Good afternoon and welcome to the Texas Capital Bancshares Second Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Heather Worley, Director of Investor Relations. Please go ahead.

Thank you for joining us for our second quarter earnings conference call. I'm Heather Worley, Director of Investor Relations. Should you have any follow-up questions, please call me at 214-932-6646. Before we get into our discussion today, I'd like to read the following statement. Certain matters discussed on this call may contain forward-looking statements which are subject to risks and uncertainties and are based on Texas Capital's current estimates or expectations of future events or future results. Texas Capital is under no obligation and expressly disclaims such obligation to update, alter or revise its forward-looking statements whether as a result of new information, future events or otherwise. A number of factors, many of which are beyond Texas Capital's control, could cause actual results to differ materially from future results, many of which are beyond Texas Capital's control. These risks and uncertainties include the risk of adverse impacts from generally economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in the annual report on Form 10-K and other filings made by Texas Capital with the Securities & Exchange Commission. Now let's begin the discussion. With me on the call today are Keith Cargill, President and CEO; Peter Bartholow, Chief Operating Officer and CFO. After a few prepared remarks, our operator, Laurel, will facilitate a Q&A session. At this time, I'd like to turn the call over to Keith.

Thank you, Heather. Good afternoon. I'm Keith Cargill, President and CEO of Texas Capital Bancshares. Thank you for joining us for our second quarter earnings call. As Heather mentioned, Peter and I will have some comments on our results, and then we'll open it up to Q&A. As summarized on Slide 3, we delivered a solid quarter of traditional LHI growth and an exceptional quarter of mortgage finance growth. Loans held for investment, excluding mortgage finance, grew 3% linked-quarter. The level of linked-quarter growth was particularly strong in light of our loan paydowns in Q2, far exceeding Q1 paydowns. Mortgage finance loans grew 38% linked-quarter. Demand deposits increased 21% and total deposits were up 11% on a linked-quarter basis. Net revenue grew nicely in Q2, overcoming the increased full quarter of sub-debt expense. Credit quality remains very strong with net charge-offs at 11 basis points and the provision again primarily related to core growth in LHI. Net income increased 18% linked-quarter and 39% from the second quarter of 2013, a quarter which included the succession plan charge. Earnings per share increased 18% linked-quarter and 37% year-over-year. Slide 4 shows our revenue and expense trends with the Q2 2014 bar graph projecting an annualized result for each. As typical for us, we invested expense dollars in our continued build-out in recruiting, product extension and support costs associated with growth. Organic growth grew drove in pretty much in both ROA and ROE. Peter?

Thank you, Keith. As Keith mentioned, we had a great quarter in terms of generating our earnings assets at strong returns. We had net interest income and margin that was driven by the growth in above traditional held-for-investment loans and the mortgage finance operations. Keith mentioned we had a growth of 3% in traditional held-for-investment balances from Q1 2014. And this growth despite the level of paydowns, as we have noted in the past, from asset sales and refinancing, not from adverse changes in competition. We saw the impact continuing in general deleveraging of the core middle market C&I customer and rapid paydown associated with real estate that can have an impact certainly on each quarter based solely on timing. Mortgage finance operation clearly exceeded industry trends in this highly profitable business, demonstrating the success of our strategy. But I think we've made clear this is a highly liquid short-duration asset class generating strong returns with no credit cost and it represents a growing source of very stable and low-cost deposits. We had seasonally stronger results with average balances above $2.8 billion. The spike to $3.7 billion at quarter-end is not indicative of what we expect in Q3 average balances, but we do expect to have a strong position through the third quarter. As anticipated and as part of our strategic focus, we have also experienced meaningful growth in the deposits in mortgage finance, and that has continued in Q2. Pressure on spreads, we discussed in earlier quarters, were sharply reduced, validating the benefit of relationship pricing. We still enjoy yield above prime and may have reached, we believe, a low point in the yield. Keith mentioned we saw a total loan growth of 10% from Q1 and 26% from the prior year. Total deposit growth has also been very…

Thank you, Peter. We have updated our 2014 outlook on Slide 8. You'll note the explanation of the four changes in the full year column. We remain on target with somewhat more positive expectations from mortgage finance loan growth and overall deposit growth. Also, we expect continued margin compression in the second half of 2014 with growth in build-up and liquidity. Slide 10 describes our excellent asset quality. Non-accrual loans declined to $41.565 million, as did total non-accruals plus ORE to $42.250 million. Again, we experienced no ORE valuation charge in Q2. Total ORE is now less than $1 million. Total credit cost for Q2 was $4 million compared to $5 million in Q1 and $7.4 million in Q2 2013. In closing, our organic growth business model continues to produce strong results in a challenging competitive environment. Strong asset and deposit growth is expected to continue through 2014 and beyond, driving solid core earnings. We remain highly asset sensitive with our business model and are well positioned to take advantage of increases in interest rates. Talent acquisition remains a strength and the added capacity positions us well for future growth. Our credit quality is strong. Mortgage finance remains an industry top performer. We look forward to building our wealth management over the upcoming year as well. Heather?

I'd like to remind anybody that has follow-up questions to please feel free to call me at 214-932-6646. At this time, we can start Q&A.

(Operator Instructions) And our first question today comes from Ebrahim Poonawala of Bank of America-Merrill Lynch.

Peter, I just want to make sure I heard you correctly. Did you say that you thought the loan yields had bottomed for the held-for-investment ex-mortgage finance?

No, for the mortgage finance portfolio.

And I guess in terms of the ex-mortgage finance, we saw another 10 basis points of decline this quarter. Can we talk a little bit about in terms of where new origination yields are and should we expect a similar kind of decline for the back half of the year as well?

There has been obviously continued pressure on spreads. We've held-for-investment yield traditional categories above 4.5%. But yes, we do expect modest decreases over the course of coming quarters, driven again primarily by growth. The core portfolio as it stands today with obviously the benefit of some of the loans with floors offset by the churn that comes when we see the level of paydowns that Keith mentioned coming back to grow at spreads that are less than the margin. So yes, we would expect to see that kind of trend in coming quarters.

Ebrahim, virtually all of our new loan growth is now ending up LIBOR priced, LIBOR-based as opposed to prime. And so that's shifting our mix a couple of percent, I think, this quarter, Peter, to about 58% is LIBOR-based, 56% last quarter. And the good news, if there is any, it's on the ultimate asset sensitivity, it's actually enhancing that a bit so that once the rates do begin to move, it should move a little earlier on the LIBOR-based. But we are seeing that trend in order to be competitive.

And I guess just a second quarter on expenses. I guess when we look out into the back half of the year, I'm assuming we'll probably see similar pace or should we see a similar pace of build-out expenses tied to incentives and salaries. I guess what I'm trying to get to is should we expect positive operating leveraging for 3Q and 4Q of this year or not, or if you can just give some color on that?

We still believe that we can be at or below 55% in efficiency ratio and that does imply some modest improvement in operating leverage from here.

Our net hiring for the quarter was actually more modest this quarter. But we would anticipate some additional opportunities in the third with relationship managers. There's some of our key execs that we've brought in a year ago have rolled off to a non-solicit non-compete. And then finally, we'll begin to add additional client advisors on the wealth management side, probably sometime into the fourth quarter. So as Peter suggests, in spite of those continued build-out investments we'll make in personnel, we still are optimistic we'll be at 55% or better on our efficiency ratio.

And our next question will come from Michael Rose of Raymond James.

Wanted to get some color on this quarter's deposit growth. Obviously it was very strong. I know you obviously talked about proactively building deposits. You're sitting here at about 85%, 86% loan-to-deposit ratio to the core portfolio at this point. Is there a certain level that you're targeting? Obviously you're going to need some of that liquidity once rates begin to rise. But if you can just kind of walk us through some of the drivers of the growth, where you're sourcing it from and maybe how we should think about it the next year.

We're seeing very strong growth in some of our regions, not all five, but Houston in particular was a good standout. We are continuing to see good growth in some of our new sectors, broker/dealer and also our mortgage finance. At the end of the day, we'll continue to run as fast as we can run, as we have since we first launched the company to drive deposit growth. But particularly in anticipation of ultimately rates rising, we feel more comfortable with more liquidity and more cushion. And we were having good success at very low cost and extending low-cost duration of our deposit base.

Michael, I don't think there is a specific target in mind. We just think there's an opportunity to continue to build at very low cost. It would have been quite a bit higher had we not experienced the level of paydowns that we did. That's the other factor we can't predict very well.

Keith, you mentioned that the hires this quarter were a little bit lower. What was the actual number? And last quarter, you mentioned that pipeline was stronger than it's ever been for potential hires. Where does it stand today?

We actually had a net increase of one RM for the second quarter. And we've been running at a pace, as you may recall, Michael, of six to seven net RMs per quarter for the previous quarters, not every single quarter. But on average, we were running at about six to seven net new RMs. So they come as we have said for years and demonstrated in a bit of an unpredictable pattern. It was more predictable looking back in that consistent quarter-after-quarter. But that was at about twice the run rate of net new hires of RMs that we had experienced the preceding year. So if you look at the trailing four quarters preceding the second quarter, we were running at about a double net new hire rate than what we'd seen in the previous year. So that seems to be moderating. But having said that, we may have an opportunity to have a team of three people and another four RMs show up that are just stars. And if we do, certainly we would hire them. But we continue to raise the bar and have been a bit more circumspect about any new hire to be sure that the quality in fact is what we always look for and just raise the bar as time goes by. And we think that's very important. Also, we've added sufficient capacity with this higher hiring level that we've enjoyed the last five quarters that we really don't want to push in any way to add RMs and let's say truly are all stars. So we'd just have to see what develops. Our pipeline looks good. And we're looking for those key people from the execs whose non-solicits have run out to that we hope are successful recruiting the next couple of quarters.

Next we have a question from Dave Rochester of Deutsche Bank.

Peter, you had mentioned paydowns. So I was just wondering what was that trend this quarter, what was the total paydowns this quarter versus last quarter, just to try to get a sense for what the underlying originations or footings were this quarter?

We're not giving specifics on that, Dave. But in rough terms, the level of paydown compared to the level of paydown in Q1 was more than the net growth point-to-point in Q2.

And on the loan pipeline this quarter versus last quarter, how does that look? Are we at least as strong or stronger heading into 3Q? Maybe just some thoughts there.

We think 3Q looks good. 3Q seasonally is typically not as strong as we normally see in second and fourth quarter. And then we had this unusual paydown experience in the second quarter. So 3Q we think is on track and will be another good strong 3Q, not the record we had a year ago. That was just an unbelievable third quarter we had a year ago. But we think a really good solid quarter is coming our way. Very unusual things happened in the second quarter on these paydowns. We had some of our energy clients' three companies combined and end up going with an IPO. We had four or five companies sell. And I'm just very pleased we're able to replace all that paydown and still show 3% linked-quarter quality growth there. And of course, the mortgage finance was another amazing quarter.

And then also appreciate the color on the new hires and your thoughts this year. Was just wondering if you could provide a little insight on your thought process on expansion next year and if you're thinking that at that point as we roll into beginning of 2015, you might see an even bigger slowdown in hiring activity for a bit just to let production and profitability catch up. I know that's a pattern you guys have demonstrated in the past, so just wanted to get your thoughts there.

We want any new investment in talent to not just be excess capacity. Obviously we want to get down up the curve and as productive as we reasonably can. That's just proven. But at the same time, we'll never pass an opportunity to bring on someone that we consider a potential up-quartile performer in our company. And those are the kinds of people we always are looking for. And we are very fortunate now that we are attracting more of those kinds of candidates. So we have to be very disciplined. I think we've demonstrated that this quarter, this most recent quarter. And it's not a matter of having all the good talent that shows up. It's a matter of really being very deliberate about where we would place the person and are they truly a notch above even those that we've brought on in the past. And we've always tried to take that approach. We're a little more focused than we have been, because we had such strong four successive quarters of hiring. And it's time to put them to more productive use. We want to get them more productive. So as far as next year is concerned, I would anticipate our shift beginning in the fourth quarter on RM acquisition to move more toward our build-out of private client wealth management as opposed to RMs in some of the other lending areas. But we're always looking for the best bankers we compete against, so that we don't have to compete against them, that they're with us.

And our next question comes from Jennifer Demba of SunTrust Robinson Humphrey.

Keith, just wonder if you could give a little more color on the core loan growth, not mortgage finance. And then if you could talk about the sequential jump in mortgage finance loans, how much of that was environmental versus market share gain for your guys?

I think it's clear when we look at peers that are coming in that we took market share, but the biggest portion of increase was what we shared at the end of the first quarter that we expected. And that's the business is returning to more seasonal trends that we had experienced three years ago before refi became such a big piece of noise in the quarterly numbers. And refi has bled down to point now that is back to more typically the home buying seasons or purchase mortgage buy-ins and that's the second quarter and third quarter. So we anticipated another very strong quarter in the third quarter as we saw this most recent three months. As far as LHI and its growth, we're just very pleased again to have overcome these extraordinary paydowns. We're seeing quite a lot of early paydowns, Jennifer, from refinances and sales of real estate properties. We have talked about this in the past that we're seeing more of this velocity, and it was especially pronounced in the second quarter. And because some of those loans, particularly in multi-family and CRE, now are $15 million to $25 million size loans, it doesn't take a lot of those early paydowns to really impact your net growth for the quarter. So to overcome such an extraordinary pickup there and still showing the growth we did, I'm really pleased and we do see a good solid pipeline. In fact, we saw some of our fundings kind of spill over at quarter-end early into this quarter. So that helps us too feel good about the third quarter.

What percentage of your growth came from the Houston market? Keith, do you have a sense of that?

Houston was our strongest growth market as a percentage in both loans and deposits. We're very pleased with the progress we're making at Houston.

And the next question comes from Brady Gailey of KBW.

I had a question outside the 2014 outlook. So you guys updated the average held-for-investment loan growth from mid to high teens to the low-20% range. If I take in the period loans in 2Q and don't grow them another $1, you still get average growth year-over-year of 22%. So it seems like even though you've increased that guidance, that guidance is still very, very conservative.

Well, we like to underpromise and overdeliver. It is a very competitive environment and we certainly expect to continue to show healthy loan growth relative to peer. But we believe that this is directionally the right target. And the challenge is we saw these paydowns, we don't think it's something that'll be replicated, Brady. But we did experience it in a quarter that typically is our record quarter for the year. So obviously we're trying to be really thoughtful and a bit conservative. But we're encouraged by how the third quarter is starting.

Brady, we aren't talking about year-over-year average. And I'm not sure what your comparison was, was the June 30 versus the full year average from 2013. The issue is level and intensity of paydowns and timing of those, we are signaling that the growth rate, as we've seen for the reasons that we've commented, that growth rate is coming down. We don't know how fast it can come down. We'd like to believe it could hold up well, but it's a little too difficult to be confident of today.

If we normalize paydowns in the third quarter, we should see a quarter where we can beat second quarter. And that's really unusual. But we can't predict paydowns coming off the quarter we just saw. So we are being a bit conservative.

And you say low-20% growth, call it pace declining, so I guess that [tech] pace declining is what you're talking about, the possibility that loan growth might slow in the back half of the year?

What we really mean by that is we could see the more typical softer third quarter, which usually again first and third before our hiring is confused with seasonal trends. Usually first and third, as you might remember, are our softer quarters. So we would expect the last half of the year again would have a good, but not great third, much like what we experienced in the second. But if the paydown is normalized, we might have a shot at beating second and third. And then normally, we have a pickup in the fourth. But in this competitive environment, Brady, we're not expecting to have a record top fourth quarter. We're being really disciplined, doing our really best to not create the next vintage problems whenever the next downturn comes, because it is highly competitive. So that's what's going into our thinking behind the pace declining. It's not that we see anything in terms of major deceleration at all from the second quarter. We're just saying it's not going to be the robust kind of quarter we had in the first.

And then the paydown that happened in 2Q, were a lot of those out of the SNC portfolio? Or could you update us on the in the period SNC balances?

In the period, SNC actually declined slightly from the first quarter. So that's not where we're going for growth. We had some slight paydown, yes, in SNC. Overall, we just saw our paydowns really hitting in CRE, a lot of multi-family, some of our built-to-suit product, but also the energy space that I mentioned. We had seven different significant companies, either paydown or rollout and go public. And that's very unusual for us to happen in a quarter.

And then lastly, we've seen the held-for-investment loan yield drift down in 1Q and 2Q after being very stable last year. So it's a 4.5 now. Any idea where that bottoms? Is it 10 basis points lower from here, is it 30 basis points from here? Do you have any idea on where we could see that number start to stabilize?

We just know it'll be a function of mix and we can't anticipate a significant change in mix. If the mix continues to be similar, I think we're in the ballpark of the 10 basis points.

I can't say that that would be the bottom. But in terms of the pace of decline, I'll amplify, Brady, on the shared national credits, we ended at $1.423 billion. That's down $32 million from the previous quarter.

And our next question is from Emlen Harmon of Jefferies.

Peter, I was hoping just on the last question on the loan yields, I just wanted to make sure I was understanding that quickly. This decline this quarter was about 10 basis points. And so what you're saying is if loans kind of continued to mix toward LIBOR at the pace they have the last couple of quarters, we could continue to see that loan yield leak roughly 10 basis points a quarter. Am I understanding that right?

As Keith said, it's a function of in what sector and it has a lot to do with pace of growth. So if the pace of growth is slowing, that number could be lower. Q2, you had the apparent pace slow, but with the churn that comes from the paydowns, you're replacing those at a lower level. So you had the impact of growth without the net growth, if that makes sense.

The other component that has some effect on us is just timing on some of our syndications that we lead. As those fees certainly help our yield on the C&I book, but then it's also the speed of paydown and replacement on the CRE book, because they're coming in cheaper when you replace.

Has your SNC review been completed for this year? I know some have completed second quarter and we're waiting for the third quarter for some others.

Yes, it has.

Given the strong balance sheet growth again this quarter, can you see yields getting back down around kind of where you guys were back in the first quarter when you raised capital for some of those growth? How are you thinking about managing the capital ratios as we head out to the rest of the year? Kind of what level you guys comfortable operating at before you think about adding additional capital?

The way we see profit growth and what we expect in fourth and first quarters in what would be seasonal trends in mortgage finance, think if that's all okay. Not expecting to see anything look really out of kilter.

Fourth and first, as Peter suggests, are going to be more seasonal as it was this last year and even more so this year, we would expect, on mortgage finance. Softer, like it typically is.

And our next question comes from John Pancari of Evercore.

Back to the expenses, on the legal and professional fees just based on the color that you gave, Peter, on your prepared comments, should that line item therefore return to ballpark $5 million, $5.5 million quarterly range based upon some of the lumpier items you saw on the quarter, or could it stay around that $7 million level near term?

Absent things over which you can exercise no control and the timing of legal expenses for example, that number can trend down slightly.

And then separately, on the held-for-investment growth in the quarter, again want to see if we can get a little bit more detail. I appreciate the SNC color you gave us. Where did you see the bulk of the growth? Can you talk a little bit about loan type including how much growth you saw in energy and maybe by those specified businesses like your builder finance business, premium finance and lender finance?

All the activity going in energy that I alluded to earlier, John, we actually saw a slight decline in energy. We had a very strong quarter of new fundings. But with that much activity on the IPO of three other companies and then the sale of four others and then we frankly were quite pleased to let other banks take a couple of our hands that totaled about $30 million, all in all it declined about $50 million for the quarter in energy. The good news is that's really picking up. We're very pleased with how we started this quarter on our energy book. Houston was the strongest growth overall, good $92 million. Builder finance was up again, a good solid $60 million. And then Dallas real estate was up $47 million. So those are our biggest categories. So we had some good growth across the company, but it was an interest dynamic with these paydowns. We don't think they'll be replicated, but we'd just have to see how this market plays in the next couple of quarters.

The new production yields like you're seeing in your held-for-investment portfolio, can you give us a little bit of color about where you're booking new loans right now at what yields, just so we can get an idea of how the competitive pressures are playing out?

It varies widely. It really does depending on a particular line of business. But the mix of LIBOR based really has steadily shifted the last few quarters. And we saw a mixed shift, as I mentioned earlier, from 56% of the book in first quarter to 58%. But to give you an example, I think you perhaps might be more misleading because of all the variation we see by line of business, John, than it would be helpful to you. I think what we're suggesting we're going to continue to see pressure on those yields for the foreseeable future. And it could be comparable to what we saw this quarter. We'll just have to see.

Historically we've said, it tends to be whether it's LIBOR prime based, it tends to be prime plus some net. The amount of that sum has decreased.

We're still delivering a quite good yield relative to competitors, even our Texas peers. But it is under pressure as we grow, as we replace these paydowns.

And our next question is from Brett Rabatin of Sterne Agee.

Just want to make sure I understand essentially what you're saying around liquidity going forward. Obviously a very strong in deposits and the held-for-sale portfolio or the warehouse. I assume the plan is that liquidity does grow especially with continued deposit growth. I guess I'm just looking for a little more color around how you plan on managing the balance sheet with the continue deposit flows over the next few quarters.

As implied on the Page 8, we expect deposits to outgrow total loans in the last half of the year. We expect to invest excess funds basically at the fed 25 basis points.

And have the regulators either asked or discussed with your guys an increased level of liquidity or that's just mainly a function of what you want to do in terms of increasing your own flexibility in managing the balance sheet?

Nothing beyond what we planned to do.

Banks, especially $50 billion and over, and we're certainly not in that dog fight with all the new regulatory pressure, but we do expect some spill-down over the course of next couple of years when it comes to things like liquidity. And we to think, as Peter said, as a management team, it's just prudent in anticipating a rate rise at some point that we build liquidity. So for both reasons, not because someone has told us go do this, we just think it's prudent to do it.

The really impressive deposit growth on the BDA side, any color around how much of that was HOA or specifically in certain lines of business per se?

It's really in a number of different areas. We're seeing it in different regions. As I mentioned, Houston was the strongest of the five regions. And we'd rather not get into a lot of detail on it just for the sake of competitive reasons. But we're executive as we have for a long time in mortgage finance. And in our new broker/dealer business, we're seeing some very nice deposit growth. And HOA has really grown over the course of the last few quarters.

Not in demand, not in non-interest-bearing, but in total.

In total deposits, but within the BDA category, Houston and mortgage finance were two of the stars. But we had a number of areas that we're growing.

Next we have a question from Brad Milsaps of Sandler O'Neill.

Peter and Keith, you guys talked a lot about the paydowns. Were there any prepayment fees or any other types of fees that helped yield or fee income this quarter as a result of any of those paydowns?

We don't get those.

We don't lock in a lot of fixed rate loans. So we don't ourself in a position for prepayment fees. But that's not something we benefit from, although we hope someday to benefit from asset sensitivity by forgoing that lock in. But today, we do not see much activity at all there.

Keith, you mentioned that decline in pace of growth. Are you guys backing away from more credits because of pricing or structure? Just want to see if you could maybe talk a little bit more about some of the reasoning behind your cautiousness?

It's very much structure-driven. I mean we can compete on prices, but we're not going to compete with price as the primary way we win business. We don't consider that really winning. We consider that bidding in an auction and bidding low and that's not going to be good for our shareholder. That's not the business we're in. We're in the business of creating value and being paid for it. But the value premium today is thinner than it was two years ago, even a year ago in some categories. We're seeing structure issues as the primary reason. And thankfully, we've had the success we've had recruiting some really strong RMs over the course of the last year, because we need the incremental deal flow to find the quality opportunities that we are looking for. And we'd always want to attract as a relationship, but we're seeing continued aggressive structure in virtually every loan category. And we have to just look long and hard to find the business owner or the developer who is looking for a strategic relationship, banks that's going to understand what they're doing, not re-trade the deal, be confident that we'll close. And things that we think should be valuable, but they're a little less valuable today. There's just extraordinary aggressive pricing and aggressive structure going on in the market. We don't think it's something we should chase. So we're just not going to do it. Credit quality has always been something that we consider one of our hallmarks to the success of our business. And it's challenging today, but we've got to stay the course.

And the next question is from Matt Olney of Stephens.

I want to ask about the impact of high interest rates. We obviously have your disclosures from the March 31st quarter. But is there any update on what the balance sheet could do with plus 200 basis point rise in the short-term rates as of June 30?

We will file that in the 10-Q tomorrow. The number has improved, but the level of mortgage finance can move that number around so much, you really have to look more to a longer-term trend. But with the growth in demand deposits and the nature of what happened in the balance sheet in terms of growth, that number has increased.

And remind us how much of your loans would re-price immediately relative to the number of floors you saw about there.

Level of floors in dollar terms has not really changed in I think six or seven quarters. When we lower those rates, we do so in return for a change in the spread index. We are less penalized as rates begin to rise. So again, we are rate sensitive for every increase in the fed funds rate. We increased rate sensitivity shortly above 50 bps. And above 75 bps and 100 bps, it accelerates much faster.

But as far as overall portfolio floating rate, it's 91%, Peter.

Of the traditional held-for-investment, yes.

Granted there's that floor effect on a portion, but we're very much floating rate driven.

And pertinent to your inquiry, the level of demand deposits and common equity now significantly exceed the total volume of loans that are subject to floors and all fixed rate assets.

And our next question will come from David Bishop of Drexel Hamilton.

You spoke earlier about the private client wealth management build-out there. When should we think about that in terms of showing up in the revenue base? What are you thinking about in terms of maybe the fee income benefit there? Obviously fee income as a percent of revenue is still in that 8%, 9% range. Any targeted goals over time what that builds to with the build-out of that group?

Our build-out has been very much about getting the infrastructure in place. We wanted to have the proper technology and the proper product set platforms before we begin to bring over these additional client advisors. You may recall we don't offer in each of our five regions personal service to these wealth management clients. We've done it all out of Dallas in the past. And so until we begin to bring on the client advisors, as we wrap up the technology build and increasing the product suite that we've been working on for this year, that's not going to really start to kick off until sometime in the fourth quarter. So I would expect to begin to really see some revenue improve over the course of the first half of next year. And then it's a process. We'll have to build out that business initially. It'll take us, my best guess would be six months or so to get most of the client advisors in phase one in place in the different markets, at least three of the five markets within the first four to six months. But ideally, we'd like to have someone in all five of our regional markets within the first four to six months. So it's really too early to give you prediction on moving the mix. That moving of the mix because of the pace of growth of our overall company is going to be a multi-year process. But we're very excited about really adding this robust piece to the company. We've just missed a lot of opportunity, we believe, over the years, not having something more competitive offer here. And we have the client base. We just need to be able to refer them in to competitive team and product offering. And that's what we're building.

And this concludes our question-and-answer session. I would like to turn the conference back over to Keith Cargill, President and CEO, for any closing remarks.

We appreciate your interest in our company. As you could tell from our comments today, dealing with a very competitive environment and having good success in spite of the challenges. We look around our peers in Texas and grew up against them day-in and day-out. And I'm just extremely pleased with the team we have on the field. And we continue to strengthen it and expect good things in the quarters ahead. Thanks again for your time and attention, and this'll wrap up our call for today.

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