SVB Financial Group (SIVB) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SVB Financial Group's third quarter earnings conference call. All sites are now in a listen-only mode and please note that this conference may be recorded. I will now turn the program over to your moderator for today, Lisa Bertolet. Go ahead, please.

Thank you. Today Ken Wilcox, our President and CEO, and Jack Jenkins-Stark, our Chief Financial Officer, will discuss SVB's third quarter financial performance and results. Following this presentation, Ken and Jack along with Marc Verissimo, our Chief Strategy Officer, and Dave Jones, our Chief Credit Officer, will be available to answer questions.

I'd like to start the meeting today by reading the Safe Harbor disclosure. This presentation contains projects or other forward-looking statements regarding the future events or the future financial performance of the Company including, without limitation, guidance for growth in the loan portfolio, financial guidance for the Company's fourth fiscal quarter and full fiscal year of 2006, statements regarding trends in the markets we serve and the regulatory environment in which we operate. Forward-looking statements are just statements that are not historical facts. We wish to caution you that such statements are just predictions and actually events or results may differ materially due to changes in economics, business, and regulatory factors and trends. We also refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's last filed form 10-Q filed on August 9, 2006. These documents contain and identify important risk factors that could cause the Company's actual results to differ materially from those contained in our projections or other forward-looking statements.

Now I'll turn the call over to Ken.

Thank you very much, Lisa.

I am happy to report that we've had another very good quarter. One in a string. SVB Financial Group continues to enjoy strong fundamentals and a growing core business and there are a number of things this quarter that I'm really happy about. The first is our EPS which is once again within our guidance. The second is loan balances which reached a milestone high passing $3 billion during the quarter. And the third is net interest margin which also reached a record high of 7.45% in the third quarter. While we don't expect that number to repeat itself, at least this quarter, we enjoy the highest NIM of any bank in the country, I believe.

Now I'm not as happy about the level of deposits on the balance sheet which were essentially flat vis-à-vis Q2. Having said that, total client funds, including everything on the balance sheet and everything in our broker dealer and money market mutual fund accounts were once again up quarter over quarter. Now I think these results are impressive in themselves but I'd like to give you a sense of the conditions under which we're achieving them.

It's no secret that the entire economy both domestically and globally is operating in a period of turbulence. There's a lot of activity in the market. This past summer, I would say that the world of venture backed companies in particular and the world of investment in the sector of innovation in general was more active than in any summer I can remember. In addition to that, there are more players in our space, many of them competitors than ever before. And many of our competitors, at least from our perspective are offering unusually low pricing and unusually low terms with an unfavorable relationship between risk and reward from the lender's point of view. We don't believe that approach is sustainable over the long haul. Hedge funds are assuming an ever bigger role in the economy and in our sector of the economy as well. And everybody is trying to figure out exactly how that will play itself out over time.

So there's a lot more activity and a lot more competition. That of course creates a lot more opportunity for us but it means that we have to be even smarter about how we pursue that opportunity. Our results show that we're doing that and that we're doing it well. The changing mix in our business is one result of our success. Let me start by saying that our primary focus in terms of new client acquisition is on start ups as it's always been. And we pride ourselves on maintaining dominant market share of start up companies. That's extremely important to us and will continue to be important to us because emerging companies are our life blood.

Nevertheless, as we have grown over the years and gotten very good at meeting the needs of emerging companies, our product set has expanded and we've been able to do a much more effective job of addressing the financial services needs of more mature companies. So our clients, accordingly, are staying with us longer and as we go through time, we're winning more clients away from larger institutions. We're also regaining clients that once upon a time left us for bigger banks with then broader product sets. In some cases they're now unhappy with the services they're getting. They've noticed that our product set has expanded in the meantime and they've come back to us. As that evolution has taken place, just as you would expect, the mix of our overall portfolio has changed somewhat, reflecting the impact of larger, more mature companies with larger loan balances and in many cases much more structured DAPT.

To elaborate further on our changing loan mix, in accordance with some of the trends in the capital markets that we serve, more of our portfolio proportionately consists of private equity and not just venture capital. As you may know, private equity firms basically buy existing businesses while venture firms fund new businesses. While we're seeing a reemergence of venture activity, more of the activity in these past few years is shifting toward private equity and we have moved a little in that direction ourselves, supporting the portfolio companies of the private equity firms and not just those of the venture capital firms.

Another shift in the portfolio has to do with the emergence of new sectors within the technology industry. Technology innovation continues relentlessly. But what constitutes innovation shifts as we go through time, leading to such emerging industries as clean tech, alternative energy sources, nanotechnology, and others. These are just some of the ways our portfolio has changed as we adapt ourselves to the ever evolving innovations sector that we serve.

Another thing I'd like to talk about is our investment in our future. As you know, we've been investing in our growth continuously now for several years. That investment has paid off in a number of ways, including the very large loan balances that we've been booking every quarter. Such growth requires continuous reinvestment in our systems in order to handle more clients, more and more sophisticated loans, and more complex products. So we continue to invest in a thoughtful and productive way in our IT backbone, in our HR systems, in our overall strategic planning process, and elsewhere throughout the Company. Specifically that means that we're investing in hiring and cultivating very highly skilled people. We're also investing in new processes to ensure that we're as effective and efficient as possible and that the cross-selling activities between our various business units continue to evolve in a way that allows to take full advantage of the entire SVB platform of products and services.

The changing regulatory environment has also caused us to invest in processes and systems that will ensure we meet ever evolving and constantly rising regulatory requirements. We believe our efforts have been well received by our auditors.

We're building for the long haul and our efforts are resulting in growth and new revenue streams. As we evolve, we're constantly seeking the cutting edge of what's happening in our technology markets, serving companies at the forefront of innovation as well as the providers of the constantly evolving forms of capital behind these companies. As we look across the globe today, we see that the demand for the kinds of companies we're financing and the kinds of products those companies are producing continues to grow. We feel that our future is bright.

I'm very happy with what we've accomplished this quarter and I'm very happy about the direction in which we're going. And with that, I'd like to pass it on to Jack Jenkins-Stark, our CFO.

Thanks, Ken.

The third quarter results further illustrate just why I love this job. Outstanding loan growth combined with expected SVB financial statement harmonics instead of financial statement noise delivered a very good quarter. As always, the results compel me to identify a few highlight.

First, as Ken mentioned, EPS of $0.68 was within the guidance we provided last July. Second, we reached record high loan amounts on both an average and period in basis. This excellent growth was accompanied by high short term borrowings to fund that loan growth. Third, for the twelfth straight quarter, we recorded an increase in net interest income. With that said, non-interest income for the quarter was lower. And fourth, credit quality was excellent.

With those highlights in mind, let's do a little dissection of the details. Quarterly average assets rose slightly to $5.4 billion for the third quarter of 2006, an increase of about 2% over both the second quarter of 2006 and the third quarter of 2005. Quarterly average loan balances increased by almost 40% annualized from the second quarter of 2006 to another high of nearly $3 billion in the third quarter.

As you may recall, last July we did expect an increase in average loans, somewhat in excess of 20% annualized. But the actual rate of growth was certainly a please surprise. Year on year, our loan growth was more in line with the 20% we forecast in July with third quarter 2006 balance 21% higher than third quarter of 2005 balances. The increase in quarterly average loans was funded primarily by increases in short term borrowing. Average short term borrowings was $523 million, an increase of about $210 million compared to the second quarter of 2006.

Loans grew in all of our target markets in the quarter with the most significant growth percentage-wise occurring in the private equity portfolio. If you look at the first nine months of 2006, it's emerging as the fourth straight year in which we've grown loans to our core markets by 20% or more. By the way, this does feel a little like a forward-looking statement and therefore comes with all the required caveats.

Average deposit balances decreased from the second quarter of 2006 by a little over 3% or $130 million to $3.8 billion in the third quarter of 2006. Our average loan to deposit ratio rose to 77.6% in the third quarter compared to just under 69% for the second quarter.

Due primarily to improved loan yields, largely related to the full impact of second quarter fed funds rate increases and due to higher loan volumes, net interest income rose $4 million to $89.8 million in the third quarter of 2006 which represents a nearly 16% increase over the third quarter of 2005. The improved loan yields and loan volumes resulted in an $8.5 million increase in income from the loan portfolio in the third quarter compared to the second quarter which was partially offset by increases in the levels and rates of short term borrowing. The yield on our loan portfolio net of unearned income rose from 10.31% to nearly 10.5% for the third quarter of 2006, largely due to recent increases in short term market interest rates.

We previously told you that we expected our net interest margin to remain in the mid 7.30 or the 7.30 range for the foreseeable future. And despite a jump in third quarter NIMs to 7.45, we still hold to that guidance. There are a number of elements driving our expectations. The first is that we don't expect to see additional increases in the fed funds rate. We also will continue to rely on short term borrowing as long as loan growth stays as strong as it has. We attribute the higher than typical third quarter net interest margin in part to increases in loan portfolio yields, higher loan volumes, some early loan payoffs in the third quarter, the full effect of the two second quarter increases in fed funds rate, the late quarter sales of certain securities in the second quarter and a change in our mix of earning assets. We do not expect our net interest margin to remain at third quarter levels.

We saw a decrease in non-interest income from the second to the third quarters of 2006 from $41 million to $31 million. The decrease was driven by a number of factors. The most significant of these was a decrease in derivative income, REIT warrant values. As you may recall, in the second quarter, we had an unusually large valuation increase due to three warrant positions whose values changed by almost $8 million due to liquidity events. As we told you, last quarter's warrant gains were an exception and in part this quarter's results show the inherent variability in that portfolio. With that said, we are still winning new customers and taking new warrants and expect warrant income to remain a valuable source of non-interest income.

Also effecting non-interest income in the third quarter of 2006 for lower gains in investment securities of $1.6 million compared to $4.1 million in the second quarter of 2006. This was in part due to lower than realized gains related to distributions from fund investments at SVB capital and in part due to prior quarter fair value adjustments on our fund investments. Client investment fees increased over 5% in the third quarter of 2006 to $11.6 million due to an increase of $600 million in average total client investment funds to $17.8 billion during third quarter of 2006, up from $13.4 billion just one year ago.

As you may recall, there were two non-interest expense items in the second quarter; an $18.4 million charge for impairment of goodwill and a $1.8 million charge in connection with the expected settlement of a litigation matter. If you exclude these items, our non-interest expense rose by $1.6 million from the second to the third quarter of 2006.

Credit quality continues to be a highlight of our performance. We recorded a provision for loan losses of $2.8 million in the third quarter of 2006 compared to $4.6 million in the second quarter of 2006. The allowance for unfunded credit commitments increased by $500,000 and NPLs and net charge-offs were well within our comfort level.

Looking forward, we currently expect fourth quarter 2006 earnings to be within $0.68 and $0.74 per diluted common share. This outlook reflects lower growth in average loans and total client funds compared to the third quarter. We expect growth in the loan portfolio to increase net interest income but at a slower rate than the third quarter since we do not expect any further changes in the fed funds rate. While we anticipate the average yield on our lending will increase slightly, we expect the net interest margin to be comparable to that of the second quarter of 2006.

Our outlook also reflects higher non-interest income, a higher amount of provision for loan losses and unfunded credit commitments on a combined basis and higher non-interest expense than recorded in the third quarter. We do not expect FAS 123R to become final and effective in the fourth quarter and so do not expect any EPS impact from our convertible debt. We expect our effective tax rate to be somewhat lower than third quarter of – excuse me, lower than the second quarter of 2006.

Overall, we are pleased with the performance in our core financials for the third quarter and for the year to date. We continue to enjoy strong loan growth, higher yields on our loan portfolio, and great credit quality.

Thank you.

Thanks, Jack. We'd like to open it up for questions now.

[OPERATOR INSTRUCTIONS] I'll pause for a few seconds here to allow questions to register. And it looks like our first comes from the site of Joe Morford of RBC Capital Markets. Go ahead, please.

Thanks and good afternoon, everyone. I'm wondering actually if Dave is there, if he could just talk a little bit more about the loan growth for the period because it accelerated quite a bit. I know it sounds like more it came from private equity, but just broader on the mix and the different niches and kind of the pace throughout the quarter and things like that.

Okay. And this is Dave. I will at least start with a response. So as Jack indicated, the larger percentage growth, total nominal growth over – quarter over quarter was in the private equity portfolio and consistent with Ken's comments, both the private equity and the venture capital fundings and that book of business. We did experience loan growth in each of our targeted markets. So private client services, premium line were second and third largest percentage growth in the book of business.

Joe, one thing I would add there is that as you know, we have been fairly firm about encouraging analysts to focus on average loan balances rather than period end loan balances. And I think our third quarter is no different. We would encourage that focus on our period end. There are customers in our customer base who are new period end wins progressing of some magnitude and that can influence the period end results and we did see some of that. In fact, we saw a fairly significant amount of that in Q3. So we had great loan growth even on an average balance basis.

I know the focus on the deposits is probably more towards the average too but I was curious – on an end of period basis at least, deposits were up, particularly in that non-interest demand was up a couple $100 million end of period. And there was probably a little less slower growth in the off balance sheet funds. Are you doing more at all to shift some of those off balance sheet funds on the balance sheet or any color or comments on the deposit growth in the quarter, end of period?

Well –

Go ahead.

Well, one is I would again make the same comment I did about the – on the loans. I would make that about the deposits. We do have, as Dave said, we are fairly active on the private equity front and that can lead to large swings at period end as can some of the window dressing. So I would focus on the average. With regard to what we're doing on the deposit front, we do have Greg Becker here who heads the commercial bank activity. So I'll just turn it over to Greg to talk a little bit about some of the actions we're taking on that front although realistically probably few of them are impacting Q3 at this point.

So, Joe, I'll describe a few things. One is we did see in Q3 a nice up tick in new client growth. And those don't happen immediately. They actually take probably on average 60 to 90 days to actually get active if you will. From that perspective we feel good about client growth because that's an indication of where things are headed from our vantage point. Secondly, are focused on more cross-selling of existing services because as clients keep balances to cover those services, clearly our goal is to decrease the deposit balances from that. Thirdly, I would say that we're looking at the pricing on how we look at our earnings credit rates so that earnings credit rate allows clients to take balances and cover fees for services and we've modified that to be more in line with market. We're still above market but more in line with market. And so those are just a few of the things, but I would say our focus is most importantly on new client acquisition.

Okay. That's great. Thanks, everyone.

Next we'll go to the site of John Pancari of J.P. Morgan. Go ahead, please.

Good afternoon. Wanted to see if we could just get a little bit more color on your expectations or on the margin. I know you indicated that next quarter likely would be closer to the second quarter levels. Beyond that, just given the trends that you're seeing in deposits but probably some benefit still from the cash flows coming out of the bond portfolio and then into loans. Do you expect more of a stabilization in the margin after you see a tick back towards the second quarter level.

I would say – oh, I would say it's always going to be difficult to know for certain in part because of the deposit from the deposit perspective just how much some of the initiatives are going to yield. We do expect Q4 NIM to be – to look a lot more like Q2's NIM than Q3's. Where it goes from there is a little bit more difficult to say. I do think though that there is some – going to be pressure on the NIM and I think you should expect, absent some surprises on the deposit front, particularly on the DEA front, I think you should expect to see it trend lower. How much it trends or how quickly it trends is just a little bit – a little bit opaque to us at this point.

Okay. And do you still expect, in terms of what you're doing with the bond portfolio, do you still expect to do some reinvesting into loans with the cash flows in the bond portfolio to help support the earning assets there?

Yes. Yes. Every – every dollar of cash flow that is maturing out of the securities portfolio to the extent that we can and there are sometimes some requirements for us to reinvest for collateral purposes. But to the extent that we can, we are reinvesting it in lending.

Okay. And then secondly on the expense side it looks like professional fees are still somewhat elevated. What is your expectation as to when they can start to revert back to a pre-restatement level.

Well, one, I do appreciate the kind phrasing of "somewhat elevated" and we do – we are absolutely cognizant of the fact that they are – that they are high. And a lot of that is directly related to regulatory compliance activities that we're in as well as initiatives on the IT front and elsewhere that frankly go hand in hand with some of the growth that we've seen. So in a sense, you can't have this kind of organic growth without some kind of investment in that capability, both from a product as well as from a platform standpoint. With that said, we are expecting some of these costs to trend down over time and I would be disappointed I guess to say – disappointed if we didn't see some potential service through cost reduction in Q4.

Okay. Alright. Thank you.

Next we'll go to the site of Erika Penala of Merrill Lynch. Go ahead, please.

Good afternoon, gentlemen. I was just wondering, what moves if any are you making in order to discourage or make more difficult for your customers through deposits off balance sheet?

I'll take a stab and then I really think it would be great if Greg chimed in. One is our focus is really on being a trusted advisor to our clients. So in a sense, it's not that we want to prevent them from doing anything. We want to make sure that they do the right thing that's economic for them and in their best interest over the longer term so that we retain both our reputation as well as that client over the longer term. With that said, we don't want to disadvantage ourselves economically by mischarging for services that we might provide, especially to younger companies and smaller companies and so we are taking steps to make sure that our – our pricing and sort of what I'll call conditions for somebody to take advantage of the off balance sheet accounts is in fact correct and legitimate from the SVB standpoint in terms of the cost that we incur to service those clients.

That's at sort of a high level. I'll let Greg put some practicality around that.

Erika, what we're doing – maybe we haven't done as good a job of segmenting our clients from the standpoint of looking at size of balances and so forth and where they should be to also hit them with access and still being a trusted advisor. So what we're spending a lot of time on is looking at putting together a deposit or investment product set for our clients that really segments them that is absolutely fair and appropriate for them still while being a trusted advisor and also being fair to the shareholders and the organization. So we're looking at those segmentations that I think are going to benefit the bank over the long term.

I think another example or related example might be where a young company has kept less in their DDA account than I think is fair to SVB and moved a lot of – more than they "should have" or is fair to SVB into the off balance sheet account. We're going to be – we're taking a hard look at what is fair and appropriate to avail yourself with that kind of cash management capability and is likely to cause us to move the minimum DDA account higher than what we've allowed some customers to enjoy in the recent past. That would be an example at the practical level without jeopardizing our relationship with the customer from an advisory standpoint.

And the same holds true with sweep accounts and things like that. So the same description that Jack made holds true on other accounts as well.

Okay. And going to the credit side, what accounted for the up tick in non-performing loans?

Well, this is Dave. Let me approach that one. The up tick was – I regard it to be relatively insignificant. We are still operating at very low levels. So – and a counter to – at this diminuous level can have an end of quarter impact. But nothing of any significance in there.

Okay. And also, I wanted to talk about the coverage ratio with declined to 118 basis points. Is there a level to which this number would dip down to that would make you uncomfortable?

This is Dave. Let me offer my perspective. There is no specific level. It is important for us to have a comprehensive view of an adequate allowance. And to say that there is a certain basis points below which we wouldn't drop would not be, in my impression, a comprehensive view, something that is supported by facts and something that we could replicate quarter after quarter. So we have to be a little more thoughtful in terms of an adequate allowance.

And if we could get an update on how SVB Alliant is doing?

Do you want to – ? I can take that. Well, I think Q3 was not what we had expected when we came into the year. I think it was certainly short of what we had expected as we came into Q3. With that said, we are expecting – we have seen the acquisition of engagements occur. We have seen greater set cross selling between the commercial bank and SVB Alliant in terms of the acquisition of engagements. And so we are expecting – I didn't put this in my guidance but we are expecting higher revenues in Q4 from SVB Alliant than we saw in Q3.

Thank you for the time, gentlemen.

Next we'll go to the site of Fred Cannon of KBW. Go ahead, please.

Good afternoon. Kind of following up on a couple other questions. I wanted to talk a little bit about the philosophy on the balance sheet and that is compared to four or five years ago, your balance sheet is very different. I mean, you're essentially – your deposits are all core and at very low rates and your loan to deposit ratio, I think you said, Jack, average was 77% and end of period is 84%. Given that structure, I guess I had kind of two questions. One is since you're – I believe you paid 5.46% on the fed funds and other short term borrowings in the third quarter. I'm curious if those client funds that are off balance sheet, if you're paying that higher rate to those clients and if not why you wouldn't use some of that funding to fund your balance sheet on an ongoing basis?

Well, number one, I just kind of quibble with the language a little bit, Fred. We're not paying – it's not that we're paying something to participants in the off balance sheet funds. It's that they are realizing a market rate depending on their investment in really private label money market accounts or through our managed investments. So you almost have to think about it as an entirely different set of activities, as you know, than the traditional bank which offer them a rate on the deposit. So that's number one.

Number two is we have spent a lot of time thinking about what does make sense for the bank in terms of do we want to offer rates that might be attractive to customers who are availing themselves of the market rates off balance sheet. And that analysis is a tough one both from a forecasting standpoint but also from an impact on the existing balance and the money market funds that exist already in that it would be very difficult to perform wholesale discrimination in essence. And so our conclusion at this point, and I'm not saying that conclusion won't change, is that it makes sense to do what we are doing at this point and you're absolutely right. The balance sheet has changed considerably over the last two years as deposits have absolutely remained core and relatively constant, ticking up only a little bit, while loans have grown very substantially.

I notice you picked on the quarter end loan to deposit ratio. Of course we do watch that carefully, but again I would counsel you to focus more on the average only because we do get some fairly interesting activity at quarter end that's not necessarily indicative of ongoing operations or what's delivering sustainable interest income.

But it would be fair to say then, from your answer, that the clients are earning in some cases on their money market funds that you're helping manage less than 5.46 but that because of operational and client reasons you're not in a position to think that you could use that to fund your balance sheet?

Yes. I'm not sure. I guess you could put it as client and operational reasons. I would say they're client reasons. The client reasons could be categorized as everything from a client willingness to put millions of dollars on our balance sheet and how it conforms with their investment policy to the flexibility that sweep or money market accounts offer them that might not be necessarily the same flexibility we would offer to three, having to offer existing clients similar – increased our interest rate risk.

Well, wouldn't you – I guess the point I'm trying to make is that on the funding side you have an essentially fixed rate funding and more fixed rate funding than perhaps in the past. And on the asset side because of the loan to deposit, you have more variable rate assets than in the past.

I'm sorry. Where are you seeing the greater fixed rate funding?

Well, I mean just that essentially it's all core funded. And your average costs of funds is very low, not rising very much.

What I'm focused on a little bit is the change in our short term debt which is a floating instrument. So that's what goes up and down. It's both cancelled if the loan goes away, but it's also going to float based on short term rates just as our – the main majority of our lending does. So to me that's the interest rate mitigation that we – that we're conducting.

I just have one real quick – sorry to belabor this point, Jack.

Okay.

The structure of the balance sheet is susceptible to rate cuts by the federal reserve though, if they were to cut there would be downsize risks to the margin. In theory you could potentially swap out some of that risk using some –

I'm sorry. I guess I misunderstood where you're headed. Sure. There's a number of instruments we could use on the derivative front to lock in some of the margin that we enjoy today. Right. Sorry. I was focused on a slightly – when you – the focus on the balance sheet caused me to focus on the funding piece. So yes. We could do that. At this point we have concluded that we're not going to do that. And that too may change.

Why wouldn't you do it? What's the argument against that?

The argument would be – is it will – there is a cost impact. It's not free. Number one. Number two, it's – your – it's correct. It's an insurance. But it's also -- it's an insurance that we think is relatively expensive at this point given the risk on the down side and we're choosing if you will in a sense to use the short term markets as a way to fund as well as address some of that interest rate risk.

Thanks.

Yes.

Our next question will come from the site of Andrea Jao of Lehman Brothers. Go ahead, please.

Good afternoon, everyone.

Good afternoon.

Securities gains of $1.6 million. I'm hoping that Jack could give us a break down in terms of how much of that $1.6 is from the coinvestment fund?

How much is from the core investment funds? I'm sorry.

From the coinvestment.

Oh. Coinvestment. Sorry. I don't know that I have a breakdown on coinvestment fund. I think as we said in the press release, we had sort of countervailing influences in that line item. On the warrant side we saw some gains that we booked. Around $3.7 million in gains on the warrant side. That was offset by fair value and losses taken on the investment – both the coinvestment fund as well as the venture funds and the funded funds, rather. So the net was a negative on the funded funds and the coinvestment funds offset by a positive on the warrant funds.

Okay. Perfect. In terms of your – in terms of credit costs, if I heard correctly, you expect an increase in credit cost next quarter. Hoping to get a bit more detail there. What does that imply in terms of your expectations for the charge off ratio, for example?

So, Andrea, this is Dave Jones. At $1.1 million of net charge offs in the third quarter, I regard that as an extraordinarily low number and it is easy for me to imagine a slightly larger number on an average quarter basis. Of course I have no idea exactly what the losses sustained in the fourth quarter will be but on average I think that they will be above $1.1 million.

Okay. But both on and off balance sheet loan loss provisioning, I think if you look back five quarters, the third quarter this year, the $3.2 million total, that's big. So how quickly do you see credit costs going up from that level?

And again, this is Dave. I don't see credit costs going up quickly from that level. As we continue to grow loans, both commitments and funded debt and we sustain a more normalized level of net charge offs and we could have credit costs in excess of the third quarter level.

Great. Thank you.

Sure.

Our last question will come from the site of Brent Christ of Fox-Pitt. Go ahead, please.

Thank you. All of my questions have been asked and answered.

At this time it appears we have no further questions from the phones at this time.

Alright. Thank you.

Great. Thank you very much. Thank you all for joining us today and have a good evening.

This does conclude today's conference call. You may disconnect at any time.