive income:
Net income (unaudited)		—		—		—			—			—		11,863		—			—			—		—			11,863			—		—		—			—			—		19,447		—			—			—		—			19,447
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $1,649 (unaudited)		—		—		—			—			—		—		—			—			—		(3,062	)		(3,062	)
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $2,655 (unaudited)																														—		—		—			—			—		—		—			—			—		(4,930	)		(4,930	)

Total comprehensive income																											8,801																												14,517
Tax benefit related to exercise of stock options (unaudited)		—		—		—			—			626		—		—			—			—		—			626			—		—		—			—			901		—		—			—			—		—			901
Issuance of common stock (unaudited)		155,227		1		—			—			1,177		—		—			—			—		—			1,178			210,767		2		—			—			1,623		—		—			—			—		—			1,625

Balance at June 30, 2005 (unaudited)		25,616,829	$	256		—		$	—		$	174,183	$	31,910		(84,274	)	$	(573	)	$	573	$	(469	)	$	205,880			25,672,369	$	257		—		$	—		$	174,904	$	39,494		(84,274	)	$	(573	)	$	573	$	(2,337	)	$	212,318

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(In thousands)


							Nine Months Ended
	Six Months Ended June 30						September 30
	2005			2004			2005			2004

Operating activities
Net income	$	11,863		$	8,297		$	19,447		$	13,533
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—			1,113			—			1,488
Depreciation and amortization		772			788			1,219			1,191
Amortization and accretion on securities		1,293			2,820			1,867			3,651
Bank owned life insurance (BOLI) income		(579	)		(650	)		(846	)		(959	)
Gain on sale of mortgage loans		(3,676	)		(1,192	)		(5,874	)		(2,275	)
Originations of loans held for sale		(746,543	)		(802,676	)		(1,333,696	)		(1,192,096	)
Proceeds from sales of loans held for sale		749,096			827,004			1,340,158			1,194,061
Tax benefit from stock option exercises		626			657			901			920
Changes in operating assets and liabilities:
Accrued interest receivable and other assets		(2,823	)		(5,574	)		(5,857	)		(2,212	)
Accrued interest payable and other liabilities		1,539			1,515			13,144			(352	)

Net cash provided by operating activities		11,568			32,102			30,463			16,950

Investing activities
Purchases of available-for-sale securities		(9,357	)		(136,661	)		(12,492	)		(209,143	)
Maturities and calls of available-for-sale securities		6,399			6,345			10,879			12,102
Principal payments received on securities		75,944			107,100			121,912			151,334
Net increase in loans		(241,780	)		(135,827	)		(372,791	)		(254,473	)
Purchase of premises and equipment, net		(698	)		(645	)		(1,605	)		(943	)
Cash paid for acquisition		(5,143	)		—			(6,755	)		—

Net cash used in investing activities		(174,635	)		(159,688	)		(260,852	)		(301,123	)

Financing activities
Net increase in checking, money market and savings accounts		80,558			181,878			81,231			148,867
Net increase in certificates of deposit		100,560			1,489			441,227			18,865
Sale of common stock		1,178			1,742			1,625			1,982
Net other borrowings		(521	)		4,639			(208,909	)		40,033
Net federal funds purchased		15,784			19,011			(19,581	)		67,381

Net cash provided by financing activities		197,559			208,759			295,593			277,128

Net increase in cash and cash equivalents		34,492			81,173
Net increase/(decrease) in cash and cash equivalents								65,204			(7,045	)
Cash and cash equivalents at beginning of period		78,490			69,551			78,490			69,551

Cash and cash equivalents at end of period	$	112,982		$	150,724		$	143,694		$	62,506


Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	27,303		$	16,070		$	44,850		$	25,776
Cash paid during the period for income taxes		4,917			3,900			4,900			7,250
Non-cash transactions:
Transfers from loans/leases to other repossessed assets		55			328			55			413
Transfers from loans/leases to premises and equipment		701			190			1,726			273

TEXAS CAPITAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(1) ACCOUNTING POLICIES

Basis of Presentation

The accounting and reporting policies of Texas Capital Bancshares, Inc. conform to accounting principles generally accepted in the United States and to generally accepted practices within the banking industry. Our Consolidated Financial Statements include the accounts of Texas Capital Bancshares, Inc. and its subsidiary, Texas Capital Bank, National Association (the “Bank”). 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. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (SEC). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2004, included in our Annual Report on Form 10-K filed with the SEC on March 15, 2005 (the “2004 Form 10-K”).

~~Stock-Based~~Stock-based Compensation

At ~~June~~September 30, 2005, we had a stock-based employee compensation plan. We account for the plan under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost for options is reflected in net income, as all options granted under 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 we had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation,to stock-based employee compensation.


(Dollars in thousands except per share data)													Three Months Ended						Nine Months Ended
	Three Months Ended June 30						Six Months Ended June 30						September 30						September 30
	2005			2004			2005			2004			2005			2004			2005			2004

Net income:
Net income as reported	$	6,587		$	4,360		$	11,863		$	8,297		$	7,584		$	5,236		$	19,447		$	13,533
Add: Total stock-based employee compensation recorded net of tax		94			71			686			246			62			70			514			316
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of tax		(348	)		(238	)		(1,165	)		(578	)		(323	)		(280	)		(1,255	)		(859	)

Pro forma net income	$	6,333		$	4,193		$	11,384		$	7,965		$	7,323		$	5,026		$	18,706		$	12,990


Basic income per share:
As reported	$	.26		$	.17		$	.46		$	.33		$	.30		$	.21		$	.76		$	.54
Pro forma	$	.25		$	.17		$	.45		$	.32		$	.29		$	.20		$	.73		$	.52

Diluted income per share:
As reported	$	.25		$	.17		$	.45		$	.32		$	.28		$	.20		$	.73		$	.52
Pro forma	$	.24		$	.16		$	.43		$	.30		$	.27		$	.19		$	.70		$	.49

(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 our 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.

Recent Accounting ~~Pronouncements~~Pronouncement

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement requires an entity to recognize the cost of employee services received in share-based payment transactions and measure the cost on a grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The provisions of SFAS No. 123 (revised 2004) will be effective for the financial statements issued for years beginning after June 15, 2005. We anticipate adopting the provisions of this statement January 1, 2006. The methodology has not yet been determined, but we anticipate that the results will not vary materially from the proforma fair value numbers that have been presented in the table above.

(2) EARNINGS PER SHARE

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


									Three Months Ended				Nine Months Ended
	Three Months Ended June 30				Six Months Ended June 30				September 30				September 30
	2005		2004		2005		2004		2005		2004		2005		2004

Numerator:
Net income	$	6,587	$	4,360	$	11,863	$	8,297	$	7,584	$	5,236	$	19,447	$	13,533


Denominator:
Denominator for basic earnings per share-weighted average shares		25,578,152		25,244,920		25,550,459		25,176,833		25,649,636		25,301,523		25,583,881		25,218,759
Effect of employee stock options:⁽¹⁾		965,039		895,160		1,032,323		931,084		1,026,699		962,191		1,030,428		941,510

Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions		26,543,191		26,140,080		26,582,782		26,107,917		26,676,335		26,263,714		26,614,309		26,160,269


Basic earnings per share	$	.26	$	.17	$	.46	$	.33	$	.30	$	.21	$	.76	$	.54
Diluted earnings per share	$	.25	$	.17	$	.45	$	.32	$	.28	$	.20	$	.73	$	.52

(3) 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. Our 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. We use the same credit policies in making commitments and conditional obligations as we do 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 we issue 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,
	June 30, 2005		2005
Financial instruments whose contract amounts represent credit risk (dollars in thousands):
Commitments to extend credit	$	691,326	$	794,339
Standby letters of credit		37,762		37,088

During the second quarter of 2005, we announced the formation of BankDirect Capital Finance (BDCF), a new line of business focused on premium finance and other services for insurance agencies and their customers. We paid $5$5.1 million for the purchase of 100% of the stock of a sales and marketing company. The purchase agreement allows for additional payments of up to $4.0 million over 3 years which are contingent upon meeting certain production targets. ~~As of June 30,~~Additionally, in July 2005, we preliminarily estimated $4.9 million of the purchase price was related to goodwill. However, during the third quarter, in accordance with the terms of the purchase agreement, the final settlement will be completed and a final allocation of the purchase price will be completed.

QUARTERLY FINANCIAL SUMMARY — UNAUDITED

Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands except per share data)


																	For the three months ended								For the three months ended
	For the three months ended June 30, 2005								For the three months ended June 30, 2004								September 30, 2005								September 30, 2004
	Average		Revenue/			Yield/			Average		Revenue/			Yield/			Average		Revenue/			Yield/			Average		Revenue/			Yield/
	Balance		Expense (1)			Rate			Balance		Expense (1)			Rate			Balance		Expense⁽¹⁾			Rate			Balance		Expense⁽¹⁾			Rate

Assets
Securities — Taxable⁽²⁾	$	685,058	$	7,451			4.36	%	$	748,343	$	7,396			3.97	%
Securities — Taxable																	$	643,319	$	7,007			4.32	%	$	776,302	$	8,337			4.27	%
Securities — Non-taxable⁽²⁾		48,694		671			5.53	%		17,664		215			4.90	%		48,675		669			5.45	%		24,925		322			5.14	%
Federal funds sold		1,980		14			2.84	%		7,686		18			0.94	%		37,532		334			3.53	%		4,192		15			1.42	%
Deposits in other banks		1,736		11			2.54	%		995		4			1.62	%		895		7			3.10	%		1,128		3			1.06	%
Loans held for sale⁽³⁾		84,497		2,897			13.75	%		68,922		1,456			8.50	%		121,181		3,650			11.95	%		70,730		1,765			9.93	%
Loans		1,755,311		28,358			6.48	%		1,326,066		16,042			4.87	%
Loans held for investment																		1,884,161		33,713			7.10	%		1,432,860		18,690			5.19	%
Less reserve for loan losses		18,753		—			—			18,205		—			—			18,882		—			—			18,440		—			—

Loans, net of reserve		1,821,055		31,255			6.88	%		1,376,783		17,498			5.11	%		1,986,460		37,363			7.46	%		1,485,150		20,455			5.48	%

Total earning assets		2,558,523		39,402			6.18	%		2,151,471		25,131			4.70	%		2,716,881		45,380			6.63	%		2,291,697		29,132			5.06	%
Cash and other assets		162,835								138,399								175,986								157,255

Total assets	$	2,721,358							$	2,289,870							$	2,892,867							$	2,448,952


Liabilities and Stockholders’ Equity
Transaction deposits	$	111,029	$	292			1.05	%	$	95,031	$	140			0.59	%	$	107,398	$	271			1.00	%	$	99,245	$	150			0.60	%
Savings deposits		654,519		3,886			2.38	%		560,182		1,639			1.18	%		628,019		4,442			2.81	%		581,616		2,005			1.37	%
Time deposits		782,643		6,268			3.21	%		566,369		3,169			2.25	%		987,731		8,945			3.59	%		631,115		4,076			2.57	%

Total interest bearing deposits		1,548,191		10,446			2.71	%		1,221,582		4,948			1.63	%		1,723,148		13,658			3.14	%		1,311,976		6,231			1.89	%
Other borrowings		545,896		3,879			2.85	%		574,942		2,600			1.82	%		504,700		4,146			3.26	%		617,394		3,121			2.01	%
Long-term debt		20,620		358			6.96	%		20,620		256			4.99	%		20,620		384			7.39	%		20,620		281			5.42	%

Total interest bearing liabilities		2,114,707		14,683			2.78	%		1,817,144		7,804			1.73	%		2,248,468		18,188			3.21	%		1,949,990		9,633			1.97	%

Demand deposits		397,266								289,973								420,288								302,338
Other liabilities		8,370								8,047								15,265								11,527
Stockholders’ equity		201,015								174,706								208,846								185,097

Total liabilities and stockholders’ equity	$	2,721,358							$	2,289,870							$	2,892,867							$	2,448,952


Net interest income			$	24,719							$	17,327							$	27,192							$	19,499

Net interest income to earning assets							3.88	%							3.24	%							3.97	%							3.38	%

Return on average equity				13.14	%							10.04	%							14.41	%							11.25	%
Return on average assets				.97	%							.77	%							1.04	%							.85	%
Equity to assets				7.39	%							7.63	%							7.22	%							7.56	%

QUARTERLY FINANCIAL SUMMARY — UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in thousands except per share data)


																	For the nine months ended								For the nine months ended
	For the six months ended June 30, 2005								For the six months ended June 30, 2004								September 30, 2005								September 30, 2004
	Average		Revenue/			Yield/			Average		Revenue/			Yield/			Average		Revenue/			Yield/			Average		Revenue/			Yield/
	Balance		Expense (1)			Rate			Balance		Expense (1)			Rate			Balance		Expense⁽¹⁾			Rate			Balance		Expense⁽¹⁾			Rate

Assets
Securities — Taxable⁽²⁾	$	707,359	$	15,312			4.37	%	$	746,692	$	14,838			4.00	%
Securities — Taxable																	$	685,777	$	22,319			4.35	%	$	756,634	$	23,175			4.09	%
Securities — Non-taxable⁽²⁾		48,704		1,340			5.55	%		15,794		383			4.88	%		48,695		2,009			5.52	%		18,860		705			4.99	%
Federal funds sold		7,150		94			2.65	%		6,872		33			0.97	%		17,388		428			3.29	%		5,972		48			1.07	%
Deposits in other banks		9,752		130			2.69	%		912		6			1.32	%		6,768		137			2.71	%		985		9			1.22	%
Loans held for sale⁽³⁾		83,234		5,178			12.55	%		65,050		2,613			8.08	%		96,022		8,828			12.29	%		66,957		4,378			8.73	%
Loans held for investment		1,673,215		51,769			6.24	%		1,295,953		31,591			4.90	%		1,744,303		85,482			6.55	%		1,341,922		50,281			5.01	%
Less reserve for loan losses		18,841		—			—			17,963		—			—			18,855		—			—			18,123		—			—

Loans, net of reserve		1,737,608		56,947			6.61	%		1,343,040		34,204			5.12	%		1,821,470		94,310			6.92	%		1,390,756		54,659			5.25	%

Total earning assets		2,510,573		73,823			5.93	%		2,113,311		49,464			4.71	%		2,580,098		119,203			6.18	%		2,173,207		78,596			4.83	%

Cash and other assets		155,735								142,407								162,560								147,392

Total assets	$	2,666,308							$	2,255,717							$	2,742,658							$	2,320,599


Liabilities and Stockholders’ Equity
Transaction deposits	$	109,106	$	547			1.01	%	$	91,833	$	271			0.59	%	$	108,531	$	798			0.98	%	$	94,322	$	422			0.60	%
Savings deposits		634,069		7,033			2.24	%		532,356		3,138			1.19	%		632,030		11,495			2.43	%		548,896		5,143			1.25	%
Time deposits		774,117		11,799			3.07	%		550,675		6,282			2.29	%		846,104		20,744			3.28	%		577,684		10,357			2.39	%

Total interest bearing deposits		1,517,292		19,379			2.58	%		1,174,864		9,691			1.66	%		1,586,665		33,037			2.78	%		1,220,902		15,922			1.74	%
Other borrowings		540,365		7,138			2.66	%		597,962		5,231			1.76	%		528,346		11,284			2.86	%		604,487		8,352			1.85	%
Long-term debt		20,620		685			6.70	%		20,620		512			4.99	%		20,620		1,069			6.93	%		20,620		793			5.14	%

Total interest bearing liabilities		2,078,277		27,202			2.64	%		1,793,446		15,434			1.73	%		2,135,631		45,390			2.84	%		1,846,009		25,067			1.81	%

Demand deposits		380,425								277,506								393,859								285,844
Other liabilities		8,804								9,030								10,981								9,868
Stockholders’ equity		198,802								175,735								202,187								178,878

Total liabilities and stockholders’ equity	$	2,666,308							$	2,255,717							$	2,742,658							$	2,320,599

Net interest income			$	46,621							$	34,030							$	73,813							$	53,529

Net interest income to earning assets							3.74	%							3.24	%							3.82	%							3.29	%

Return on average equity				12.03	%							9.49	%							12.86	%							10.11	%
Return on average assets				0.90	%							0.74	%							.95	%							.78	%
Equity to assets				7.46	%							7.79	%							7.37	%							7.71	%


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

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

We recorded net income of ~~$6.6~~$7.6 million, or ~~$.25~~$.28 per diluted common share, for the ~~second~~third quarter of 2005 compared to ~~$4.4~~$5.2 million, or ~~$.17~~$.20 per diluted common share, for the ~~second~~third quarter of 2004. Return on average equity was ~~13.14%~~14.41% and return on average assets was ~~.97%~~1.04% for the ~~second~~third quarter of 2005 compared to ~~10.04%~~11.25% and ~~.77%~~.85%, respectively, for the ~~second~~third quarter of 2004.

The increase in net income and improvement in return on assets in 2005 are attributed to growth in net interest income, which came from continued earning asset growth, as well as an improvement in net interest margin. Net interest income for the ~~second~~third quarter of 2005 increased by ~~$7.2~~$7.6 million, or ~~42%~~39%, from ~~$17.3~~$19.4 million to ~~$24.5~~$27.0 million over the ~~second~~third quarter of ~~2004.~~2005. The increase in net interest income was due to an increase in average earning assets of ~~$407.1~~$425.2 million, or ~~18.9%~~18.6%, with a 6459 basis point increase in net interest margin.

Non-interest income increased ~~$1.6~~$2.3 million, or ~~52%~~67%, compared to the ~~second~~third quarter of 2004. We benefited from growth in fees related to wealth management and gain on sale of mortgage loans, which is related to our residential mortgage lending division that was started in the third quarter of 2003. Additionally, brokered loan fee income, which includes third party fees on mortgage warehouse and premium finance loans, increased $721,000 in the third quarter of 2005 as compared to the third quarter of 2004.

Non-interest expense increased ~~$5.7~~$6.6 million, or ~~42%~~46%, compared to the ~~second~~third quarter of 2004. The increase is primarily related to a ~~$3.9~~$4.6 million increase in salaries and employee benefits to ~~$11.9~~$13.5 million from ~~$8.0~~$8.9 million. The increase in salaries and employee benefits resulted from an increase in the total number of

employees related to general business growth, ~~additions to~~additional staffing for the Houston office, addition of the premium finance business, the continued expansion of the residential mortgage lending division, and increased incentive compensation reflective of our performance.

Net Interest Income

Net interest income was ~~$24.5~~$27.0 million for the ~~second~~third quarter of 2005, compared to ~~$17.3~~$19.4 million for the ~~second~~third quarter of 2004. The increase was due to an increase in average earning assets of ~~$407.1~~$425.2 million as compared to the ~~second~~third quarter of 2004 and a 6459 basis point increase in net interest margin. The increase in average earning assets included a ~~$429.2~~$451.3 million increase in average loans held for investment and an increase of $50.5 million in loans held for sale offset by a ~~$32.3~~$109.2 million decrease in average securities. For the quarter ended ~~June~~September 30, 2005, average net loans and securities represented ~~71%~~73% and ~~29%~~25%, respectively, of average earning assets compared to ~~64%~~65% and ~~36%~~35% in the same quarter of 2004.

Average interest bearing liabilities increased ~~$297.6~~$298.5 million from the ~~second~~third quarter of 2004, which included a ~~$326.6~~$411.2 million increase in interest bearing deposits offset by a ~~$29.0~~$112.7 million decrease in other borrowings. The average cost of interest bearing liabilities increased from ~~1.73%~~1.97% for the quarter ended ~~June~~September 30, 2004 to ~~2.78%~~3.21% for the same period of 2005, reflecting rising market interest rates.

Net interest income was ~~$46.2~~$73.1 million for the first ~~six~~nine months of 2005, compared to ~~$33.9~~$53.3 million for the same period of 2004. The increase was due to an increase in average earning assets of ~~$397.3~~$406.9 million as compared to 2004 and a 5053 basis point increase in net interest margin. The increase in average earning assets included a ~~$377.3~~$402.4 million increase in average loans held for investment offset by a ~~$6.4~~$41.0 million decrease in average securities. For the ~~six~~nine months ended ~~June~~September 30, 2005, average net loans and securities represented ~~69%~~71% and ~~30%~~28%, respectively, of average earning assets compared to 64% and 36% in the same period of 2004.

Average interest bearing liabilities increased ~~$284.8~~$289.6 million compared to the first ~~six~~nine months of 2004, which included a ~~$342.4~~$365.8 million increase in interest bearing deposits offset by a ~~$57.6~~$76.1 million decrease in other borrowings. The average cost of interest bearing liabilities increased from ~~1.73%~~1.81% for the ~~six~~nine months ended ~~June~~September 30, 2004 to ~~2.64%~~2.84% for the same period of 2005, reflecting the rising market interest rates.

TABLE 1 — VOLUME/RATE ANALYSIS
(In thousands)


	Three Months Ended								Six Months Ended
	June 30, 2005/2004								June 30, 2005/2004							Three Months Ended								Nine Months Ended
				Change Due To⁽¹⁾							Change Due To⁽¹⁾					September 30, 2005/2004								September 30, 2005/2004
	Change			Volume			Yield/Rate		Change		Volume			Yield/Rate					Change Due To (1)							Change Due To (1)
																Change			Volume			Yield/Rate		Change		Volume			Yield/Rate
Interest income:
Securities⁽²⁾	$	511		$	(227	)	$	738	$	1,431	$	(26	)	$	1,457	$	(983	)	$	(1,101	)	$	118	$	448	$	(1,077	)	$	1,525
Loans held for sale		1,441			334			1,107		2,565		721			1,844		1,885			1,267			618		4,450		1,895			2,555
Loans held for investment		12,316			5,251			7,065		20,178		9,083			11,095		15,023			5,954			9,069		35,201		15,017			20,184
Federal funds sold		(4	)		(13	)		9		61		1			60		319			120			199		380		92			288
Deposits in other banks		7			3			4		124		58			66		4			(1	)		5		128		53			75

Total		14,271			5,349			8,922		24,359		9,837			14,522		16,248			6,239			10,009		40,607		15,980			24,627
Interest expense:
Transaction deposits		152			24			128		276		51			225		121			13			108		376		63			313
Savings deposits		2,247			281			1,966		3,895		589			3,306		2,437			166			2,271		6,352		773			5,579
Time deposits		3,099			1,222			1,877		5,517		2,525			2,992		4,869			2,321			2,548		10,387		4,800			5,587
Borrowed funds		1,381			(287	)		1,668		2,080		(850	)		2,930		1,128			(739	)		1,867		3,208		(1,568	)		4,776

Total		6,879			1,240			5,639		11,768		2,315			9,453		8,555			1,761			6,794		20,323		4,068			16,255

Net interest income	$	7,392		$	4,109		$	3,283	$	12,591	$	7,522		$	5,069	$	7,693		$	4,478		$	3,215	$	20,284	$	11,912		$	8,372

Non-interest Income

Non-interest income increased ~~$1.6~~$2.3 million in the ~~second~~third quarter of 2005 compared to the same quarter of 2004. The increase is primarily related to a ~~$1.2~~$1.1 million increase in gains on sale of mortgage loans to ~~$1.9~~$2.2 million from ~~$729,000.~~$1.1 million. Additionally, brokered loan fee income, which includes third party fees on mortgage warehouse and premium finance loans, increased $721,000 in the third quarter of 2005 as compared to the third quarter of 2004. Trust fee income increased ~~$161,000~~$296,000 due to continued growth of trust assets.

Non-interest income increased ~~$2.5~~$4.8 million during the ~~six~~nine months ended ~~June~~September 30, 2005 to ~~$8.9~~$14.7 million compared to ~~$6.4~~$9.9 million during the same period of 2004. The increase is primarily related to a ~~$2.5~~$3.6 million increase in gains on sale of mortgage loans to ~~$3.7~~$5.9 million from ~~$1.2~~$2.3 million. Brokered loan fee income increased $828,000 to $1.6 million for the nine months ended September 30, 2005, as compared to $753,000 for the same period of 2004. Trust fee income increased ~~$310,000~~$606,000 due to continued growth of trust assets. Offsetting these increases were decreases in cash processing fees ~~mortgage warehouse fees~~ and service charges. Cash processing fees were $587,000 lower in the first ~~six~~nine months of 2005 compared to the same period of 2004. These fees were related to a special project that occurred in the first quarter of 2002, 2003 and 2004. ~~Mortgage warehouse fees totaled $414,000 for the first six months of 2005, compared to $512,000 for the same period of 2004.~~ Service charges decreased by ~~$174,000~~$183,000 due to the overall increase in market interest rates, which raises the earnings credit rate for analysis customers, which account for the majority of our deposit customers.

While management expects continued growth in non-interest income, the future rate of growth could be affected by increased competition from nationwide and regional financial institutions. In order to achieve continued growth in non-interest income, we may need to introduce new products or enter into new markets. Any new product introduction or new market entry would likely place additional demands on capital and managerial resources.

Non-interest expense for the ~~second~~third quarter of 2005 increased ~~$5.7~~$6.6 million, or ~~42%~~46%, to ~~$19.2~~$21.2 million from ~~$13.5~~$14.6 million, and is primarily related to a ~~$3.9~~$4.6 million increase in salaries and employee benefits to ~~$11.9~~$13.5 million from ~~$8.0~~$8.9 million. The increase in salaries and employee benefits resulted from an increase in the total number of employees related to general business growth, additions to staffing for the Houston office, addition of the premium finance business, continued expansion of the residential mortgage lending division and increased incentive compensation reflective of our performance. Of the increase, approximately ~~$1.2 million~~$971,000 is related to commissions in the residential mortgage lending division and represents a variable component of compensation expense directly related to residential loan productions, sales and gains on the sale of mortgage loans reflected in non-interest income.

2004. Marketing expense for the three months ended ~~June~~September 30, 2005 also included $322,000 for the purchase of miles related to the American Airlines AAdvantage® program, compared to ~~$263,000~~$261,000 for the same period for 2004. Our direct marketing expense may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.

Legal and professional expense for the three months ended ~~June~~September 30, 2005 increased ~~$318,000,~~$428,000, or ~~41%~~57%, compared to the same quarter in 2004 mainly related to growth and increased cost of compliance with laws and regulations. Communications and data processing expense for the three months ended ~~June~~September 30, 2005 decreased ~~$81,000,~~$106,000, or 8%14%, compared to the same quarter in 2004 primarily related to the efficiencies of the deposit system, which we converted to in mid-2004.

Non-interest expense for the first ~~six~~nine months of 2005 increased ~~$10.2~~$16.9 million, or ~~38%~~41%, to ~~$37.0~~$58.3 million from ~~$26.8~~$41.4 million during the same period in 2004, and is primarily related to ~~a $7.3~~an $11.8 million increase in salaries and employee benefits to ~~$23.4~~$36.9 million from ~~$16.1~~$25.0 million. The increase in salaries and employee benefits resulted from an increase in the total number of employees related to general business growth, ~~additions to~~additional staffing for the Houston office, addition of the premium finance business, the continued expansion of the residential mortgage lending division, and increased incentive compensation reflective of our performance. Of the increase, approximately ~~$2.0~~$3.0 million is related to commissions in the residential mortgage lending division and represents a variable component of compensation expense directly related to residential loan productions, sales and gains on the sale of mortgage loans reflected in non-interest income.

Net occupancy expense for the ~~six~~nine months ended ~~June~~September 30, 2005 increased by ~~$883,000,~~$1.4 million, or 33%, compared to the same period in 2004 and is related to our continued general growth and expansion of the residential mortgage lending division.

Marketing expense increased ~~$518,000,~~$670,000, or ~~47%~~38% compared to the first ~~six~~nine months of 2004. Marketing expense for the ~~six~~nine months ended ~~June~~September 30, 2005 included ~~$223,000~~$368,000 of direct marketing and promotions and ~~$762,000~~$1.1 million for business development compared to direct marketing and promotions of ~~$65,000~~$172,000 and business development of ~~$517,000~~$817,000 during the same period for 2004. Marketing expense for the ~~six~~nine months ended ~~June~~September 30, 2005 also included ~~$636,000~~$957,000 for the purchase of miles related to the American Airlines AAdvantage® program, compared to ~~$521,000~~$782,000 for the same period for 2004.

Legal and professional expense for the ~~six~~nine months ended ~~June~~September 30, 2005 increased ~~$622,000,~~$1.1 million, or ~~40%~~45%, compared to the same period in 2004 mainly related to growth and increased cost of compliance with laws and regulations. Communications and data processing expense for the ~~six~~nine months ended ~~June~~September 30, 2005 decreased ~~$285,000,~~$391,000, or 15%, compared to the same period in 2004 primarily related to the efficiencies of the deposit system, which we converted to in mid-2004.

TABLE 3 — NON-INTEREST EXPENSE
(In thousands)


									Three Months Ended				Nine Months Ended
	Three Months Ended June 30				Six Months Ended June 30				September 30				September 30
	2005		2004		2005		2004		2005		2004		2005		2004

Salaries and employee benefits	$	11,858	$	7,964	$	23,387	$	16,094	$	13,465	$	8,914	$	36,852	$	25,008
Net occupancy expense		1,875		1,341		3,558		2,675		1,937		1,443		5,495		4,118
Marketing		922		569		1,621		1,103		821		669		2,442		1,772
Legal and professional		1,097		779		2,194		1,572		1,183		755		3,383		2,327
Communications and data processing		914		995		1,569		1,854		658		764		2,227		2,618
Franchise taxes		45		56		90		153		49		52		139		205
Other		2,479		1,792		4,625		3,377		3,136		1,998		7,755		5,375

Total non-interest expense	$	19,190	$	13,496	$	37,044	$	26,828	$	21,249	$	14,595	$	58,293	$	41,423

Analysis of Financial Condition

The aggregate loan portfolio at ~~June~~September 30, 2005 increased ~~$232.9~~$374.0 million from December 31, 2004 to ~~$1.9~~$2.1 billion. Commercial loans increased ~~$150.4~~$271.3 million and real estate loans increased ~~$54.2~~$62.8 million. Construction loans, ~~and~~ consumer loans and leases increased ~~$27.6~~$36.0 million, $3.8 million and ~~$1.2 million, respectively, and leases~~$773,000, respectively. Loans held for sale decreased ~~$1.8 million.~~$608,000.

TABLE 4 — LOANS
(In thousands)


	June 30,		December 31,		September 30,		December 31,
	2005		2004		2005		2004

Commercial	$	968,587	$	818,156	$	1,089,447	$	818,156
Construction		355,711		328,074		364,034		328,074
Real estate		451,275		397,029		459,853		397,029
Consumer		16,790		15,562		19,320		15,562
Leases		7,772		9,556		10,329		9,556
Loans held for sale		120,708		119,537		118,929		119,537

Total	$	1,920,843	$	1,687,914	$	2,061,912	$	1,687,914

pools (primarily commercial and industrial equipment and vehicles), as well as selected loan participations and USDA government guaranteed loans.

Summary of Loan Loss Experience

The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled ~~$18.8~~$18.9 million at ~~June~~September 30, 2005, $18.7 million at December 31, 2004 and ~~$18.3~~$18.7 million at ~~June~~September 30, 2004. This represents ~~1.04%~~0.98%, 1.20% and ~~1.34%~~1.26% of loans held for investment (net of unearned income) at ~~June~~September 30, 2005, December 31, 2004 and ~~June~~September 30, 2004, 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. Due to continued improvement in key measures of credit quality, such as net charge-offs and non-performing loans, we did not record a provision for possible loan losses during the ~~second~~third quarter of 2005, consistent with the ~~first~~second quarter of 2005 and down from ~~$363,000~~$375,000 in the ~~second~~third quarter of 2004.

The reserve for loan losses is comprised of specific reserves for impaired loans and an estimate of losses inherent in the portfolio at the balance sheet date, but not yet identified with specified loans. We 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 our 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 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 evaluated 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 our board of directors for their review, consideration and ratification on a quarterly basis.

1817

TABLE 5 — SUMMARY OF LOAN LOSS EXPERIENCE

(In thousands)


	Six Months Ended			Six Months Ended			Year Ended			Nine Months Ended			Nine Months Ended			Year Ended
	June 30, 2005			June 30, 2004			December 31, 2004			September 30, 2005			September 30, 2004			December 31, 2004

Beginning balance	$	18,698		$	17,727		$	17,727		$	18,698		$	17,727		$	17,727
Loans charged-off:
Commercial		336			—			258			350			—			258
Real estate		28			—			—			28			—			—
Consumer		53			6			157			85			141			157
Leases		60			759			939			60			824			939

Total		477			765			1,354			523			965			1,354
Recoveries:
Commercial		453			—			148			568			142			148
Leases		100			203			489			165			339			489

Total recoveries		553			203			637			733			481			637

Net charge-offs (recoveries)		(76	)		562			717			(210	)		484			717
Provision for loan losses		—			1,113			1,688			—			1,488			1,688

Ending balance	$	18,774		$	18,278		$	18,698		$	18,908		$	18,731		$	18,698


Reserve to loans held for investment⁽²⁾		1.04	%		1.34	%		1.20	%		.98	%		1.26	%		1.20	%
Net charge-offs (recoveries) to average loans^{(1) (2)}		(.01	)%		.09	%		.05	%		(.02	)%		.05	%		.05	%
Provision for loan losses to average loans⁽¹⁾⁽²⁾		—			.17	%		.12	%
Provision for loan losses to average loans^{(1) (2)}											—			.15	%		.12	%
Recoveries to total charge-offs		115.9	%		26.5	%		47.1	%		140.2	%		49.8	%		47.1	%
Reserve as a multiple of net charge-offs		N/M			32.5	x		26.1	x		N/M			38.7	x		26.1	x

Non-performing and renegotiated loans:
Loans past due (90 days)(3)	$	—		$	4,423		$	209		$	941		$	117		$	209
Non-accrual		5,718			6,393			5,850			1,353			6,899			5,850

Total	$	5,718		$	10,816		$	6,059		$	2,294		$	7,016		$	6,059


Reserve as a percent of non-performing and renegotiated loans		3.3x			1.7	x		3.1	x		8.2	x		2.7	x		3.1	x

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 ~~June~~September 30, 2005, approximately ~~$5.5 million~~$50,000 of our non-accrual loans were earning on a cash basis. ~~Subsequent to quarter-end, $3.8 million of our non-performing loans were paid, bringing total non-performing loans to $1.9 million and non-accrual loans earning on a cash basis to $1.7 million.~~

Securities are identified as either held-to-maturity or available-for-sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Held-to-maturity securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Available-for-sale securities are securities that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available-for-sale are carried at fair value. Unrealized gains or losses on available-for-sale securities are recorded as accumulated other comprehensive income in stockholders’ equity. Amortization of premiums or accretion of discounts on mortgage-backed securities is periodically adjusted for estimated prepayments.


	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss

U.S. Treasuries	$	2,191	$	(1	)	$	—	$	—		$	2,191	$	(1	)	$	2,390	$	(1	)	$	—	$	—		$	2,390	$	(1	)
Mortgage-backed securities		196,906		(1,230	)		121,017		(2,589	)		317,923		(3,819	)		275,917		(2,313	)		112,682		(3,055	)		388,599		(5,368	)
Corporate securities		40,654		(434	)		—		—			40,654		(434	)		40,494		(499	)		—		—			40,494		(499	)
Municipals		20,668		(109	)		5,926		(81	)		26,594		(190	)		13,387		(92	)		7,000		(91	)		20,387		(183	)
Equity securities		—		—			1,439		(61	)		1,439		(61	)		—		—			1,412		(88	)		1,412		(88	)

	$	260,419	$	(1,774	)	$	128,382	$	(2,731	)	$	388,801	$	(4,505	)	$	332,188	$	(2,905	)	$	121,094	$	(3,234	)	$	453,282	$	(6,139	)

We believe the investment securities in the table above are within ranges customary for the banking industry. The number of investment positions in this unrealized loss position totals 30. We do not believe these unrealized losses are “other than temporary” as (1) we have the ability and intent to hold the investments to maturity, or a period of time sufficient to allow for a recovery in market value; (2) it is not probable that we will be unable to collect the amounts contractually due; and (3) no decision to dispose of the investments were made prior to the balance sheet date. The unrealized losses noted are interest rate related due to rising rates in 2005 and late 2004 in relation to previous rates in early 2004 and 2003. We have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities.

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 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, 2004 and for the ~~six~~nine months ended ~~June~~September 30, 2005, 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).

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 ~~June~~September 30, 2005, our borrowings consisted of a total of ~~$349.4~~$265.1 million of securities sold under repurchase agreements, ~~$129.3~~$93.9 million of downstream federal funds purchased, ~~$4.8~~$5.9 million from customer repurchase agreements, and ~~$1.8~~$1.6 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 ~~June~~September 30, 2005, we had ~~$125.0 million in short-term (usually less than 30-day maturities)~~no borrowings from the FHLB. Our unused FHLB borrowing capacity at ~~June~~September 30, 2005 was approximately ~~$120.0~~$289.0 million. As of ~~June~~September 30, 2005, we had unused upstream federal fund lines available from commercial banks of approximately $227.7 million. During the ~~six~~nine months ended ~~June~~September 30, 2005, our average other borrowings from these sources were ~~$540.4~~$528.3 million, ~~or 22.2%~~ of which $352.6 million related to securities sold under

~~average total fundings, which is well within our internal funding guidelines, which limit our dependence on borrowing sources to 35% of total fundings.~~repurchase agreements. The maximum amount of borrowed funds outstanding at any month-end during the first ~~six~~nine months of 2005 was ~~$610.3~~$508.3 million, ~~or 23.6%,~~ of ~~total fundings.~~which $354.7 million related to securities sold under repurchase agreements.

As of ~~June~~September 30, 2005, our significant fixed and determinable contractual obligations to third parties were as follows:


													After One		After Three		After
(Dollars in thousands)			After One but		After Three but		After				Within		but Within		but Within		Five
	Within One Year		Within Three Years		Within Five Years		Five Years		Total		One Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity⁽¹⁾	$	1,187,576	$	—	$	—	$	—	$	1,187,576	$	1,188,249	$	—	$	—	$	—	$	1,188,249
Time deposits⁽¹⁾		626,446		54,779		102,146		58		783,429		969,845		54,318		99,875		58		1,124,096
Federal funds purchased		129,262		—		—		—		129,262		93,897		—		—		—		93,897
Securities sold under repurchase agreements		298,000		51,400		—		—		349,400		235,750		29,400		—		—		265,150
Customer repurchase agreements		4,759		—		—		—		4,759		5,894		—		—		—		5,894
Treasury, tax and loan notes		1,833		—		—		—		1,833		1,560		—		—		—		1,560
FHLB		125,000		—		—		—		125,000
Operating lease obligations		4,245		8,391		6,815		4,183		23,634		4,428		8,865		6,593		3,605		23,491
Long-term debt		—		—		—		20,620		20,620		—		—		—		20,620		20,620

Total contractual obligations	$	2,377,121	$	114,570	$	108,961	$	24,861	$	2,625,513	$	2,499,623	$	92,583	$	106,468	$	24,283	$	2,722,957

Critical Accounting Policies

The Securities and Exchange Commission (SEC) has 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 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 Annual Report on Form 10K for the year ended December 31, 2004 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. We utilize 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. 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 believed it was 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.

2322

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.

We are subject to market risk primarily through the effect of changes in interest rates on our 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 us.

The responsibility for managing market risk rests with the BSMC, which operates under policy guidelines established by our board of 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 +/- 5%. 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 our board of directors on a quarterly basis.

Interest Rate Risk Management

Our interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of ~~June~~September 30, 2005, and is not necessarily indicative of positions on other dates. The balances of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest rate sensitive assets exceed interest rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows.

2423

Interest Rate Sensitivity Gap Analysis
~~June~~September 30, 2005
(in thousands)


												0-3 mo		4-12 mo			1-3 yr		3+ yr		Total
	0-3 mo Balance		4-12 mo Balance			1-3 yr Balance		3+ yr Balance		Total Balance		Balance		Balance			Balance		Balance		Balance

Securities⁽¹⁾	$	37,044	$	100,672		$	229,460	$	358,378	$	725,554	$	37,848	$	83,482		$	193,151	$	360,311	$	674,792

Total Variable Loans		1,741,849		1,000			1,221		—		1,744,070		1,751,875		21,873			1,823		974		1,776,545
Total Fixed Loans		15,634		39,283			53,260		78,659		186,836		94,321		59,519			60,771		70,756		285,367

Total Loans⁽²⁾		1,757,483		40,283			54,481		78,659		1,930,906		1,846,196		81,392			62,594		71,730		2,061,912

Total Interest Sensitive Assets	$	1,794,527	$	140,955		$	283,941	$	437,037	$	2,656,460	$	1,884,044	$	164,874		$	255,745	$	432,041	$	2,736,704


Liabilities:
Interest Bearing Customer Deposits	$	998,577	$	—		$	—	$	—	$	998,577	$	1,267,820	$	—		$	—	$	—	$	1,267,820
CD’s & IRA’s		198,804		76,370			48,951		101,709		425,834		213,807		73,882			48,401		99,689		435,779
Wholesale Deposits		61,810		2,946			5,828		494		71,078		44,854		100,397			5,917		245		151,413

Total Interest-bearing Deposits	$	1,259,191	$	79,316		$	54,779	$	102,203	$	1,495,489	$	1,526,481	$	174,279		$	54,318	$	99,934	$	1,855,012

Repo, FF, FHLB Borrowings		491,104		67,750			51,400		—		610,254		280,351		56,750			29,400		—		366,501
Trust Preferred		—		—			—		20,620		20,620		—		—			—		20,620		20,620

Total Borrowing		491,104		67,750			51,400		20,620		630,874		280,351		56,750			29,400		20,620		387,121

Total Interest Sensitive Liabilities	$	1,750,295	$	147,066		$	106,179	$	122,823	$	2,126,363	$	1,806,832	$	231,029		$	83,718	$	120,554	$	2,242,133


GAP		44,232		(6,111	)		177,762		314,214		—		77,212		(66,155	)		172,027		311,487		—
Cumulative GAP		44,232		38,121			215,883		530,097		530,097		77,212		11,057			183,084		494,571		494,571

Demand Deposits											475,516											457,333
Stockholders’ Equity											205,880											212,318

Total										$	681,396										$	669,651

The table above sets forth the balances as of ~~June~~September 30, 2005 for interest bearing assets, interest bearing liabilities, and the total of non-interest bearing deposits and stockholders’ equity. While a gap interest table is useful in analyzing interest rate sensitivity, an interest rate sensitivity simulation provides a better illustration of the sensitivity of earnings to changes in interest rates. Earnings are also affected by the effects of changing interest rates on the value of funding derived from demand deposits and stockholders’ equity. 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 and account balances over the next twelve months based on three interest rate scenarios. These are a “most likely” rate scenario and two “shock test” scenarios.

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 3.0%.

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 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
June 30, 2005 June 30, 2005
Increase (decrease) in net interest income $ 6,265 $ (2,798 )


	Anticipated Impact Over the Next Twelve Months
	as Compared to Most Likely Scenario
	200 bp Increase		200 bp Decrease
	September 30, 2005		September 30, 2005
Change in net interest income	$	5,984	$	(6,556	)

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.

ITEM 4. CONTROLS AND PROCEDURES

Our management, including our chief executive officer and chief financial officer have evaluated our disclosure controls and procedures as of ~~June~~September 30, 2005 and concluded that those disclosure controls and procedures are effective. There have been no changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation, nor any corrective actions with regard to significant deficiencies and material weaknesses. While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area.

2625

PART II — OTHER INFORMATION

ITEM ~~5. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS~~6. EXHIBITS

On May 17, 2005, we held our annual meeting of stockholders (the “Annual Meeting”). At the Annual Meeting, out of 25,557,896 shares of common stock entitled to vote at the meeting, the holders of 21,614,550 shares were present in person or by proxy. At the Annual Meeting, each nominee for director discussed in our Proxy Statement dated April 15, 2005 regarding the Annual Meeting was elected a director of the company. The votes received by each nominee for director are set forth below:

Nominee Votes Received Votes Withheld

Peter B. Bartholow 21,464,449 150,101
Leo Corrigan III 21,569,011 45,539
Joseph M. Grant 21,346,971 267,579
Frederick B. Hegi, Jr. 21,501,975 112,575
James R. Holland, Jr. 21,259,439 355,111
George F. Jones, Jr. 21,505,021 109,529
Larry A. Makel 21,181,949 432,601
Walter W. McAllister III 21,314,253 300,297
Lee Roy Mitchell 21,524,175 90,375
Steve Rosenberg 21,356,325 258,225
John C. Snyder 21,525,075 89,475
Robert W. Stallings 21,356,325 258,225
James Cleo Thompson, Jr. 21,580,311 34,239
Ian J. Turpin 20,852,146 762,404

~~At the Annual Meeting, a vote was taken by ballot on a proposal to approve our 2005 Long-term Incentive Plan. The votes received for the proposal are set forth below:~~

For Against

Proposal to approve the Texas Capital Bancshares, Inc. 2005 Long-Term Incentive Plan 15,145,603 2,945,775

~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K~~ (a) Exhibits


~~(a)~~	~~Exhibits~~

	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.

	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.

	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, 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, filed herewith.

2826


Part I. Financial Information

Item 1. Financial Statements
Consolidated Statements of Operations — Unaudited			3
Consolidated Balance Sheets			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows — Unaudited			6
Notes to Consolidated Financial Statements — Unaudited			7
Financial Summaries — Unaudited			1110

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1312

Item 3. Quantitative and Qualitative Disclosures about Market Risk			2423

Item 4. Controls and Procedures			2625

Part II. Other Information
~~Item 5. Submission of Matters to Vote of Security Holders~~			27
Item 6. Exhibits			2726
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906


	June 30,			June 30,			September 30,			September 30,
	2005			2004			2005			2004

Risk-based capital:
Tier 1 capital		9.86	%		11.44	%		9.52	%		10.96	%
Total capital		10.70	%		12.50	%		10.31	%		11.98	%
Leverage		8.07	%		8.62	%		7.84	%		8.29	%


		TEXAS CAPITAL BANCSHARES, INC.

Date: ~~August 8,~~November 4, 2005

		/s/ Peter B. Bartholow

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


(1)		Stock options outstanding of ~~242,250~~92,250 at ~~June~~September 30, 2005 and ~~27,500~~10,000 at ~~June~~September 30, 2004 have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented. Stock options are antidilutive when the exercise price is higher than the current market price of our common stock.


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

(2)		Taxable equivalent rates used where applicable.

(3)		Revenue includes origination fees and other loan fees for our residential mortgage loans that are earned when the loan is sold. This increases our overall yield on these loans since most of the mortgage loans are on our books for less than 30 days.


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

(2)		Taxable equivalent rates used where applicable.


(1)		Interim period ratios are annualized.

(2)		Excludes loans held for sale.

(3)		At September 30, 2005 over 90% of the loans past due 90 days and still accruing are premium finance loans. These loans are secured by obligations of insurance carriers to refund premiums on cancelled insurance policies. The refund of premiums from the insurance carriers can take up to 180 days from the cancellation date.


(1)		Securities based on fair market value.

(2)		Loans include loans held for sale and are stated at gross.


Nominee	Votes Received		Votes Withheld

Peter B. Bartholow		21,464,449		150,101
Leo Corrigan III		21,569,011		45,539
Joseph M. Grant		21,346,971		267,579
Frederick B. Hegi, Jr.		21,501,975		112,575
James R. Holland, Jr.		21,259,439		355,111
George F. Jones, Jr.		21,505,021		109,529
Larry A. Makel		21,181,949		432,601
Walter W. McAllister III		21,314,253		300,297
Lee Roy Mitchell		21,524,175		90,375
Steve Rosenberg		21,356,325		258,225
John C. Snyder		21,525,075		89,475
Robert W. Stallings		21,356,325		258,225
James Cleo Thompson, Jr.		21,580,311		34,239
Ian J. Turpin		20,852,146		762,404


	For		Against

Proposal to approve the Texas Capital Bancshares, Inc. 2005 Long-Term Incentive Plan		15,145,603		2,945,775