Cullen/Frost Bankers Inc (CFR) 2005 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Cullen/Frost Bankers Inc. fourth quarter earnings Conference Call.

[OPERATOR INSTRUCTIONS]

I would like to turn the call over to Mr. Greg Parker, Executive Vice President of Investor Relations. Sir, you may begin.

Thank you. This morning's conference call will be led by Dick Evans, Chairman and CEO, and Phil Green, Group Executive Vice President and CFO.

Before I turn the call over to Dick and Phil, I need to take a moment to address the Safe Harbor Provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements, detained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed a copy of the release is available at our website or by calling Investor Relations at (210) 220-5632.

At this time I'll turn the call over to Dick Evans.

Thank you, Greg.

I'm pleased to report another record year for Cullen/Frost Bankers Inc. Our net income for the fourth quarter was $44.9 million or $0.81 per diluted common share. Our annual earnings of $165.4 million or $0.03.7 per diluted common share, an increase of 17.1% compared to 2004 earnings. For the year the return on assets was 1.63% and return on equity 18.78%.

Exceptional staff makes great performance possible. I'm extremely proud of our people; they've worked hard to execute our plans and manage our expenses. We also had some wind to our backs for this asset sensitive balance sheet with rising interest rates. And also helped from an improving economy in the markets we serve. We announced three acquisitions during '05 and closed on one, Horizon Capital Bank in the Houston area. During the first quarter we anticipate closing the other two. We're especially pleased to welcome the new staff from these banks into the Frost family.

Some highlights for the year. Net interest margin 4.45%. The highest level since 2002. Average loans $5.6 billion, a 16% increase. Highest level ever. Average deposits $8.1 billion. 4.7% increase. Highest level ever. And non-interest income, $230.4 million. 2.3% increase, highest level ever.

Looking closer at some of the details of these new levels I'm pleased that the fundamentals of building long-term relationships continues. Our net interest margin as I stated earlier, the rising rate environment had a positive impact. But also the increase in average earning assets with a deposit growth and asset mix improved with good loan growth were part of the improvement.

We had good average loan growth in all areas. Our commercial and industrial loans increased 15.7%, commercial real estate loans grew 17.4% and commercial real estate, consumer real estate excluding one to four family mortgages grew 31.5%. Our average deposit growth, demand deposits were up almost 3% for the year. Time deposits, up slightly over 5.5%. Our non-interest income, trust fees were up over 8% to $58.4 million. As expected with a loss of our employee benefit group in Austin insurance fees were down. After rebuilding in 2005 we have a solid structure and the right people to build revenues in the future.

As I have stated each quarter last year staying focussed on our mission of growing long-term relationships based on top quality service, high ethical standards and safe sound assets is particularly important in our highly competitive environment. It requires being good stewards of Cullen/Frost assets. This is only possible with outstanding people which we have. And maintaining our relationship philosophy. Also important are our sales disciplines that run throughout the Company.

On the business banking side, we made almost 50,000 calls last year, up 8%. We identified 15% more loan opportunities. We booked 11% more new loan commitments and our active pipeline is 16% higher than a year ago. The Texas market continues to be very competitive. We looked at 13% more opportunities which meant we had to do a good job of prospecting. We worked to maintain our pricing and structure disciplines. It did result in the loss of over $1 billion of opportunities. 55% did not meet our pricing standards and 45% because competition had more liberal structures.

On the consumer side, our net new checking accounts grew in the mid-single digits. About the same rate as in '04. You will remember it was in October '03 that we added free checking and lowered our pricing on other checking account products and we experienced a substantial increase from '03 to '04. Today we have reached the level where we operate at the norm for same store sales. However, it's important to note that our model's major focus is on profitable relationships. If you would give us a grade you would give us an A on retention and indeed we are an industry leader on retention and also customer service would be an A. About 6 years ago we began a very disciplined program to actively manage our best and most profitable accounts. As a result we moved the retention of these accounts from 85% to 96% retention and we have maintained that level. Simply stated, we must be an industry leader in retention. Because we don't have enough money to out market the large retail competition.

A word about the Texas economy, looking at job growth. We've been saying Texas would begin to grow faster than the U.S. in '05 and it did. Texas at about 2% and the U.S. 1.5%. Some of the later projections indicate that the spread will be even greater in '06. U.S. staying about the same level and Texas growing up to maybe 2.5% to 3%. One of the factors is that our statewide energy cost should be more neutral when you look at royalty payments which help offset the consumer increase in energy expense.

Looking at the cities, Austin had a good bounce back in the first half of last year and this is signs that the tech sector is starting to be stronger. Dallas is still a little weaker but telecommunications is coming back. Houston is growing at about the same average as the state, but it looks, and I think we can expect when these numbers are re-benchmarked, energy and the hurricane may bring the numbers even up a little bit from the state averages. McAllen continues at a stronger pace primarily from the Maquilador activity and home building for Mexican nationals and San Antonio continues to perform slightly better than the state average.

In closing, I am pleased to report another record year for Cullen/Frost. And I'm most pleased about the quality of these earnings which are built on long-term relationships which is fundamental to sustaining superior financial performance. As we look to the '06 environment, we see that the nation may be at a little bit slower economic growth but still at a good rate and Texas should perform slightly better than the nation. We expect low inflation, and a flat yield curve, and productivity will continue to be a major factor in separating those Companies that have superior performance and we'll stay focussed on good cost controls. All in all we have great people, a proven philosophy, an outstanding Texas brand, good markets and mature disciplines and processes.

Now I will ask Phil Green our CFO to make a few comments.

Thanks Dick.

I will add on to Dick's comments about the year with a few comments about the quarter, on margin and our outlook for 2006 and then turn it back over to Dick for questions.

The fourth quarter was another excellent quarter for our Company and represented a 17.2% increase over the same quarter a year ago. Our return on assets was 1.63% and return on equity exceeded 18.5%. Revenue growth, 14.5% primarily resulting from increases in net interest income significantly exceeded our 9.6% increase in expenses. Looking at our balance sheet volumes, loans increased almost 20%, about $1 billion from the fourth quarter last year which included approximately 6% growth from our acquisition of Horizon. Meanwhile deposits increased just under 9% over the same period and included a 3.5% increase from the acquisition.

Our net interest income increased 23% over the fourth quarter of last year including a little over 3% impact from Horizon with two-thirds of the growth coming from higher volumes and the remaining coming from the impact of higher rates on our asset-sensitive balance sheet.

Our margin for the quarter was 4.54% which was a 2 basis point increase from the previous quarter; however, it included the impact of almost $400 million in additional Fed funds liquidity which we built up in our balance sheet. This compressed the margin by approximately 9 basis points but the impact will reduce as this additional liquidity as employed in loans or higher yielding investment securities. In fact we actually closed on the purchase of $325 million in Fannie Mae 15 year mortgage backed securities right after the end of the year with a yield of 5.37%.

I want to spend a few moments to make an additional comment regarding our net interest income. As you know we're an asset sensitive bank and are currently taking advantage of the recent rate increases by the Fed. However in looking forward to the end of rising rates and possibly to their decline in the future, we entered into late in the fourth quarter a $1.3 billion three year interest rate floor position on prime rate at 6%, as a hedge against a portion of our prime floating portfolio. The premium for the floor position was a little over $2 million and the economic amortization of the premium will be weighted towards the second and third years of the position. We felt this hedge represented a very good value and was a great alternative to the cash markets in helping us reduce our exposure to lower interest rates over the next three years without fundamentally changing our Company's advantage of being an asset sensitive bank funded by core deposits.

Looking at the provisions for the quarter they were $2.9 million and were just slightly above our charge offs resulting in a year end allowance percentage of 1.32%.

In closing, my comments about our performance I want to echo what Dick said about the great job our staff has done in moving the profitability of our Company to consistently higher levels by focusing on relationship banking and efficiency. The one thought that I will leave you with that's just one example of their efforts: in year 2000 we ended the year with 3394 employees. Since that time we have grown both our bank assets and our trust assets by 40%. However we ended this year with 8 fewer employees than we had in year 2000, while still improving the quality of our services and the products to our customers. We are extremely proud of that. Looking forward, we expect to see one more increase out of the Fed this year - hopefully in a few days - along with some additional expansion of our margin. The implementation of the new standard for expensing stock options we estimate will cost us about $0.08 a share this year which with rare exceptions does not appear to be included in the Street estimates. If you adjust the current range of estimates for this new impact, we currently believe that the middle of the range of estimates is reasonable.

With that I will turn it back over to Dick for questions.

Thank you, Phil. We'll be happy to entertain your questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from Charlie Ernst.

Good morning.

Good morning, Charlie.

Looked like a great quarter.

Thank you.

Phil, can you give the actual balances for the short-term earning assets for the average for the quarter, and also, the securities balance with the yield?

Yes. Um, let's see. The average for the fourth quarter 2005 on the short-term side that would be Fed funds sold that was $855 million. It was up from $470 million in the third quarter and I believe you asked Charlie about the securities. Our total securities would be $2 billion 718 for the fourth quarter. That was down slightly from the third quarter of $2 billion 847.

And Phil, I think after last quarter you all said that you had done some buying in bonds after the quarter of a couple hundred million. Does that mean that you had that much run off in the quarter or did something else happen that caused the Fed funds to jump up so much?

Really the Fed funds increase was driven primarily by growth in deposits. Demand deposits were $3.3 billion up from $2.96 billion in the previous quarter. Time deposits were up -- were at -- right at $5.4 billion up from $5 billion one in the third quarter. It was really deposits that caused the increase. We had a slight increase in our Fed funds purchased in repo. It's primarily down stream repos but it's mainly been deposits that have grown that.

Can you comment on the deposit growth in terms -- ? You know, is this -- do you feel good that these deposits are real, they're going to stick around and why? If so, why are we seeing such strong growth right now?

Well, some of the growth in our deposits of course included the acquisition of Horizon. I think I mentioned on a year-over-year basis that they were about 3.5% of our 9% growth. You know it's hard to say. There is not a specific -- other than the acquisition -- customer like there was in the past couple of years where we did have those larger relationships with the mortgage processors where we were processing their clearing items. It is pretty core business. I will say that there is a relationship that Horizon had which was a little bit unusual in that they have demand deposits with students.

A Company has relationships with students where they issue an ID, a combination ID and a debit card and they get funds from their student loans and et cetera in these accounts and the students use them over time. Horizon had -- was assisting that Company in maintaining the balances for them. The demand accounts, even though they were processed by another third party processor. And those -- we had about $50 million in round numbers related to them at the end of the year which we're moving that relationship out. I mean, it doesn't result in the profitability of $50 million of free money because under that relationship they've paid the servicer of that, or they paid the Company that owned those relationships a market rate of interest for those balances but that's the only thing I can think of that would be somewhat unusual that you might see move out in the next four our five months as that's transitioned out. Other than that, it's pretty much what you see is what you get.

Do you think you've seen much of a benefit from the hurricanes?

I really don't, Charlie. I mean, you know, you got some benefit in Houston and um, certainly hadn't been a negative but I think that's all pretty settled down and as I have said in my comments, I think you will see in the economics when they re-benchmark those numbers, Houston will probably be a little bit better than the state average that it's showing today but um, I really don't think so.

I -- you know it's not more complicated, Charlie, than this discipline that we have in our sales processes as I talked about on consumer accounts. We truly are an industry leader in retention and customer service. I will tell you that we can do better in cross sell and we will. As you know, when you get into cross sale of accounts, you can also push it -- like any of these things, it's a balancing. You can push it too far to where you push the customers too much that they get irritated with you but we can do a better job in cross sell. As I stated on an acquisition standpoint, we don't have the money the big guys do, but we've got a lot of focus, we've got some good programs like Bank at Work where we sign up commercial accounts and we have some products in our real estate where we have some one time close on construction loans that we cross sell. We also can do a better job of -- you know that we have a partnership with GMAC Mortgage which when a customer comes to us, that um, we make a mortgage, they make the mortgage loan and we get the accounts and we'll be more focused on that and certainly just continue to do internal referrals. We're doing a good job. I would probably rate us on cross sell and acquisition a B or B minus. So we've got some improvement to do but it's, this -- it isn't accidental that the deposits are growing and as you know, our focus is on long-term core deposits and, I would tell you I think it's working.

Charlie, if there was anything in the quarter and I think this is for all banks that you might look at, deposits tend to be somewhat seasonal for the banking industry and the fourth quarter tends to be stronger with the economic activity that we see. You get a little bit of a drop off seasonally in the first quarter but that's the only other thing that I could think of that you might look at.

And my last question is you all mentioned in the non-interest expense section that there was some sundry losses. Is that included in this quarter or is that referring to a year basis in some of the prior quarters?

It's more stuff that occurred this quarter. There is always going to be stuff like that. There were some sundry losses.

Were there any specifics associated with that?

Um, you know it happens like if there is a conversion or something that requires some cleanup over time where you have to write off stale items. You might get some of those things back in the future but typically you don't by the time you do that. We run a big operation and there are a number of things that happen. And so, I guess that's the main specifics I would give. We also had a number of other items that we mentioned as well.

Okay great. Thanks a lot you guys.

Your next question comes from John Pancari.

Good morning, guys.

Good morning.

Could you give me a little bit more detail on a period end loan growth, you know excluding the impact of Horizon. It looks like it was a bit muted. About 1% linked-quarter. I want to get more color on a period end basis there.

A period end basis, the Horizon loans were about, I’d say a round number is $325 million. On a linked-quarter basis, we were up in total $375 million. So it was -- as it worked out on a period end basis, it was a pretty big percentage of the growth.

Right and excluding that, the growth looked a bit lower than what you had seen earlier in the year and I just wanted to see if there was anything driving that.

I think it was still, we're still, you know, almost 12% without um, without Horizon and um, you know, all of the categories are growing. Might have been a little bit slower but I don't see anything really unusual.

Okay. And um --

I would just, it's competitive as I have pointed out to you and we're going to -- we're going to work hard to hold our pricing and keep our structure so -- but I don't see any trends as a result of the fourth quarter.

Okay.

That are different.

Did that impact your outlook? Or has your outlook changed at all for '06 in terms of loan growth? Are you still expecting low- to mid-teens?

I think we can continue to um, as I have always said, you know, if the economy stays good and we have a good market which I indicated I think we will, we ought to continue to grow about like we've been growing.

If you just took the period end numbers which will always have a little volatility in them and took out Horizon it would indicate, as you're implying, sort of a flat growth but we're not anticipating a flat growth in loans for 2006.

Okay. Alright. And um, the question on the fee side, on the insurance commissions the decline there on a linked-quarter basis was a bit more than I anticipated. I know there is some seasonal pressure there but um, you know, was there still some of the impact from the lost team in Austin or is there anything else going on there that is driving it?

No on a linked-quarter basis that would just be all seasonal.

The third quarter is always, as we have said to you before, is a strong quarter for a particular part of our business related to schools and it's always a little bit stronger.

Okay. Alright and lastly if you could comment a bit on the M&A opportunities and any changes in the M&A environment as of late in Texas and any comments on the specific markets that you have more of an interest in?

We've always, nothing has really changed, to answer your question. We actively you know, try to look at most everything that's happening. We don't see everything but we get lots of opportunities. We're still very particular about culture. And that's our number one focus and number two is to stay in the markets in which we currently operate. To answer your question that's where our life will be. We don't plan to leave Texas and we don't plan to leave the markets in which we're currently in and where those opportunities come along that have the right kind of people, and we're certainly interested in them.

Okay. Alright. Great. Good quarter. Thank you.

Thank you.

Your next question comes from Brent Christ.

Hi, guys. A couple of quick questions. First, on the fee topic again, seems like you guys are somewhat optimistic on the insurance business looking ahead to next year after the exit of the people in Austin. Have you been doing any hiring there? That would give you a little more optimism looking at the next year?

Yes Brent, we have built -- certainly, as you remember we had a business and had about 17 people when they left and we don't have 17 today and you wouldn't want us to because we haven't built the volume up, but immediately we hired a manager of that operation and several -- several others in that structure and we feel very, very good about that base and in an orderly fashion it will continue to build.

We also, it's not just about Austin, it gave us an opportunity to -- what I meant by that we have a solid structure, we looked at the whole structure of our statewide operation, and I feel really good about how it's structured and um, we've got the right people, in fact I'm extremely pleased with the staff we have and um, as far as those in Austin, they are outstanding and I see opportunities to build that.

Okay. Um, sticking on the fee topic in terms of service charges on deposits with your expectation for the Fed to move only one more time would you expect a little bit of momentum to pick up there into '06 as maybe some of the drag from earnings credit goes away?

I think that's true. We'll see a little more pressure until the Fed stops moving and of course I'm happy to see the Fed continue to keep moving. I'll trade a little service charge pressure for some more Fed increases but we think the Fed is pretty much near an end and I think you will begin to see some reduction of the pressure that we've had there. We've continued to have increases in the amount of services that we're selling; it's just mapped by the impact of rates as you mentioned.

Huh. Okay, and just back on the balance sheet for a second. In terms of you know, the strong deposit growths and the liquidity that you had in this quarter where you invested in some short-term investments and securities, how should we think about that area going forward in terms of the short-term investment climb?

I think the um, one of the things that we already did was that we did, excuse me, we did make an investment of about $325 million of that liquidity in Fannie Mae. We saw the rates move up, took advantage of what we thought was an opportunity there. So some of it has already been utilized. I think that we're going to continue to use it in loan growth as well. So that is, for now, the near term using them in securities is one thing that we have done.

Okay. Great. Thanks a lot.

You're welcome.

The next question comes from Scott Alaniz.

Good morning.

Good morning.

Hello, Scott.

Couple of questions. Dick, first, you mentioned in your prepared remarks, about the Company losing over $1 billion in opportunities and 55% of that was due to pricing and 45% due to structure. Did those ratios change much throughout the year or relative to 2004? Those percentages?

Not really. As you know, I started talking in the conference call in the first quarter about these because I thought it was important to kind of quantify the reality of what is happening in Texas. They were pretty much the same. You know about 50/50.

Okay and, at what point do you think, do you start to get concerned about the types of structures that are being underwritten?

Well, I think the answer is, you know, we just got to ride our bicycle faster and find opportunities that fit our criteria. And what I think the numbers show is that we've been successful in doing that. I guess that's what you're asking. You know, I don't, you know, you know, when you talk about structure, this isn't a perfect science. It's certainly not 2 and 2 is 4. It's 3 or 5. You know, I think that anytime you get into a competitive market, everybody adjusts somewhat and it comes in real small little pieces and covenants and that sort of thing but you get into a real competitive market, you get to where there is just some liberal structures that, you know, for a Company that's been around for as long as we have and try hard to have high standards, we're just not going to um, you know, compromise those and the real key is that we make individual decisions. We don't -- we have all kinds of concentration of industry and we know how many of this or that we have, but it comes down to our relationship philosophy that depending on who it is and how they run their business, is going to make the difference of whether we make the loan or not.

I see. And, in which niche or market are you seeing the most liberal structures?

I don't think you can separate it by any of that. It runs pretty consistent. One will pop up and about the time you think one market has kind of settled down some crazy deal will pop up and somebody will do something.

I guess my earlier question about structure -- you have not seen a widespread deterioration in structure, um, in terms of the types of opportunities that you all are looking at?

I understand, it's not getting worse. It's just still very competitive. I'm not trying to leave a message that, you know, that it's getting a lot worse, it's just, life in Texas right now. You run through these cycles and it's just very competitive and we think you got to be careful in that. In how you run your business. That's what I'm saying and I think you got to have a good sales discipline which I'm proud of ours and you got to work it every day.

I see and what are your expectations for credit spreads over 2006? Do you expect them to narrow?

I don't think that we expect anything drastically different. It's pretty competitive today. I don't think we expect a major change.

Okay and Phil, I, couldn't quite follow the earlier comment about the comfort with the estimate. And the $0.08 per share in I guess, option. Employee compensation. The average estimate, the consensus estimate for '06 is $3.40. And that's right in the middle of the range roughly of $3.30 to $3.45. Is that the range -- $3.30 to $3.45 -- that you said you are comfortable with?

That range doesn't appear to us to have option expenses taken out.

Okay. Alright. Thank you much.

Your next question comes from Justin Maurer.

Good morning guys.

Good morning.

Phil, sorry if I missed it on the liquidity at the end of the quarter but was it more of a timing issue of when the deposits came in versus what you saw as opportunistic in the investment side?

I think it was both of those. We had good steady deposit growth. We just did not like the curve; it's been flat and it's been pretty ugly for a long time. We did see the Fannie Mae 15 years get up over that 5.35% which was sort of a target we had set for ourselves and when it did we had some liquidity that we set aside and we took advantage of it. So it was more opportunistic on the investment side but the deposits were really coming in steadily.

So apples to apples in a sense, the margin would have been up 11 not 2, you're saying because of the 9, right?

Yeah. All things equal, yes, I think it would have been up 11.

And what are your thoughts, you mentioned hopefully we have one more rate increase. You see the margin going up in '06. Is that mainly a function of picking up that 9 or do you guys also think despite competitive pressures on both sides that there is still some margin opportunity with the way you guys have positioned the balance sheet all along?

Um, I think we're going to pick up some of this liquidity. I think, as I said, we have already utilized some of it. And I think the rate increases will help us. It's really those two things.

And then, just on the efficiency, it looked like it actually ticked down if my math is right, a couple of bips. Is that Horizon, is that safe to assume that they were running fairly modest levels of expenses as well?

You know, I don't know that Horizon affected our numbers that much. It's just continued good growth in our revenue which has been out stripping our growth and expenses.

Okay.

We had about 15% saved on the Horizon deal and we were successful on that. I don't think that fundamentally changed our numbers as much. It's just the great job our people continue to do in expenses and when you get the revenue increases particularly out of the margin, it just helps that computation.

Yes. Okay. Thanks, guys. Good luck.

Thank you.

Your next question comes from Andrea Jao.

Good morning.

Good morning.

Hoping to get a little more detail on your view in credit going into the 2006 and where you think the credit metrics go. If the economy remains really good during the year, you know, at what level are you comfortable running down to accept the low ratio?

Are you asking -- Let me make sure I understand the question. Are you asking where the loan to deposit ratio is going?

No. Allowance for loan losses.

Oh. Allowance for loan losses. I'm sorry. I understand now. As you well know with the accounting standards at the SEC and where we are, it's formula driven and we're not trying to run it down. It's mainly coming down because of the growth in the portfolio -- thank goodness it's not because of bad asset quality. And, as we continue to grow loans, and -- successfully and keep the quality up, this ratio, you know, will move down because of the way the formula works. We're not -- we're not really in control of that.

We have a good discipline and a good process for moving forward. I think that's the subject that's probably true of all banks, we're in -- we're -- thank goodness, in a really good cycle. You know we had 19 basis points charge offs in the fourth quarter and 132 reserve and we're fortunate that the quality of our consumer portfolio is also of good quality and unlike a lot of what is happening in the country in the fourth quarter, out of our charge offs, only 439,000 were related to the change in the bankruptcy law. And so, you know, it's -- I wish I could answer it. I would like to know exactly where it is. We're going to continue to keep a strong reserve. We like a strong reserve, we're also going to meet the accounting standards and the direction that the SEC has put out for us.

This helps. Thank you.

[OPERATOR INSTRUCTIONS]

And your next question comes from [Gerry Heffernan]

Good morning, gentlemen.

Good morning, Gerry.

Thanks for a good quarter here, guys.

You're welcome.

If I could talk to you about your loan balances for a little bit. Certainly the loans out increasing at a nice rate. Can you give me a little bit of insight into those loan balances as to, is this all growth in new loan accounts or new loan relationships. Or are the lines that have been available to your commercial customers being drawn down, therefore the balance is rising and if it's a little bit of both, can you kind of give us a feel for where that lies?

That's a good question. To answer the first part of the question, the growth comes about 75% from existing customers and about 25% from new customers. And in relationship to advancements on commitments, that has been moving up gradually, and it's in the you know, low 50s. Probably 52% or 53%. You know, in the slow economy three or four or five years ago, we got down to 47% or 48%. It's been moving up but it's been running about 52% or 53% this year. Might have moved a little bit and we got some benefit by more outstandings on commitments and certainly you don't have to move much to have an effect and yes, that did have an effect of greater advancements on commitments. But, it was pretty much -- it moved a lot by the first quarter.

Okay so, to a certain extent, you know, the seeds for the success we're seeing now were sown in past periods just from good hard work there maintaining the relationships and getting new ones in and now we're starting to see them use these monies to a greater extent.

That's a part of it. I don't want to mislead you --

I understand. Yeah.

It wasn't over and in fact in our energy lines with pricing being so high and acquisitions a little lower, you know, that's a part of our business that -- their balances are strong, and so they haven't used as much as you might think they would.

Very good. Understood. Okay. Hey --

You also -- people keep increasing their commitments of their lines. It's normal activity too as you go through and normally, a Company will try to operate at about 50% of their line. And you know, it's not a -- it's a real generalization but, that's a true generalization and so, as the economy gets better they use more, they increase the commitment and that's just kind of how it works.

Sure. Sure. Switching topics on you, the shares outstanding and if this was reviewed I apologize for asking again. It jumped up a fair amount here. A diluted number jumped up 1.7 million shares. Was that due to shares used for the Horizon acquisition or what was that?

Yes. We issued I think 1.4 million shares. So that's the main driver there.

Great. Thank you very much.

Gerry, just to come back to that question, just to remind you in my opening comments I commented on the active pipeline and just remember that it's up 16% higher than it was a year ago. So, we've got to ride our bicycle fast to make all of this work and going out and getting new prospects and building that new side of it.

Oh, absolutely. I'm not discounting that at all. Certainly you also go to your opening comments about the retention level and you know if your retention level is not high then you do not get to have your customers use those lines to a greater extent because they take their business elsewhere.

Correct. Thank you.

Alright. Thank you.

There are no further questions. Are there any closing remarks?

Thank you for your support and we will continue to work hard for our shareholders. We stand adjourned.

This concludes today's conference. You may now disconnect.