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 March 31, 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	75-2679109
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
2100 McKinney Avenue, Suite 900, Dallas, Texas, U.S.A.	75201
(Address of principal executive officers)	(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. Yes þ   No o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

     On April 30, 2005, the number of shares set forth below was outstanding with respect to each of the issuer’s classes of common stock:

Common Stock 25,558,636

Texas Capital Bancshares, Inc.
Form 10-Q
Quarter Ended March 31, 2005

Index

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	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risk	21
Item 4. Controls and Procedures	23
Part II. Other Information
Item 6. Exhibits	24
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

2

ITEM 1. FINANCIAL STATEMENTS

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

(In thousands except share data)

	Three months ended March 31
	2005		2004
Interest income
Interest and fees on loans	$	25,692	$	16,706
Securities		8,296		7,551
Federal funds sold		80		15
Deposits in other banks		119		2
Total interest income		34,187		24,274
Interest expense
Deposits		8,933		4,743
Federal funds purchased		861		320
Repurchase agreements		2,394		2,085
Other borrowings		4		226
Long-term debt		327		256
Total interest expense		12,519		7,630
Net interest income		21,668		16,644
Provision for loan losses		—		750
Net interest income after provision for loan losses		21,668		15,894
Non-interest income
Service charges on deposit accounts		781		857
Trust fee income		586		437
Cash processing fees		—		587
Bank owned life insurance (BOLI) income		288		321
Mortgage warehouse fees		219		238
Gain on sale of mortgage loans		1,765		463
Other		540		412
Total non-interest income		4,179		3,315
Non-interest expense
Salaries and employee benefits		11,529		8,130
Net occupancy expense		1,683		1,334
Marketing		699		534
Legal and professional		1,097		793
Communications and data processing		655		859
Franchise taxes		45		97
Other		2,146		1,585
Total non-interest expense		17,854		13,332
Income before income taxes		7,993		5,877
Income tax expense		2,717		1,940
Net income	$	5,276	$	3,937
Earnings per share:
Basic	$	.21	$	.16
Diluted	$	.20	$	.15

See accompanying notes to consolidated financial statements.

3

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

	March 31,			December 31,
	2005			2004
	(Unaudited)
Assets
Cash and due from banks	$	86,846		$	78,490
Securities, available-for-sale		754,154			804,544
Loans held for sale		70,672			119,537
Loans held for investment (net of unearned income)		1,676,799			1,564,578
Less: Allowance for loan losses		18,715			18,698
Loans held for investment, net		1,658,084			1,545,880
Premises and equipment, net		4,581			4,518
Accrued interest receivable and other assets		61,087			56,698
Goodwill, net		1,496			1,496
Total assets	$	2,636,920		$	2,611,163
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	405,162		$	397,629
Interest bearing		1,276,529			1,234,283
Interest bearing in foreign branches		300,010			157,975
Total deposits		1,981,701			1,789,887
Accrued interest payable		3,125			3,511
Other liabilities		5,281			6,879
Federal funds purchased		147,684			113,478
Repurchase agreements		282,964			478,204
Other borrowings		1,034			3,309
Long-term debt		20,620			20,620
Total liabilities		2,442,409			2,415,888
Stockholders’ equity:
Common stock, $.01 par value:
Authorized shares – 100,000,000
Issued shares – 25,557,896 and 25,461,602 at March 31, 2005 and December 31, 2004, respectively		256			255
Additional paid-in capital		173,397			172,380
Retained earnings		25,323			20,047
Treasury stock (shares at cost: 84,274 at March 31, 2005 and December 31, 2004)		(573	)		(573	)
Deferred compensation		573			573
Accumulated other comprehensive income (loss)		(4,465	)		2,593
Total stockholders’ equity		194,511			195,275
Total liabilities and stockholders’ equity	$	2,636,920		$	2,611,163

See accompanying notes to consolidated financial statements.

4

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except share data)

																							Accumulated
																							Other
					Series A-1																		Compre-
					Non-voting						Additional												hensive
	Common Stock				Common Stock						Paid-in		Retained		Treasury Stock						Deferred		Income
	Shares		Amount		Shares			Amount			Capital		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
Comprehensive income:
Net income		–		–		–			–			–		19,560		–			–			–		–			19,560
Change in unrealized gain on available-for-sale securities, net of taxes of $363				–		–			–			–		–		–			–			–		(675	)		(675	)
Total comprehensive income																											18,885
Tax benefit related to exercise of stock options		–		–		–			–			1,411		–		–			–			–		–			1,411
Issuance of common stock		452,077		5		–			–			3,218		–		–			–			–		–			3,223
Transfers		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
Comprehensive income:
Net income (unaudited)		–		–		–			–			–		5,276		–			–			–		–			5,276
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $3,800 (unaudited)		–		–		–			–			–		–		–			–			–		(7,058	)		(7,058	)
Total comprehensive income																											(1,782	)
Tax benefit related to exercise of stock options (unaudited)		–		–		–			–			454		–		–			–			–		–			454
Issuance of common stock (unaudited)		96,294		1		–			–			563		–		–			–			–		–			564
Balance at March 31, 2005 (unaudited)		25,557,896	$	256		–		$	–		$	173,397	$	25,323		(84,274	)	$	(573	)	$	573	$	(4,465	)	$	194,511

See accompanying notes to consolidated financial statements.

5

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(In thousands)

	Three months ended March 31
	2005			2004
Operating activities
Net income	$	5,276		$	3,937
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		–			750
Depreciation and amortization		406			394
Amortization and accretion on securities		667			1,376
Bank owned life insurance (BOLI) income		(288	)		(321	)
Gain on sale of mortgage loans		(1,765	)		(463	)
Originations of loans held for sale		(323,028	)		(359,016	)
Proceeds from sales of loans held for sale		371,870			367,166
Tax benefit from stock option exercises		454			428
Changes in operating assets and liabilities:
Accrued interest receivable and other assets		(4,089	)		1,282
Accrued interest payable and other liabilities		1,816			(3,179	)
Net cash provided by operating activities		51,319			12,354
Investing activities
Purchases of available-for-sale securities		(2,136	)		(11,552	)
Maturities and calls of available-for-sale securities		4,499			1,800
Principal payments received on securities		36,502			39,422
Net increase in loans		(110,477	)		(81,957	)
Purchase of premises and equipment, net		(420	)		(300	)
Net cash used in investing activities		(72,032	)		(52,587	)
Financing activities
Net increase in checking, money market and savings accounts		69,831			118,065
Net increase (decrease) in certificates of deposit		121,983			(67,204	)
Sale of common stock		564			896
Net other borrowings		(197,515	)		(32,494	)
Net federal funds purchased		34,206			11,242
Net cash provided by financing activities		29,069			30,505
Net increase (decrease) in cash and cash equivalents		8,356			(9,728	)
Cash and cash equivalents at beginning of period		78,490			69,551
Cash and cash equivalents at end of period	$	86,846		$	59,823
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	12,905		$	8,872
Cash paid during the period for income taxes		35			200
Non-cash transactions:
Transfers from loans/leases to other repossessed assets		12			–
Transfers from loans/leases to premises and equipment		49			57

See accompanying notes to consolidated financial statements.

6

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. (the “Company”) conform to accounting principles generally accepted in the United States and to generally accepted practices within the banking industry. The Consolidated Financial Statements of the Company include the accounts of the Company and its subsidiary, Texas Capital Bank, National Association (the “Bank”). Certain prior period balances have been reclassified to conform to 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.

Stock-Based Compensation

At March 31, 2005, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to 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 the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, as amended, to stock-based employee compensation.

	Three months ended March 31
	2005			2004
Net income as reported	$	5,276		$	3,937
Add: Total stock-based employee compensation recorded, net of related tax effects		391			175
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(616	)		(370	)
Pro forma net income	$	5,051		$	3,742
Basic income per share:
As reported	$	.21		$	.16
Pro forma	$	.20		$	.15
Diluted income per share:
As reported	$	.20		$	.15
Pro forma	$	.19		$	.14

The fair value of these options was estimated at the date of grant using a Black-Scholes value option pricing model with the following weighted average assumptions used for 2005 and 2004, respectively: a risk free interest rate of 3.57% and 3.56%, a dividend yield of 0%, a volatility factor of .291 and .286, and an estimated life of five years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because

7

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

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 per share data):

	Three months ended March 31
	2005		2004
Numerator:
Net income	$	5,276	$	3,937
Denominator:
Denominator for basic earnings per share-weighted average shares		25,522,458		25,108,746
Effect of dilutive securities:
Employee benefit plans (1)		1,100,355		967,009
Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions		26,622,813		26,075,755
Basic earnings per share	$	.21	$	.16
Diluted earnings per share	$	.20	$	.15

(1) Stock options outstanding of 19,000 in 2005 and 8,000 in 2004 have not been included in diluted earnings per share because to do so would have been anti-dilutive for the periods presented. Stock options are anti-dilutive when the exercise price is higher than the current market price of the Company’s common stock.

8

(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. The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the borrower.

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

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

	March 31,
(Dollars in thousands)	2005
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	654,806
Standby letters of credit		37,072

9

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
	March 31, 2005								March 31, 2004
	Average		Revenue/			Yield/			Average		Revenue/			Yield/
	Balance		Expense (1)(2)			Rate			Balance		Expense (1)(2)			Rate
Assets
Securities – Taxable	$	729,907	$	7,861			4.37	%	$	745,042	$	7,442			4.02	%
Securities – Non-taxable		48,715		669			5.57	%		13,924		168			4.85	%
Federal funds sold		12,377		80			2.62	%		6,058		15			1.00	%
Deposits in other banks		17,858		119			2.70	%		829		2			0.97	%
Loans held for sale		81,956		2,281			11.29	%		61,177		1,157			7.61	%
Loans		1,590,207		23,411			5.97	%		1,265,840		15,549			4.94	%
Less reserve for loan losses		18,930		–			–			17,720		–			–
Loans, net of reserve		1,653,233		25,692			6.30	%		1,309,297		16,706			5.13	%
Total earning assets		2,462,090		34,421			5.67	%		2,075,150		24,333			4.72	%
Cash and other assets		148,557								146,414
Total assets	$	2,610,647							$	2,221,564
Liabilities and Stockholders’ Equity
Transaction deposits	$	107,162	$	255			0.97	%	$	88,635	$	132			.60	%
Savings deposits		613,391		3,147			2.08	%		504,530		1,499			1.19	%
Time deposits		765,497		5,531			2.93	%		534,981		3,112			2.34	%
Total interest bearing deposits		1,486,050		8,933			2.44	%		1,128,146		4,743			1.69	%
Other borrowings		534,773		3,259			2.47	%		620,982		2,631			1.70	%
Long-term debt		20,620		327			6.43	%		20,620		256			4.99	%
Total interest bearing liabilities		2,041,443		12,519			2.49	%		1,769,748		7,630			1.73	%
Demand deposits		363,398								265,039
Other liabilities		9,241								10,013
Stockholders’ equity		196,565								176,764
Total liabilities and stockholders’ equity	$	2,610,647							$	2,221,564
Net interest income			$	21,902							$	16,703
Net interest income to earning assets							3.61	%							3.24	%
Return on average equity				10.89	%							8.96	%
Return on average assets				.82	%							.71	%
Equity to assets				7.53	%							7.96	%

(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.

10

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

Forward Looking Statements

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

(1)	Changes in interest rates
(2)	Changes in the levels of loan prepayments, which could affect the value of our loans or investment securities
(3)	Changes in general economic and business conditions in areas or markets where we compete
(4)	Competition from banks and other financial institutions for loans and customer deposits
(5)	The failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses
(6)	The loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels
(7)	Changes in government regulations

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

Results of Operations

Summary of Performance

The Company recorded net income of $5.3 million or $.20 per diluted common share for the first quarter of 2005 compared to $3.9 million or $.15 per diluted common share for the first quarter of 2004. Return on average equity was 10.89% and return on average assets was .82% for the first quarter of 2005 compared to 8.96% and .71%, respectively, for the first 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 first quarter of 2005 increased by $5.1 million, or 30.2%, from $16.6 million to $21.7 million over the first quarter of 2004. The increase in net interest income was due to an increase in average earning assets of $386.9 million or 18.6%, with a 37 basis point increase in net interest margin.

Non-interest income increased $864,000, or 26.1%, compared to the first quarter of 2004. The Company benefited from growth in fees related to deposits and 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.

Non-interest expense increased $4.5 million or 33.9% compared to the first quarter of 2004. The increase is primarily related to a $3.4 million increase in salaries and employee benefits to $11.5 million from $8.1 million. The increase in salaries and employee benefits resulted from an increase in the total number of

11

employees related to general business growth, substantial additions to staffing for the Houston office, expansion of the residential mortgage lending division and increased incentive compensation reflective of the Company’s performance.

Net Interest Income

Net interest income was $21.7 million for the first quarter of 2005, compared to $16.6 million for the first quarter of 2004. The increase was due to an increase in average earning assets of $386.9 million as compared to the first quarter of 2004 and a 37 basis point increase in net interest margin. The increase in average earning assets included a $324.4 million increase in average loans held for investment, an increase of $20.8 million in loans held for sale and a $19.7 million increase in average securities. For the quarter ended March 31, 2005, average net loans and securities represented 67% and 32%, respectively, of average earning assets compared to 63% and 37% in the same quarter of 2004.

Average interest bearing liabilities increased $271.7 million from the first quarter of 2005, which included a $357.9 million increase in interest bearing deposits offset by an $86.2 million decrease in other borrowings. The average cost of interest bearing liabilities increased from 1.73% for the quarter ended March 31, 2004 to 2.49% for the same period of 2005, reflecting rising market interest rates.

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

	Three months ended March 31, 2005/2004
			Change Due To (1)
	Change		Volume			Yield/Rate
Interest income:
Securities (2)	$	920	$	202		$	718
Loans		8,986		4,203			4,783
Federal funds sold		65		15			50
Deposits in other banks		117		41			76
Total		10,088		4,461			5,627
Interest expense:
Transaction deposits		123		26			97
Savings deposits		1,648		308			1,340
Time deposits		2,419		1,305			1,114
Borrowed funds		699		(554	)		1,253
Total		4,889		1,085			3,804
Net interest income	$	5,199	$	3,376		$	1,823

(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.

Net interest margin, the ratio of net interest income to average earning assets, was 3.61% for the first quarter of 2005 compared to 3.24% for the first quarter of 2004. The improvement in net interest margin resulted primarily from a 95 basis point increase in the yield on earning assets offset by a 76 basis point increase in the cost interest bearing liabilities from the prior year.

Non-interest Income

Non-interest income increased $864,000 compared to the same quarter of 2004. The increase is primarily related to a $1.3 million increase in gains on sale of mortgage loans to $1.8 million from $463,000. Trust fee income increased $149,000, due to continued growth of trust assets. Offsetting these increases was a decrease in cash processing fees, which were $587,000 lower in the first quarter of 2005 compared to the same period in 2004. These fees are related to a special project that has occurred in the first quarter of 2002, 2003 and 2004.

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.

12

Any new product introduction or new market entry would likely place additional demands on capital and managerial resources.

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

	Three months ended March 31
	2005		2004
Service charges on deposit accounts	$	781	$	857
Trust fee income		586		437
Cash processing fees		–		587
Bank owned life insurance (BOLI) income		288		321
Mortgage warehouse fees		219		238
Gain on sale of mortgage loans		1,765		463
Other		540		412
Total non-interest income	$	4,179	$	3,315

Non-interest Expense

Non-interest expense for the first quarter of 2005 increased $4.5 million, or 33.9%, to $17.9 million from $13.3 million, and is primarily related to a $3.4 million increase in salaries and employee benefits to $11.5 million from $8.1 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, expansion of the residential mortgage lending division and increased incentive compensation reflective of the Company’s performance. Of the increase, approximately $842,000 is related to commissions in the residential mortgage lending division and represents a variable component of compensation expense directly related to residential loan production, sales and gains on the sale of mortgage loans reflected in non-interest income.

Net occupancy expense for the three months ended March 31, 2005 increased by $349,000 or 26.2% compared to the same quarter in 2004 and is related to our continued general growth and expansion of the residential mortgage lending division.

Marketing expense increased $165,000 or 30.9%. Marketing expense for the three months ended March 31, 2005 included $57,000 of direct marketing and promotions and $320,000 for business development compared to direct marketing and promotions of $28,000 and business development of $247,000 during the same period for 2004. Marketing expense for the three months ended March 31, 2005 also included $313,000 for the purchase of miles related to the American Airlines AAdvantage® program compared to $258,000 for the same period for 2004. Our direct marketing may increase as we seek to further develop our brand, reach more of our target customers and expand in our target markets.

Legal and professional expense for the three months ended March 31, 2005 increased $304,000 or 38.3% 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 March 31, 2005 decreased $204,000 or 23.8% compared to the same quarter in 2004.

13

TABLE 3 – NON-INTEREST EXPENSE
(Dollars in thousands)

	Three months ended March 31
	2005		2004
Salaries and employee benefits	$	11,529	$	8,130
Net occupancy expense		1,683		1,334
Marketing		699		534
Legal and professional		1,097		793
Communications and data processing		655		859
Franchise taxes		45		97
Other		2,146		1,585
Total non-interest expense	$	17,854	$	13,332

Analysis of Financial Condition

The aggregate loan portfolio at March 31, 2005 increased $63.9 million from December 31, 2004 to $1.75 billion. Commercial loans increased $61.1 million and real estate loans increased $28.5 million. Construction loans increased $25.5 million, and consumer loans, loans held for sale and leases decreased $948,000, $48.9 million and $1.4 million, respectively.

TABLE 4 – LOANS
(Dollars in thousands)

	March 31,		December 31,
	2005		2004
Commercial	$	879,283	$	818,156
Construction		353,563		328,074
Real estate		425,514		397,029
Consumer		14,614		15,562
Leases		8,195		9,556
Loans held for sale		70,672		119,537
Total	$	1,751,841	$	1,687,914

We continue to lend primarily in Texas. As of March 31, 2005, a substantial majority of the principal amount of the loans in our portfolio was to businesses and individuals in Texas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. We originate substantially all of the loans in our portfolio, except in certain instances we have purchased individual leases and loan and lease pools (primarily commercial and industrial equipment and vehicles), as well as selected loan participations and USDA government guaranteed loans.

Summary of Loan Loss Experience

The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $18.7 million at March 31, 2005, $18.7 million at December 31, 2004 and $18.0 million at March 31, 2004. This represents 1.12%, 1.20% and 1.37% of loans held for investment (net of unearned income) at March 31, 2005, December 31, 2004 and March 31, 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, the Company did not record a provision for possible loan losses during the first quarter of 2005, down from $200,000 in the fourth quarter of 2004 and $750,000 in the first quarter of 2004. The provision for losses necessary to maintain reserve adequacy decreased due to the continued improvement in indicators of credit quality in 2005, such as net charge-offs and non-performing loans.

14

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

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be dynamic and responsive to changes in 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.

15

TABLE 5 – SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)

	Three months ended			Three months ended			Year ended
	March 31,			March 31,			December 31,
	2005			2004			2004
Beginning balance	$	18,698		$	17,727		$	17,727
Loans charged-off:
Commercial		266			—			258
Real estate		—			—			—
Consumer		1			—			157
Leases		58			493			939
Total		325			493			1,354
Recoveries:
Commercial		282			—			148
Leases		60			27			489
Total recoveries		342			27			637
Net charge-offs (recoveries)		(17	)		466			717
Provision for loan losses		—			750			1,688
Ending balance	$	18,715		$	18,011		$	18,698
Reserve to loans held for investment (2)		1.12	%		1.37	%		1.20	%
Net charge-offs (recoveries) to average loans (1)(2)		(.00	)%		.15	%		.05	%
Provision for loan losses to average loans (1)(2)		—			.24	%		.12	%
Recoveries to total charge-offs		105.2	%		5.5	%		47.1	%
Reserve as a multiple of net charge-offs		N/M			38.7	x		26.1	x
Non-performing and renegotiated loans:
Loans past due (90 days)	$	18		$	6,250		$	209
Non-accrual		6,047			6,953			5,850
Total	$	6,065		$	13,203		$	6,059
Reserve as a percent of non-performing and renegotiated loans (2)		3.1	x		1.4	x		3.1	x

(1)	Interim period ratios are annualized.
(2)	Excludes loans held for sale.

16

Non-performing Assets

Non-performing assets include non-accrual loans and leases, accruing loans 90 or more days past due, restructured loans, and other repossessed assets. The table below summarizes our non-accrual loans by type:

	March 31,		December 31,		March 31,
	2005		2004		2004
	(In thousands)
Non-accrual loans:
Commercial	$	1,310	$	687	$	157
Construction		3,908		4,371		5,191
Real estate		403		403		375
Consumer		184		126		142
Leases		242		263		1,088
Total non-accrual loans	$	6,047	$	5,850	$	6,953

At March 31, 2005, we had $18,000 in loans past due 90 days and still accruing interest. At March 31, 2005, we had $127,000 in other repossessed assets.

Generally, we place loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loan is deemed to be fully collectible. If collectibility is questionable, then cash payments are applied to principal. As of March 31, 2005, approximately $4.0 million of our non-accrual loans were earning on a cash basis.

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

Securities Portfolio

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.

Our unrealized gain on the securities portfolio value decreased from a gain of $4.0 million, which represented .50% of the amortized cost at December 31, 2004, to a loss of $6.9 million, which represented .91% of the amortized cost at March 31, 2005.

The following table discloses, as of March 31, 2005, our investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months (in thousands):

17

	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. Treasuries	$	1,893	$	(1	)	$	—	$	—		$	1,893	$	(1	)
Mortgage-backed securities		390,079		(5,478	)		61,936		(2,482	)		452,015		(7,960	)
Corporate securities		40,496		(685	)		—		—			40,496		(685	)
Municipals		39,432		(586	)		1,449		(40	)		40,881		(626	)
Equity securities		—		—			1,420		(80	)		1,420		(80	)
	$	471,900	$	(6,750	)	$	64,805	$	(2,602	)	$	536,705	$	(9,352	)

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.

Liquidity and Capital Resources

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies, which are formulated and monitored by our senior management and our 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 three months ended March 31, 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).

Since early 2001, our liquidity needs have primarily been fulfilled through growth in our core customer deposits. Our goal is to obtain as much of our funding as possible from deposits of these core customers, which as of March 31, 2005, comprised $1,935.0 million, or 97.6%, of total deposits. These deposits are generated principally through development of long-term relationships with customers and stockholders and our retail network which is mainly through BankDirect.

In addition to deposits from our core customers, we also have access to incremental deposits through brokered retail certificates of deposit, or CDs. As of March 31, 2005, brokered retail CDs comprised $46.7 million, or 2.4%, of total deposits. Our dependence on retail brokered CDs is limited by our internal funding guidelines, which as of March 31, 2005, limited borrowing from this source to 10-20% of total deposits.

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 March 31, 2005, our borrowings consisted of a total of $281.7 million of securities sold under repurchase agreements, $147.7 million of downstream federal funds purchased, $1.3 million from customer repurchase agreements, and $1.0 million of treasury, tax and loan notes. Credit availability from the FHLB is based on our bank’s financial and operating condition and borrowing collateral we hold with the FHLB. At March 31, 2005, we had no borrowings from the FHLB. Our unused FHLB borrowing capacity at March 31, 2005 was approximately $245.0 million. As of March 31, 2005, we had unused upstream federal fund lines available from commercial banks of approximately $227.7 million. During the three months ended March 31, 2005, our average other

18

borrowings from these sources were $534.8 million or 22.4% of average total fundings, which is well within our internal funding guidelines, which limit our dependence on borrowing sources to 35% of total fundings. The maximum amount of borrowed funds outstanding at any month-end during the first three months of 2005 was $519.0 million, or 21.8%, of total fundings.

As of March 31, 2005, our significant fixed and determinable contractual obligations to third parties were as follows:

			After One		After Three
	Within		but Within		but Within		After Five
(Dollars in thousands)	One Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity (1)	$	1,176,849	$	—	$	—	$	—	$	1,176,849
Time deposits (1)		643,695		57,558		103,542		57		804,852
Federal funds purchased (1)		147,684		—		—		—		147,684
Securities sold under repurchase agreements (1)		209,805		71,900		—		—		281,705
Customer repurchase agreements (1)		1,259		—		—		—		1,259
Treasury, tax and loan notes (1)		1,034		—		—		—		1,034
Operating lease obligations		4,204		8,419		7,307		4,729		24,659
Long-term debt (1)		—		—		—		20,620		20,620
Total contractual obligations	$	2,184,530	$	137,877	$	110,849	$	25,406	$	2,458,662

(1) Excludes interest

The contractual amount of our financial instruments with off-balance sheet risk expiring by period at March 31, 2005 is presented below:

			After One		After Three
	Within		but Within		but Within		After Five
(Dollars in thousands)	One Year		Three Years		Five Years		Years		Total
Commitments to extend credit	$	385,611	$	211,761	$	49,707	$	7,727	$	654,806
Standby letters of credit		30,293		6,065		714		—		37,072
Total financial instruments with off-balance sheet risk	$	415,904	$	217,826	$	50,421	$	7,727	$	691,878

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

Our equity capital averaged $196.6 million for the three months ended March 31, 2005 as compared to $176.8 million for the same period in 2004. This increase reflects our retention of net earnings during this period. We have not paid any cash dividends on our common stock since we commenced operations and have no plans to do so in the near future.

19

TABLE 6 – CAPITAL RATIOS

	March 31,			March 31,
	2005			2004
Risk-based capital:
Tier 1 capital		10.43	%		11.73	%
Total capital		11.33	%		12.84	%
Leverage		8.33	%		8.67	%

Critical Accounting Policies

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

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

20

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

The Company’s interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions as of March 31, 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.

21

Interest Rate Sensitivity Gap Analysis
March 31, 2005
(in thousands)

	0-3 mo		4-12 mo			1-3 yr		3+ yr		Total
	Balance		Balance			Balance		Balance		Balance
Securities (1)	$	41,588	$	93,941		$	216,519	$	402,106	$	754,154
Total Variable Loans		1,561,976		22,575			1,222		–		1,585,773
Total Fixed Loans		17,237		26,497			47,800		74,534		166,068
Total Loans (2)		1,579,213		49,072			49,022		74,534		1,751,841
Total Interest Sensitive Assets	$	1,620,801	$	143,013		$	265,541	$	476,640	$	2,505,995
Liabilities:
Interest Bearing Customer Deposits	$	1,071,697	$	–		$	–	$	–	$	1,071,697
CD’s & IRA’s		212,855		90,759			56,378		98,161		458,153
Wholesale Deposits		–		40,073			1,179		5,437		46,689
Total Interest-bearing Deposits	$	1,284,552	$	130,832		$	57,557	$	103,598	$	1,576,539
Repo, FF, FHLB Borrowings		240,532		119,250			71,900		–		431,682
Trust Preferred		–		–			–		20,620		20,620
Total Borrowing		240,532		119,250			71,900		20,620		452,302
Total Interest Sensitive Liabilities	$	1,525,084	$	250,082		$	129,457	$	124,218	$	2,028,841
GAP		95,717		(107,069	)		136,084		352,422		–
Cumulative GAP		95,717		(11,352	)		124,732		477,154		477,154
Demand Deposits											405,162
Stockholders’ Equity											194,511
Total										$	599,673

(1)	Securities based on fair market value.
(2)	Loans include loans held for sale and are stated at gross.

The table above sets forth the balances as of March 31, 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.

The “most likely” rate scenario is based on the consensus forecast of future interest rates published by independent sources. These forecasts incorporate future spot rates and relevant spreads of instruments that are actively traded in the open market. The Federal Reserve’s Federal Funds target affects short-term borrowing; the prime lending rate and the London Interbank Offering Rate are the basis for most of our variable-rate loan pricing. The 10-year mortgage rate is also monitored because of its effect on prepayment speeds for mortgage-backed securities. These are our primary interest rate exposures. We are currently not using derivatives to manage our interest rate exposure.

The two “shock test” scenarios assume a sustained parallel 200 basis point increase or decrease, respectively, in interest rates. As short-term rates continued to fall since 2001 we could not assume interest rate changes of 200 basis points as the results of the decreasing rates scenario would be negative rates. Therefore, our “shock test”

22

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
	March 31, 2005		March 31, 2005
Change in net interest income	$	6,719	$	(2,682	)

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 March 31, 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.

23

PART II - OTHER INFORMATION

ITEM 6. 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.

24

SIGNATURES

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

	TEXAS CAPITAL BANCSHARES, INC.
Date: May 5, 2005
	/s/ Peter B. Bartholow
	Peter B. Bartholow
	Chief Financial Officer (Duly authorized officer and principal financial officer)

25

EXHIBIT INDEX

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

26