PacWest Bancorp (PACW) 2011 Q4 法說會逐字稿

Good afternoon and welcome to the CapitalSource Inc.

fourth quarter 2011 earnings conference call and webcast.

All participants will be in listen only mode.

(Operator Instructions).

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Dennis Oakes.

Please go ahead.

Thank you, Amy.

And good afternoon everyone and thank you for joining the CapitalSource fourth quarter 2011 earnings call.

With me today are CapitalSource CEO and CapitalSource Bank President Jim Pieczynski; CapitalSource Bank Chief Executive Officer Tad Lowrey; and John Bogler who is now Chief Financial Officer of CapitalSource and CapitalSource Bank.

This call is being webcast live on our Company website and a recording will be available later this evening.

Our earnings press release and website provide details on accessing the archived call.

We have also posted a presentation on our website, which provides additional detail on certain topics which we will be referring to during our prepared remarks.

Investors are urged to carefully read the forward-looking statements language in our earnings release, but essentially it says the following.

Statements made on this call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All forward-looking statements including statements regarding future financial operating results involve risks, uncertainties and contingencies, many of which are beyond the control of CapitalSource, and which may cause actual results to differ materially from anticipated results.

CapitalSource is under no obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise.

And we expressly disclaim any obligation to do so.

And more detailed information about risk factors can be found in our reports filed with the SEC.

Jim will begin the prepared portion of our call.

Jim?

Thank you, Dennis a good afternoon to everyone.

2011 was a solid year of progress for CapitalSource.

As Tad will describe in detail shortly, CapitalSource Bank had a particularly strong financial performance, with nearly $2.5 billion in new loan production.

Resulting in annual loan growth of 25% and net interest margin of roughly 5% and pretax income significantly in excess of our 2010 level.

The Parent Company's balance sheet contracted as planned.

With its loan portfolio declining by $1.3 billion or 58%, and total debt reduced by more than $1.2 billion or 61% during the year.

Our consolidated credit metrics improved dramatically.

And our strategic decision to aggressively return excess Parent Company capital to shareholders was extraordinarily successful.

Over 70 million of our shares were repurchased between August 1 and December 31 at an average price of $6.22 per share.

And during 2011, we reduced the total outstanding share count by 21%.

As we look ahead to 2012, we are excited and confident about our ability to further leverage our national specialty lending platform and our highly efficient deposit gathering bank franchise in southern and central California.

As a result, we expect to produce another year of substantial loan growth at CapitalSource Bank.

While simultaneously continuing to liquidate the Parent legacy assets and returning capital to shareholders.

We enter the new year with a streamlined executive management team and a condensed organizational structure, as we have moved to consolidate corporate support functions.

And transferred remaining Parent employees into the Bank as of January 1.

Doing so starts the process of eliminating redundancies in support functions, which will enhance our ability to meet 2012 expense efficiency objectives.

Which John Bogler will outline in his comments.

With that, I would like to turn the call over to Tad who will focus this comment on the Bank's financial performance.

Tad?

Thank you, Jim.

Good afternoon everyone.

The fourth quarter capped a very strong year for CapitalSource Bank.

We saw full-year top-line revenue growth as interest income increased 11%, while interest expenses declined by 4%.

In addition, our pretax income was up 160% year over year.

Turning to the fourth quarter, net interest income was 3% higher than last quarter.

And the net interest margin held steady at 4.95%.

Despite our earlier expectations for a modest decline.

Our loan and lease portfolio increased by $231 million or 5% on funded production of $665 million.

Including the loans purchased from the Parent during the fourth quarter, our portfolio growth was $343 million or 7.5% above the prior-quarter end.

Our credit quality with stable.

And the loan loss provision of $4 million was down from $14 million in the third quarter.

We continued to reduce the level of cash and investments as we deployed excess liquidity to support loan growth, while also growing deposits by 5%.

Our new and renewed time deposits were added at an average interest rate of 93 basis points, which resulted in a small decline in our overall weighted average interest rates on our deposits.

We had previously thought that we would have to pay up a bit to raise deposits.

But our experience in the fourth quarter has caused us to lower our projections about the potential costs of raising an additional $500 million to $600 million of deposits during 2012 and its impact upon our net interest margin.

Looking back at 2011, three areas stand out; loan growth, net interest margin, and credit performance.

Our year over year loan growth of 25% was beyond our internal expectations and well ahead of the industry.

Our net interest margin in the 5% range was also above industry norms.

As we think about the net interest margin, or the NIM, for 2012, we are expecting slight improvement in the overall economy which will likely lead to some heightened competition and some pricing pressure but also greater lending opportunities.

Since we now anticipate little, if any, incremental cost increase for raising deposits during 2012, we expect our net interest margin at the Bank for the full year to range from 4.75% to 5%.

Finally, the credit profile of our loan portfolio at the Bank improved dramatically during the past year.

Total dollars of nonperforming assets declined by 57% and were less than 2% of total assets, 1.9% of total assets at December 31.

Nonaccrual loans also declined to 2.5% of total loans at year-end and loan loss provisions for the year were down 77% from the prior year.

With our end-of-year allowances standing at just under 2% of total loans and leases.

Following the expiration last summer of our initial regulatory order by the regulatory agencies FDIC and DFI, we submitted and we now are operating under a new four-year plan.

The plan calls for significant growth in loans and deposits and it allowed the move on January 1 of 200 Parent Company employees into the Bank.

That group included all of our origination teams who operate across the country.

As John will explain in more detail, this will initially increased our operating expense ratios.

However, we will begin to reap the benefits of consolidating some of the back office functions between the Parent and the Bank throughout 2012.

Over the next three years we expect to move steadily closer to our operating expense target of 2% of assets, including operating lease depreciation and REO expenses, while growing assets without adding much, if any, to our expenses.

Jim will now provide more detail on lending and capital deployment, which are two of our key elements of our recent success and our 2012 business plan.

Jim?

As Tad mentioned, the fourth quarter loan production added significantly to our full-year net growth of $950 million and raised the Bank's total loan and lease portfolio to $4.9 billion at the end of the year.

The new funded production in the fourth quarter of $665 million was spread among several of our lending groups.

The largest concentration were in timeshare receivables, technology cash flow, healthcare cash flow, equipment finance, and multifamily.

As the Bank has grown, the Parent balance sheet has contracted.

Illustrative of this is the fact that loans in the Bank where 83% of total Company loans at December 31 of this year compared to 62% one year ago.

Looking ahead to 2012 we expect loan growth at the Bank to be in the range of 15% to 20% based on total loan and lease production of approximately $2.2 billion.

Our growth projections do not include the purchase of any sizable portfolio as it is impossible to predict whether such opportunities will present themselves again this year.

During 2011, we closed on seasoned multifamily and timeshare receivable pools, which together totaled approximately $425 million.

We were able to achieve such significant growth last year because of the geographic diversity and the specialty character of our lending platforms, which presents us with substantially more opportunities to make loans across the country than comparably sized banks.

The non-commodity nature of the majority of our lending, with the specialty niche areas, has resulted in less competition and is the primary reason for the above average all-in loan yields we have consistently produced.

Though we are growing rapidly and profitably, it is important to point out that we are intensely focused on the quality of the loans we are making as we grow.

We have the underwriting discipline and product range to pull back from lending in any area at such time as we feel pricing, structure, or other factors have gotten overheated as we did in the early part of last year with general cash flow lending.

The benefit of our diverse specialty product array across 12 business lines was evident during 2011 as 50% of our business groups each had funded production in excess of $200 million.

During the course of 2011, we also expanded the scope of our equipment finance business to include operating leases in addition to the direct financing leases we had been originating previously.

We see this as a growth opportunity and evidence of the expertise we have within our origination team.

In an effort to provide more insight into the diversity of our product offerings and the growth of our 12 businesses, we have added a more detailed loan breakdown to our usual investor presentation.

Slide 7 of the presentation, posted earlier this afternoon on the investor relations portion of the CapitalSource website, lists current loan balances which we plan to update quarterly.

As always, we are looking for additional lending platforms and we are now being approached by teams with platforms who are interested in joining the CapitalSource team.

Before turning the call over to John Bogler, I wanted to frame our expectations regarding the ongoing initiative to return excess Parent Company cash to shareholders, and specifically the share repurchase program.

As I mentioned at the outset, we made substantial progress during 2011.

We've also continued to buy shares in the first quarter pursuant to a 10b5-1 plan.

As of yesterday, we had purchased an additional 10.2 million shares since the first of the year at a total cost of approximately $70 million.

This week our board increased the repurchase authority by $200 million, which raises our authorization to approximately $269 million.

Our average price for all of the 81.8 million shares retired to date under the program, which began in December of 2010, is now at $6.31 per share.

The remaining repurchase authority is available through December of this year.

The pace and total amount of buybacks will be dictated largely by share price and Parent liquidity.

As we have stated on a number of occasions, we do not disclose the price target below which we are buying back shares.

We do, however, consider approximately $1 per share of book value to be embedded in the deferred tax asset valuation allowance, as we think about the target.

If the share price exceeds our buyback threshold, we will consider other return of capital alternatives such as special dividends.

Liquidity should be sufficient to continue returning excess Parent Company capital to shareholders at a meaningful level this year as uses of cash at the Parent had declined significantly with the early redemption last September of our high-yield debt and the recent move of employees into the Bank.

The remaining $29 million balance on the July convertible debentures is our only scheduled debt repayment for 2012.

Parent Company operating expenses this year are expected to decline to approximately $16 million per quarter compared to approximately $41 million per quarter in 2011.

While I have listed the expected uses of cash at the Parent, John's comments will address the expected sources of Parent liquidity during 2012.

John is up next.

In addition to the liquidity, he will round out our discussion of the fourth-quarter and full-year financial performance by reviewing a few remaining key metrics.

John?

Thank you, Jim, and good afternoon to all those listening to today's call.

Two one-time items and an unanticipated consolidated tax expense reduced net income for the quarter by $0.09 per diluted share, including $5.3 million for extinguishment of debt due to the convertible debenture repurchases, $4.9 million for severance charges related primarily to the departure of two senior executives and a $14 million non-cash tax expense resulting primarily from a decrease in deferred tax assets at CapitalSource Bank, which I will explain in more detail shortly.

Except for those items, the fourth quarter results were generally consistent with a number of positive themes we have seen in recent quarters, including reduction in Parent Company debt, return of Parent capital to shareholders, declining funding costs, and improving credit performance.

More specifically, in the fourth quarter we were able to opportunistically repurchase $146 million of our 7.25% convertible debentures which were otherwise putable this coming July.

The small balance is now our only Parent Company recourse debt except for the trust preferred securities, which do not begin to mature until 2034 and carry very low interest rates averaging LIBOR plus approximately 2%.

Jim provided a good overview of our progress on share repurchases, which demonstrates our ongoing commitment to returning excess Parent capital to shareholders.

Though share price and market conditions will be factors in our decision to continue buying shares, we do not expect Parent liquidity to be a barrier.

Parent Company unrestricted cash was $142 million at year-end.

Despite $146 million expended for the convertible repurchases, and $128 million in the quarter per share repurchases.

The December sale of $153 million of Parent loans and unfunded commitments to the Bank was a key factor in that liquidity level.

The $112 million sales price was determined based upon the fair value of those loans, which was very close to the outstanding book balances when the sale was closed.

In addition to an $80 million dividend received from the Bank in recent days, sources of Parent cash for 2012 include quarterly tax payments from the Bank to the Parent, which is based on the Bank's taxable income and principal repayments and cash flows from the $533 million in remaining non-secured tide loans at the Parent.

We are at a point in the process of liquidating the Parent portfolio, however, where the pace of loan repayments is not easily predicted and those payments which do occur are not likely to be spread evenly over the year.

2012 maturities in a non-secured types portfolio, for example, are more concentrated around midyear.

Our payoff expectations include loan extensions at maturity in addition to repayments.

Turning to the Bank balance sheet, we raised nearly $240 million of new deposits in the fourth quarter, as Tad mentioned, and we are targeting further deposit growth during 2012 of 10% to 12%.

Our blended cost of interest-bearing liabilities, which includes FHLB borrowings, declined again in the fourth quarter by 3 basis points to 116 basis points.

Considering the forward curve, we now expect our cost of funds for 2012 will remain relatively flat as any pricing pressure from adding deposits should be offset by the downward repricing of maturing FHLB borrowings.

Operating efficiency continues to be an important focus.

The completion of the long planned move of Parent Company employees into the Bank on January 1 will push the operating expense ratio at the Bank closer to 2.3% for a period of time.

Though we expect our full-year consolidated operating expenses to decline 5% to 10% from last year to approximately $190 million to $200 million.

Regarding credit, we saw a further reduction in consolidated non-accruals and the loan loss provision drop significantly in the fourth quarter.

As the Parent Company loan portfolio shrinks, it was down about 60% over the course of 2011, and the number of problem loans in each category dwindle, variation in quarterly provisions, similar to what we saw between the third and fourth quarters, may persist throughout 2012.

Charge-offs were higher in the fourth quarter as we continued to resolve problem loans in the legacy portfolio.

The trailing 12-month charge-off trend, however, continued its decline compared to the prior quarter.

Overall credit trends by any measure improved substantially last year and we expect that same general trend to continue in 2012.

Before closing, I want to deal as succinctly as possible with our fourth-quarter tax expense, the deferred tax asset or DTA valuation allowance and our tax expense expectations for 2012.

For the fourth quarter, we recorded $20 million consolidated tax expense.

Approximately $6 million was due to state income tax expense and several miscellaneous items.

The remaining expense was a non-cash charge of $14 million resulting from the unwinding of a portion of the Bank's deferred tax assets.

That DTA was created in prior year dues to timing differences associated primarily with our loan loss reserves when the Bank was a standalone filer prior to its 2011 consolidation for tax purposes with the Parent.

Bank related timing differences will create approximately $22 million of additional consolidated non-cash tax expense in the first half of 2012.

With the largest portion expected in the first quarter.

In addition, we expect to incur on a consolidated basis tax expense of $4 million, primarily from states in which we cannot utilize NOLs and other small items.

We recognize that our tax calculations are complicated, primarily because of the valuation allowance established against the deferred tax asset and the applicable accounting rules are too complex to cover in detail on this call.

I would be happy, however, to have an off-line discussion about the GAAP tax accounting intricacies of our situation with anyone interested in those details.

In terms of reversing the valuation allowance, the Company was in a three-year cumulative pretax loss position as of the end of 2011.

Which is negative evidence under GAAP and prevented us from currently reversing the allowance.

We expect by the end of 2012, however, to be in a three-year cumulative pretax income position, which we anticipate will allow us to release the portion of the valuation allowance that is ordinary in character.

It should be noted, additionally, that as earnings are generated in 2012, some of the current valuation allowance will naturally reverse.

I will turn the call back to Jim now for brief closing remarks?

Jim?

Thanks, John.

Before taking questions I thought it would be helpful to restate what we see as today's key messages as well as our outlook for 2012.

As I said at the opening, 2011 represented a year of significant progress as CapitalSource Bank continued to grow substantially and profitably.

Both sides of the Parent Company balance sheet were reduced by roughly 60% and well over $400 million of excess Parent Company capital was returned to our shareholders, as we repurchased over 20% of our outstanding shares.

Along the way we continued to take the necessary steps to reduce operating expenses and run the consolidated business with improved efficiency.

As we look ahead to 2012, we see increasing opportunities to take full advantage of our national specialty lending platform paired with our very efficient California-based deposit gathering franchise in order to further boost our growing balance sheet of loans and leases.

We expect the Bank's $5 billion loan portfolio to grow this year by 15% to 20%.

Deposit growth is pegged at 10% to 12% and increasing profitability at CapitalSource Bank remains our overriding objective.

There is an encouraging level of enthusiasm and commitment throughout the CapitalSource organization, which I am confident will propel us to another great year in 2012.

Operator, we are now ready for the first question.

(Operator Instructions)

John Stilmar, Suntrust.

This is Jason Freuchtel stepping in for John Stilmar.

Given that your asset yields have declined by about 25 basis points on your loans, is it safe to assume that you are seeing increased competition from your competitors?

And if so, can you give some detail on that?

Yes, this is Jim, I can take that one.

The answer is that, yes, you are seeing increased competition and that is resulting in our yields declining somewhat.

Obviously we've got 12 different specialty lines and so the competition varies across the space.

For example, as I said earlier this year, in our general cash flow space, there was a lot of lenders that were flocking to that space and as a result we pulled back.

During the fourth quarter that competition seemed to ease a little bit and we were able to do a fair amount in that space.

So, in general, we are seeing that competition.

You're seeing it a little bit in rate.

We're also seeing it a little bit in structure.

So where we have people that are doing covenant-like deals and that, we are just stepping out of those deals and saying that is not a deal for us.

So the answer is, yes, the competition is there.

Obviously we've got the benefit of our cost of funding, is very attractive, which gives us the ability to still make these loans at the yields we are doing them.

Let me add to that, Jim.

It is not to minimize the impact of competition, to your question.

But another reason for loan yields interest income to decline is just the simple runoff of the portfolio.

We've had a high degree of prepayments and repayments and normal maturities current 2011.

And to the extent those are older loans at higher interest rates, just the natural runoff of that portfolio will also result in a declining margin.

We factored that into the NIM forecast that we gave you earlier.

Okay, great.

Thank you.

John Hecht, JMP Securities

Just with respect to the deposit gathering, two questions.

One is, did the renewed deposits come on at a higher or lower all-in cost than the expiring deposits?

And then, Tad, what are you doing with your deposit duration now, given the macro-economic environment and at least the government-oriented explanation of short-term rates?

Yes, John, each quarter we say we'll have to pay more for deposits in the existing book, and each quarter we have been wrong on the right side.

I think what the announcement says is we paid 93 basis points on average and our cost of funds is substantially above that.

So today we are actually paying less for renewed deposits than the average cost within our book.

As far as duration, we would like to extend duration for the ultimate time that interest rates are forced upward.

But every time the Fed comes out and gives us more time, it's demotivating for that.

And even if we chose to extend duration of the deposit base, it's very difficult to do from the customer perspective.

We test longer-term deposits from time to time.

And other than paying a substantial premium over other funding sources, we've not found that to be successful.

So, the average term of most of our new deposits are in 12 to 18 month term.

And if we need to go longer we can still borrow very cheaply from the Federal Home Loan Bank and other sources.

So we've just chosen not to pay out for that.

Okay, thanks.

And another question related to the Bank.

Regarding the four-year plan in bringing the new employees into the Bank, was there anything in the plan related to capital levels and/or the goal to become a bank holding company that is worth updating us on?

There was nothing about capital levels.

Although I will say that we paid an $80 million dividend for the first time since the Bank was created a couple of days ago.

And that was after that plan was implemented.

But as far as the relief on the risk-based capital level, that was not part of that plan.

That will come with the change in charter.

And we think that change in charter will come with approval from a bank holding company status at the Parent level.

And that was also not part of this plan because this was a Bank plan with the FDIC and the DFI.

But I will say that that plan does contemplate us becoming, having our commercial charter at the Bank change within that planning period, and the Parent to become a bank holding company.

So, it's really unrelated to approval of that particular plan but it is still in our forecast.

Okay, thanks for the answers.

Moshe Orenbuch, Credit Suisse

Just a couple of quick ones.

You mentioned a couple of times the transfer of assets from the Parent to the Bank.

Are there any other assets that could be transferred either soon or at some future point as you think about that?

I think relative to what we did at the end in the fourth quarter, that roughly between the loan balance and with the commitments, was roughly $150 million.

And the amount we transferred in was $113 million of funded balances.

And so relative to that, in terms of going forward, there is a specific bucket of covered transactions that you can do between the Parent and the Bank.

So, when we look forward, do we contemplate selling anymore loans from the Parent to the Bank, the answer is, no.

We do think, however, as some of the Parent loans mature, that will provide an opportunity for the Bank to refinance those loans.

So that is the more likely path for loans that are at the Parent now to ultimately be in the Bank.

Okay.

And have you talked about what is maturing over a 12- or 24-month period?

In terms of how much we expect, as we said right now we focus on the non-securitized loan portfolio which is currently $533 million.

There is a little bit of a lumpiness associated with that.

So in terms of how much we expect to be moving this year into the Bank, it's really going to be difficult to tell because some of those might just be extended at the Parent.

Some of those may just pay off.

Some of those may be refinanced at the Bank.

So at this point, when we are doing our production numbers for the Bank for this year, we're not taking into account doing any kind of deals that are maturing at the Parent and moving into the Bank.

We just know that is a potential opportunity we have there but we haven't planned on any significant numbers coming from that.

Right.

We're also looking at it, though, from the other side.

In other words, how quickly you can get this Parent down.

So that's why I asked how much is maturing.

In terms of our non-securitized portfolio, the $533 million, our current expectations are somewhere in the neighborhood of $120 million to $140 million will be collected on that portfolio during 2012.

It will be lumpy.

And as we said in the remarks, it is a little bit concentrated in the middle part of the year.

So that is when we expect to collect a little more cash than, say, in the other quarters.

Okay, thanks very much.

Henry Coffey, Sterne, Agee

Congratulations on a solid operating number.

As we look at the DTA, the language you used was very different.

You said that at the end of '12 you should be in a cumulative three-year gain position.

Is that the correct way to understand it?

Under the GAAP guidance there is a number of different elements that the auditors would look at to determine if it's appropriate to reverse the valuation allowance.

And, at least with our auditor, one of the defining factors is whether you are in a three-year cumulative income position.

And we as a Company had a sizable loss in 2009 so we have to let that year fall off as part of our three-year rolling period.

And so by the time we get to the end of 2012, we'll be in a cumulative income position.

Which means that we've eliminated that negative piece of evidence of having a loss as a cumulative loss And now with the positive evidence of being a cumulative income position, we can reverse.

And is that taking into consideration certain nonoperating items?

No, it does not.

One of the guidelines that you can do is nonrecurring items, you can make adjustments.

And in our case would be the repayment of the high-yield debt in 2011.

And so we could add that back but that would just further add to our positive income stream.

So the statements you are making today are much more concrete than the statements you've made in the past where we were -- I think at the beginning of last year it was, if we are tending towards profitability, we should get some relief.

And now what you're saying is there is a hard bar you think you are going to cross it.

And then is the operative way to recapture the operating NOL essentially, or the reserve, in one big swoop?

Or does it move in progressively during the course of '13?

No, let me break that down into a couple of buckets.

We have a NOL that exists today.

And throughout 2012 we are going to generate earnings and so that will naturally unwind part of that NOL as we take our earnings (inaudible) into the NOL.

Than once we get to the end of the year, we expect to be in the cumulative three-year earnings position.

And then we will have a reversal of the remaining valuation allowances associated with ordinary income, ordinary character.

So the part that we won't reverse, most likely won't reverse, are items associated with capital gains.

Or in situations where we cannot realize that deferred tax asset, such as foreign source income.

And the benchmark you are using on the combined NOL and the reversal of the operating valuation allowance is, quote, $1 a share?

That is correct.

We look at it $1 a share today.

So that is the amount of the valuation allowance that we reverse divided by our existing share count.

So as we move through the course of the year, as our share count changes, to the extent that we buy back stock, that will have an impact on what is ultimately what we believe will be $1 a share.

And then when we jump into 2013 we're back into normal tax environment?

Instead of a very small state-related tax you'll have a full tax?

That is correct.

So we expect for our GAAP tax expense to be a traditional 40% taxpayer.

Great.

Thank you very much, and congratulations.

Scott Valentin, FBR & Company.

With regard to the past, you have given a target cash level.

And I apologize if I missed it.

But in the past you've given a target cash level at the holding Company.

And given you've retired quite a bit of the debt coming due this year, I was wondering if you've lowered that cash threshold?

We have lowered the cash threshold a little bit.

We still have the $29 million of converts that are due in July of this year.

So we've set aside cash for that.

And then we run continuously some capital and liquidity stress test models and that dictates the amount of cash that we expect to maintain at the Parent.

Maybe a little bit broadly in terms of cash expectations at the Parent, we look at through 2012 over the course of the year, that the Parent will generate net cash of somewhere between $200 million and $225 million.

Of which $80 million was recently received in the form of the dividend from the Bank.

So that is our cash expectations at the Parent.

And that will be cumulative cash flow for the year?

Yes.

Okay.

So that would add to what you currently have on the balance sheet with exception of the -- I'm sorry, would add currently to the balance sheet.

And then some portion of that would be retained just as core cash for operating purposes?

That is correct.

Okay.

And then earlier you mentioned also that you have the 12 lending verticals right now but you're looking to add to that.

You've seen some reverse inquiries.

Is that new lines of business?

Or does it become 12 to 13, 14 different lines of business?

Or is it more adding teams in current lines of business?

I think it is going to be more adding.

Relative to the three areas that we have, if you look at our asset base, our cash flow, and our real estate, they're clearly going to be tucked in under there.

We view them as being part of those groups but adding just a little bit more of a different specialty aspect in there.

So, from our perspective, we view bringing in new teams.

They'll be focusing on an area that is a little bit different than what we've been doing, but it in general falls under those general asset classes.

But could we have 13 business lines at a point in time?

Sure, that is a very real possibility, yes.

Okay.

And one final question.

The $80 million dividend that was paid from the Bank to the holding company, is that an annual dividend?

Or do you anticipate going back to the regulators and asking maybe to give additional cash to the holding company at some point during the year?

This is Tad.

It was a special dividend.

It was based on cumulative earnings at a point in time.

We don't need regulatory approval going forward to pay dividends out of the Bank.

But we've not announced a payout ratio of Bank earnings into the Parent.

It is more driven by our own stress test, our own growth targets.

Which, quite frankly, are very ambitious.

And this 15% risk-based capital metric that we are required to maintain.

So I wouldn't expect a level anywhere near that to occur in the future.

And we are producing a high amount of capital retained earnings in the Bank but we are also growing pretty fast.

Okay, thank you very much.

Eric Beardsley, Barclays.

Going back to the margin, I think last quarter you talked about putting new loans on at a little over 6% yield.

Did that change at all in the fourth quarter or was it similar?

Yes, in the fourth quarter, if you look at where we were at, our average yields were at 6.67%.

If you look at where we were for the year, our average for the year was at 6.35%.

I think that range is saying, relatively quick, I think we had a little bit of an advantage in the fourth quarter because of the fact that there was a portfolio purchase in there.

There was a discount involved in that.

And that had the impact of increasing the yield ever slightly.

But if you look at where we are at, yes, we did have a better fourth quarter than we have averaged during the year.

Okay.

And then just quickly on credit, as your mix is shifting overall, how do you see your charge-offs migrating longer-term in terms of potential rate?

We look at our charge-offs to remain relatively stable throughout the course of the year, maybe a little bit front loaded.

But overall we wouldn't expect to be anything unusual throughout the course of this year.

More longer-term as we're looking out 2013, 2014, what type of loss rates are you underwriting new business to overall?

Across our 12 product categories, we have a blended view that our overall reserving provision blended across that is about 150 basis points.

So if you take a four-year average life and assume that that's your charge-off range, somewhere in the 35 to a little over 40 basis points.

Got it.

All right, terrific.

Thanks.

That wraps up our call for today.

Thank you everybody for listening.

Thank you.

Thank you,

The conference is now completed.

Thank you for attending today's event.

You may now disconnect.