Enterprise Financial Services Corp (EFSC) 2017 Q3 法說會逐字稿

Good day, and welcome to the EFSC Earnings Conference Call.

As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Jim Lally.

Please go ahead, sir.

Well, thank you, Keith, and thank you, all, very much for joining us, and welcome to our third quarter earnings call.

We appreciate all of you taking time to listen in.

And joining me this afternoon is Scott Goodman, President of our bank; and Keene Turner, our company's Chief Financial Officer.

Before we begin, I would like to remind everybody on the call that a copy of the release and the accompanying presentation can be found on our website.

The presentation and earnings release were furnished on SEC Form 8-K yesterday.

Please refer to Slide 2 of the presentation entitled Forward-Looking Statements and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements that we make today.

If you would please turn to Slide 4 and refer to our financial scorecard.

From just about every aspect, the third quarter was a very solid quarter for Enterprise.

On a reported basis, EPS grew 17% year-over-year to $0.69, with core EPS representing $0.66 of that.

Core earnings per share grew 35% year-over-year.

These results represented record performance for our company and showcased the core earnings power produced by the positive operating leverage created by completing the conversion of Jefferson County Bancshares.

Our ability to grow dollars of net interest income year-over-year by 40% is proof of this.

Core revenue in the quarter grew by 3%, including growth in fee income, while expenses decreased by the like amount.

Core ROA of 1.21% represented an increase of 15 basis points and 17 basis points from the linked quarter and prior year.

Our $138 million of loan growth in the quarter produced an annualized growth rate of 14% and was well distributed among our regions and lending platforms.

Furthermore, we were able to see improvement to our credit statistics from an already enviable position.

In addition to excellent performance in the front end of our business, we prudently managed our capital, returning approximately $17 million of value to our shareholders through share repurchases during the quarter.

As we head into 2018, we remain focused on core deposit generation and expansion of our fee businesses that support our commercially focused strategy.

To provide more color on these exceptional results and insight into our markets, I would now like to turn it over to Scott Goodman, President of our bank.

Thank you, Jim.

Referring to Slide #5 and 6. The total loan portfolio grew by $138 million in the quarter or an annualized rate of 14.3%.

This growth was well balanced between commercial real estate and C&I, with significant contributions coming from each of the business units.

Our focus on organic C&I growth opportunities across all geographic markets and in specialized lending units continues to provide steady double-digit growth in this portfolio.

Turning to Slide #7.

Growth was generally spread across most sectors of the portfolio.

Enterprise value lending activity reflects financing of new portfolio acquisitions for several existing sponsors.

Originations have been strong year-to-date, consistent with historical levels, and activity in this space is steady.

However, there are some short-term issues which are creating a bit more headwind and which may result in a less robust Q4.

Multiples remain high as competition for quality companies is heavy.

Our focus has been on private equity sponsors going after traditional C&I business types and who exhibit a more disciplined approach to pricing.

We remain well positioned as the go-to partner for our defined base of private equity firms, and we continue to add new sponsors to our client base to widen the funnel of senior debt financing requests.

Life insurance premium finance grew nicely in the quarter, a combination of new clients and premium fundings on existing policies.

While competition has risen due to the increased activity and pricing pressures coming out of a few larger banks, growth reflects momentum from new originations and a higher level of premium fundings from our expanded policy base.

Tax credit loan growth was centered mainly around a few large new closings.

We completed the financing of several New Market Tax Credit-related loans, which will be deployed mainly into new C&I opportunities as well as originated a credit facility for an experienced and long-term client in the affordable housing space.

These opportunities reflect our team's recognized expertise in these areas and the relationships we have developed in this space over time.

Turning to our business units on Slide #8.

Specialized lending grew by $57 million or 28.3% annualized for the quarter.

These businesses, highlighted earlier, continue to be significant contributors to our portfolio, providing a differentiated client base and risk-adjusted pricing advantages.

Their steady pace of performance contributed roughly 41% of total growth in the quarter.

St.

Louis grew by $27 million in the quarter, 5% annualized and 50% year-over-year with the addition of the JCB acquired portfolio.

The activity was a combination of several new large real estate projects as well as new and existing C&I relationships.

As I mentioned last quarter, our banking teams have been directed in their focus around a few key objectives: one, smoothly integrate and protect the newly acquired JCB relationships; two, remain strategic and disciplined in the face of elevated competitive pressures; and three, continue to execute an organic sales process consistent with these objectives and our growth trajectory.

The Q3 rebounded loan growth from our largest market is a testament to the success of this prescriptive and well-organized plan.

Strong execution of the plan has enabled us to successfully transition and protect the JCB client base while continuing to nurture and convert our pipeline of new business opportunities in St.

Louis.

In Arizona, the loan portfolio expanded by $26 million in Q3, resulting in year-over-year growth of [27%] (inaudible) were comprised of new commercial real estate projects with both new and existing relationships, with some smaller C&I opportunities mixed in.

We have picked up several new relationships recently from the larger players in this market as borrowers become disenfranchised by poor service and talent turnover from the larger banks.

In Kansas City, loans are up 8.4% year-over-year and 18.4% annualized for the quarter.

The growth in the quarter is attributable to diverse activity, with notable wins, including the addition of new C&I relationships in the automotive and construction industries, an add-on acquisition for a service industry client and new activity with existing commercial real estate relationships.

As our base of business has grown over $600 million, the Kansas City team is accelerating its momentum and developing expanded pipeline of new opportunities.

This scale is steadily improving our brand awareness with both clients and banking talent.

In the quarter, we added 2 new client-facing bankers in CRE and EVL sectors.

In addition, subsequent to quarter end, we have added 3 additional senior-level C&I bankers from end market competitors.

In total for 2017, we have successfully recruited 8 new client-facing bankers in the Kansas City market from 7 different competitors with an average banking experience of 14 years.

As we have emphasized in prior calls, competition remains intense, not just for new clients, but for talented bankers as well.

It should be noted that across the company, we continue to be opportunistic in adding client-facing talent to the platform.

During Q3, we added 8 bankers total, including 2 business banking specialists and 6 relationship managers to address needs in C&I, EVL and CRE.

Deposits, shown on Slide #9, are up $138 million or 14% annualized for the quarter.

Of this amount, $29 million was DDA, maintaining roughly 26% of our total base as noninterest-bearing.

As it relates to accounts acquired within the JCB portfolio, we have been successful at defending these relationships and have a net positive increase in core DDA balances from this space.

We have been managing down some legacy higher-cost time deposit programs while introducing these clients into a more advantageous mix of products.

Other deposit growth is a function of continued execution of our C&I strategies, namely, business banking, expanding the small business portfolio through an intentionally deposit-focused sales process; and commercial deposit programs, targeting deposit-heavy C&I commercial businesses such as professional service firms, community banks, insurance companies and other financial intermediaries.

At this point, I'd like to hand it off to our CFO, Keene Turner, for his comments.

Thank you, Scott.

The third quarter results were strong and demonstrated successful execution of organic growth, our M&A efforts as well as diligent interest rate and credit risk management.

Slide #10 reconciles $0.69 of reported earnings per share to $0.66 of core earnings per share.

The impact of non-core acquired assets and JCB merger expenses were relatively muted at $0.04 per share and $0.01 per share, respectively.

Overall, we had an extremely strong quarter that produced a 1.27% return on average assets and an excess of 15% return on tangible common equity.

Most importantly, core results comprised the majority of earnings for the quarter.

As Slide 11 depicts, we had success on all fronts as compared to the linked quarter.

Noninterest expense decreased $0.02 per share as the cost savings for JCB were realized.

Provision for loan losses was $0.03 per share better than last quarter.

Revenue expanded $0.05 per share, split between $0.01 of noninterest income and $0.04 of net interest income from the linked quarter, which I'll walk through on Slide 12.

Core net interest income increased by $1 million to $44 million for the third quarter.

This was a relatively clean quarter as the JCB results were fully included in the first half of the year.

I'll remind you that despite a basis point decline in net interest margin, we actually expanded 1 basis point comparatively as Q2 had some purchase accounting cleanup from the finalization that I noted last quarter.

Thus, core net interest margin was relatively stable at 3.75%, and moreover, we're pleased with the net interest income trends for the quarter.

Loan and deposit growth resumed as you heard from Scott, while the fundamentals of net interest margin continue to be strong.

Portfolio loan yields expanded 6 basis points to 4.69%.

And for Q3, prices on new originations improved the rate in our existing portfolio.

However, overall reductions or paydowns were at slightly higher yield, which principally a function of CRE volumes being replaced by C&I and owner-occupied CRE.

And that drove up the weighted average interest rate.

Thus, we think we're banking lower-risk, higher-quality relationships, consistent with our overall business model.

Deposit costs are still well contained but did expand by 5 basis points, and the cost of total deposits is still only 46 basis points.

Overall funding costs increased 9 basis points and reflect additional opportunities going forward to improve composition via core deposit growth.

The balance sheet performed as we estimated given the growth on both sides.

Going forward, we're forecasting net interest margin to be stable, absent further changes in the interest rate environment, which bodes well for core net interest income growth in dollars.

From a growth perspective, we do expect to close out 2017 with 10% portfolio loan growth on the December 31, 2016, portfolio loan balances.

For 2018, we expect dollar amount of growth to be similar or expand modestly.

However, portfolio loan balances at December 31, 2017, will reflect both strong organic growth and the loans acquired from JCB.

Thus, the rate of growth will decline and likely be in the 7% to 9% range.

Net interest income growth during the quarter was complemented by superior credit trends that can be seen on Slide 13.

Net charge-offs normalized at 8 basis points in the quarter.

In addition, nonperforming loans and assets also decreased.

We provided $2.4 million to cover $138 million of loan growth.

The relationship is approximately 1.2% on new loans and reflects our viewpoint and posture on providing for growth.

The current provision level drove allowance of loans up 1 basis point to 0.97%.

That level would increase by approximately 16 basis points without the JCB loan, which had a 3.5% fair value mark in purchase accounting.

We believe the quarter trends were more reflective of the quality of our credit efforts, and it certainly reflects our posture of continuing to provide for credit losses that may be inherent in the portfolio.

On Slide 14, we demonstrate we have another strong quarter for noninterest income at $8.4 million.

Our underlying fee businesses again performed well during the third quarter.

Treasury management, card and wealth have all been stable and growing sources of revenue over the last several quarters.

Our other noninterest income tends to be a bit uneven given the nature of some of our businesses and investments.

And during the third quarter, other fee income was $0.2 million higher, with some trade-offs within the category.

On Slide 15, we demonstrate the trends in operating expenses.

These expenses already exclude $0.01 of merger-related items.

At $27 million for the third quarter, this was a nearly clean run rate.

One item that we did not forecast with a New Market Tax Credit investment for which we amortized about $0.5 million in the third quarter was a corresponding but somewhat greater benefit in income tax expense.

It's one of the reasons the tax rate went lower to 32% for the quarter.

Ex that item, we're essentially right on top of the guidance that we were forecasting for the fourth quarter, with JCB deal synergies essentially realized.

We expect that level will grow slightly, that's from the $26.5 million, as there will be some New Market Tax Credit amortization in Q4, albeit at a lower level, along with the impact of the hires that Scott discussed previously in his comments.

For the quarter, the combination of expense reduction and revenue growth improved core efficiency to just under 52%.

Given what we expect to be seasonally strong fee income from Q4 tax credit sales and the full quarter net interest income of loan and deposit growth in Q3, we expect further efficiency gains to close out 2017.

Going forward, we expect that marginal efficiency will range somewhere between 35% and 45% on revenue growth.

Given our history and growth guidance, that's somewhere in the range of 4% to 6% growth of noninterest expenses during next year.

Obviously, it can vary on a quarterly basis as timing can be opportunistic.

However, we believe our history reflects and supports these levels of margin efficiency, and it will turn to continue to support the revenue and core EPS growth, which we've demonstrated we are capable of generating.

On Slide 16, we illustrate our quarterly EPS progression.

Our results bounced in the third quarter due to a confluence of successful M&A, strong organic growth, interest rate risk management and appropriate credit discipline and posture.

Our core ROA was 1.21% for the third quarter and stands at 1.14% year-to-date.

Core return on tangible common equity for both periods was 15% and 14%, respectively.

On that note, we opportunistically managed capital levels in the quarter by repurchasing 430,000 common shares at $38.69 per share.

We believe this action to be prudent capital management given a 10% discount to current trading level and particularly our current capital position relative to our earnings and returns.

The leveraging effect we will see in future periods from our ability to grow profit aims to further drive value for our shareholders.

This is another example of how we continue to execute in the short term, with an unwavering pursuit of positioning EFSC to drive value long term.

Our fundamental results continue to grow and improve, and we remain focused on and excited for what the future holds.

Thank you for your interest in our company and for joining us today.

At this time, we'll open the line for questions.

(Operator Instructions) And we'll take today's first question from Jeff Rulis.

A question, Jim, on just capital plans just to kind of give -- now that JCB's fully integrated a little bit of buyback but maybe prioritize kind of M&A, buyback, pay down debt.

Any indication there?

Well, we remain prudent relative to our capital levels.

All options are open at this point in time, and we'll just look and see what provides the best opportunities at hand.

Is there expected use of capital that's, in your view, better than others?

Jeff, I think the way we look at capital is, first and foremost, organic growth.

And then if there's M&A that can accelerate that, we'll look at that on top of it.

And we think where we sit today, we're positioned to do both given the rate of earnings that we've got.

And then we'll manage any additional build we see opportunistically.

Obviously, the sooner you get the capital back as long as you continue to grow, it drives further earning and leveraging, and I think the repurchase in the quarter was a bit opportunistic but really reflects a longer-term view that we're going to continue to grow earnings and capital at significant levels.

And it makes sense to have those tools in place to do it when the opportunity arises.

And then the operating expense guidance, is the 27.1% a good core?

And then you said 4% to 6% growth.

Is that right?

Maybe I missed that.

Yes, I think you're probably pretty good, similar level in Q4.

We have that $400,000, $500,000 of amortization, but we've got some new hires at the end of the quarter and early in the third quarter that will offset that.

And then yes, 4% to 6% sort of sequentially next year, but we think about it more as marginal efficiency, I think, as we guided in the release at that 35% to 45% range.

But I think all of those numbers tie together pretty closely.

And we'll take our next question from Michael Perito.

A couple of questions for me.

Similar question for you, Keene, on the noninterest income guidance.

Is the 5% to 7% encompassing of potential upside opportunity at JCB?

Or is it more just kind of the legacy enterprise, noninterest income platform, ex JCB, both, I guess, as it relates to the baseline starting point from this year and also looking into 2018?

Yes, I'd say it's on a combined run rate.

So, really, third quarter is probably a good indication of where the first 3 quarters of the year will be.

And then obviously, you've got to tack on the tax credit stuff on top of that.

So all of that baked together, but that's not just a stripped out rate.

I think we think there's opportunity in that JCB portfolio, and that's incorporated in that overall aspiration there of 5% to 7%.

Okay, that's helpful.

And then, Scott, on the loan competition side, it sounds like things remain competitive, which is consistent with what you guys have been saying.

Curious though what you guys are seeing on the deposit side.

Has -- have you seen any more inquiries from commercial customers about higher rates being paid out on their deposits?

Any color around those -- that at this point?

Yes.

Definitely more focus, more commentary.

I think we are seeing more targeted competition on the commercial side, in other words, not advertised specials per se but competitors going to large depositors and being proactive on aggressive structures.

So I think in the same regard, just like we're targeting additional deposits from target -- from deposit-rich companies.

So yes, there's definitely more discussion around it.

We certainly have more focus.

We're being proactive and going to some of our largest deposit clients and, if we need to, restructuring, repricing on a relationship basis where it makes sense.

Okay.

And then just one last one for me.

Jim, the -- obviously, the overall competition remained high.

You guys provided the 7% to 9% loan growth outlook for next year.

But it sounds like you've added quite a few members to the lending team this quarter.

So, I guess, as we think about what you guys are trying to battle through today, is it more -- I mean, is it economic activity maybe not being as robust?

Is it just competition being heavier?

Or is it really credit not supporting the type of growth that you've seen over the last couple of years at this point with the structures that are out there?

I think we think about it this way.

We look at our markets, and I think the growth in our portfolios year-over-year represent what those particular markets will provide.

And then we'll backfill with the particular specialties, with a keen focus on C&I being primary, but certainly look at relationship opportunities on the CRE side.

We're built to do both very well, but we feel that the value of the franchise is enhanced with more C&I build than CRE.

We'll go next to Andrew Liesch.

Just sticking with the loan growth guidance here.

Are there any like outsized paydowns from the JCB deal that you're expecting this year that might be weighing on the pace of growth?

No, we're not really targeting.

We're seeing outside payoffs a few here and there, but nothing that's impacting the portfolio overall.

And beyond just the -- maybe some -- the competitive nature of the life insurance premium finance and some structural things in the enterprise value lending, is there anything else in the niches that are -- or your specialty lending groups that are -- that's giving you any pause for growth?

No, nothing other than what I've already outlined in the 2 niches you discussed.

All right.

And then just one question on expenses.

Are there any cost saves remaining from the JCB deal?

It seems like you've gotten them all out already but just curious if there's anything left.

Yes.

I think we've hit our target.

I think there's some potentials we would move forward to optimize staffing levels and things like that.

But we have no proactive go gets in terms of the JCB cost saves.

And just maybe swinging back a little bit on the loan growth perspective, I want to make sure that although the rate of growth is down, that's due to the fact that the balance sheet's $1 billion greater and what we acquired was not a 10% growth market.

So if you look at overall growth in the St.

Louis region with JCB included, we've done a nice job of gaining and retaining market share here.

But I think to expect that we would continue to be able to grow at a 10-plus percent rate given that, I think, we're just indicating that we're going to continue to manage the company to grow where we have historically, and so that rate's going to decline, but we don't expect the dollars of growth to be any less than they were for 2017.

Certainly.

10% growth on a $1 billion larger book is a little bit tougher.

All my other questions have been asked and answered.

We'll take our next question from Brian Martin.

Just a couple of things for me.

The -- Keene, just the expectations for -- you kind of talked a little bit about the core margin, but just the -- remind us just on the rate hikes, if you do get one kind of maybe December or mid-year next year, how does that play out as far as the core margin go?

Still, it sounds like still a benefit, maybe less if we're getting some pressure on the funding side, but just in general, the kind of the way to think about the rate increases and how that impacts the core margin.

Yes.

I think overall, we're still asset-sensitive.

I think to the extent that rates continue to move, that obviously helps banks when rates stay stable for a long period of time.

The liability side has time to catch up more fully with the asset side.

So future rate increases won't -- just like we demonstrated this year, it won't be as meaningful as they were, for example, in the first and second quarter.

They'll probably look more like the third quarter here where you've got a little bit of improvement on the loan yield side but deposit costs kind of rose up and overall funding costs muted that.

And so we're considering it a win to keep margins stable.

We've got a really nice run from where we were a year ago in terms of expanding margin, and we're focused on growing core net interest income dollars as much as possible to drive EPS growth.

But that's how we think about it.

We might be a little bit better than we expect with rate hikes, but we're not counting on it.

We're getting out there, and we're working to generate the growth on both sides of the balance sheet.

Okay.

So for sure, I guess, the thought is a push to the margin if rates go higher, and if you can do better, I guess, that would be the hope.

So -- okay.

And then...

Yes, that's how our thinking about it.

We're stable with some optimism.

Yes.

Okay.

And then just on the accretion standpoint, Keene, I guess, just without kind of detailing what the number looks like in '18, just a step-down from '17 is the way we should think about it?

Or is that incorrect from the accretion side of things?

Yes.

So this year, the target was about $6 million to $8 million.

Next year, it'll probably be somewhere in the $3 million to $5 million range, so half to 2/3, absent any material changes in our views on credit or acceleration out of the portfolio.

So it was $0.04 to $0.05 a share this year on a quarterly basis, so half to 2/3 of that going forward.

Yes.

Okay.

Perfect.

And then just the other couple of things.

I think you spelled out on the expenses enough, but maybe just so I heard it right, just that I got the relative percentage of the revenue growth.

But the 4% to 6%, was that looking year-to-year or that it was just building off of the third quarter base now that it's kind of been reset?

Is that kind of the better way to think about it?

I think of $27 million as the sort of core run rate and then building off of there if you want to look at it that way.

Okay.

Yes.

Yes, got you.

Okay.

And then just maybe one for Scott.

And I don't know, maybe I just missed it, and I don't want to get too much into the weeds, if you will, but just the people you've hired this year, Scott, just by market or by, I guess, what type of people, bankers they are, whether they're wealth management or bankers, can you just give a little bit of a higher level by market and just kind of by what area they're focused on?

Sure, Brian.

I highlighted the Q3 hires are really across KC, Arizona and St.

Louis, probably a little heavier in Kansas City and St.

Louis, and predominantly business banking and commercial banking RMs.

I think we had one EVL person there as well.

Kansas City hires that I mentioned, that was more of -- for the full year 2017, just trying to highlight how we've elevated our brand there, and it's enabled us to recruit talent.

We moved 3 bankers from Kansas City out to Arizona because we felt confident that we're able to replace that team in Kansas City with experienced folks.

So the Kansas City recruits have been predominantly commercial banking.

Commercial banking.

Okay.

All right.

And then just the last one for me.

With all the people you've brought onboard, I guess, it feels as though you're more focused on like, Keene was saying, the organic growth as opposed to M&A.

But what are the opportunities today on the M&A side that you guys, I guess, would kind of consider?

Would it be just kind of in the 3 markets you're in?

Would you look to a new market?

Are you not -- look (inaudible) not really anything -- any big discussions going on?

Just any update, if you will, on just kind of how you're thinking about M&A and maybe what markets and size and kind of the parameters, if you can give a little color.

Brian, this is Jim.

I would tell you that given our success on the JCB, we would certainly look in all 3 markets.

The closer to home would be better in terms of the ability to convert both from a cultural perspective and operationally.

And the markets aren't full of opportunities there, but certainly, there are some opportunities that interest us.

So we're looking for those that would enhance the deposit franchise and would culturally fit us well.

Okay.

And from a size perspective, I mean, is there a minimum size that you kind of look at?

Or is there something -- I guess, just kind of a range of how low would you look at to consider this transaction today?

So obviously, as we continue to earn more and more, we care about meaningful contribution to earnings per share.

So the deal, in a way, almost has to be the size JCB was, $900 million, $1 billion or bigger to really get to that level and be worth taking a risk on disrupting organic growth for us.

So we're -- that would dictate the target.

Obviously, there's a lot of variables.

So if a company has higher-level synergies or higher level of DDA or core funding, obviously, we'd look carefully at that.

But $800 million, $900 million, $1 billion is sort of where we're looking.

Sweet spot.

Okay.

All right.

Last one for me, I promise, is the -- one of you guys mentioned on the call that there was an interest in -- or a focus in the '18 on the fee income side.

Anything you can point to?

Is this just getting, I guess, the full synergies out of the transaction?

Is there something else you're focused on as far as the fees go as you look at '18 that's more front and center?

Yes, so the answer to that, so certainly, we will continue to drive opportunities out of the acquisition.

You've seen the momentum on our credit card side of our business.

And it's commercial card, by the way, that we're focused on.

So we think there's some opportunities there.

And then generally just improving the businesses that we have to continuing to drive more revenue from the channels that exist in our company today.

Okay.

So no new necessarily business lines, just enhancing what you already have?

That's correct.

(Operator Instructions) We'll go next to Nathan Race.

Just a couple of credit questions for me.

Keene, I think you mentioned that you guys are looking at reserving 1.2% on incremental production in the quarter.

Just curious if you guys think that was going to elevate on the quarter based on some reduction that hit or -- and if that's kind of a good rate to use as we look into 2018 and 4Q.

Yes.

So I think when we look at it, it's hard to be totally prescriptive about it, but our historical reserve level has been on growth somewhere between 110 and 120 basis points.

We're in an environment where there's not a lot of credit losses coming through the portfolio, that's the good news, but we also need to be prudent and procyclical and provide those losses because at some point and with the right long-term view, they will exist.

And so without getting much more direct than that, that's been our history for providing plus -- providing for charge-offs or any specific reserves.

Okay, got it.

And just kind of thinking about your loan growth guidance for 2018.

I mean, is that indicative of any kind of softness in the credit metrics or spreads that you're looking at and kind of your various specialty portfolios?

Or is it just a function of just kind of where we are in terms of the cycle at this point?

No, I don't think it's any indicator on our feeling for credit quality.

I think that's holding up pretty well.

I think it's really like what Keene mentioned just in terms on the additional base and our production teams continuing to originate at historical levels from a dollar standpoint.

Okay, got it.

And, Keene, can you just remind us what the tax rate guidance is for 4Q?

Yes.

So in the near-term 4Q, we'll probably end up somewhere around 32%, and then I think next year, we're going to be up there a little bit, 33%, 34%.

We've been working hard to manage the tax rate down or relatively stable with increasing pretax.

So I think if we're up a couple of basis points sequentially and then in the 33% to 34% range next year with our expectations for growth and earnings, we'll be in pretty good shape.

And it does appear we have no further questions at the time.

I'll return the floor over to Jim Lally for any closing comments.

Well, thanks, Keith, and thank you, everybody, for your time today and your interest in our company.

We're very proud of our results, and we certainly look forward to talking to all of you in January.

Thanks.

Ladies and gentlemen, this will conclude today's program.

Thanks for your participation.

You may now disconnect.

Have a great day.