Western Alliance Bancorp (WAL) 2015 Q3 法說會逐字稿

Good day, everyone. Welcome to the earnings call for Western Alliance Bancorporation for the third quarter 2015. Our speakers today are Robert Sarver, Chairman and CEO; and Dale Gibbons, Chief Financial Officer. You may also view the presentation today via Webcast through the Company's website at www.westernAllianceBankCorp.com. The call will be recorded and made available for replay after 2 PM Eastern time October 16, 2015 through Monday, November 16, 2015, at 9 AM Eastern time by dialing 1-877-344-7529, and entering pass code 10071677.

The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results include those listed in the filings with the Securities and Exchange Commission.

Except as required by law, the Company does not undertake any obligation to update any forward-looking statements. Now for the opening remarks, I would like to turn the call over to Robert Sarver. Please go ahead.

Thank you. Welcome to Western Alliance third quarter earnings call. Obviously you can tell it was a very good quarter for the Company, and business is very strong here at Western Alliance. This is our first quarter reporting financial performance including Bridge Bank which contributed to the best quarter in the Bank's history. I'll review the highlights, and Dale will discuss our results in a little more detail. I'll give you some color moving forward, and we'll open the lines up for questions.

As you may recall, we closed the Bridge transaction on June 30. Consequently, all of the balance sheet information at last quarter end included Bridge. However, combining our income performance didn't occur until July 1, so this is the first quarter we've included Bridge's revenue and expenses.

Net income for the third quarter was $59.1 million or $0.58 per share. However, this did include a $5.4 million debt valuation benefit from our outstanding trust preferred as credit spreads widened towards the end of the quarter, a $1.3 million gain from accelerated accretion on purchase loans, a $2.1 million benefit from nonrecurring tax items, all partially offset by a little under $1 million in acquisition costs and $600,000 in other costs. Net of these items, net of tax, it represented a benefit to our earnings per share of $0.05.

Top line revenue growth was up over 40% from the third quarter of last year to $145.9 million, while our efficiency ratio increased modestly from the second quarter as we began to integrate Bridge but was still better than the 47% a year ago. Loan growth was strong at $427 million for the quarter, while deposits increased $203 million. Non-performing assets declined to 76 basis points of total assets at September 30, compared to 1.23% of total assets a year ago in the third quarter of 2014.

Our tangible book value per share was up $0.61 during the quarter to $11.86, and it's up 24% over the past year. Our capital growth kept pace with the increase in our assets as our tangible common equity ratio rose to 8.9% at quarter end. Return on assets was once again above 1.5%, and return on tangible common equity exceeded 18%, even after adjusting for the nonrecurring benefits we had during the quarter.

Dale.

Thanks, Robert. Net interest income for the third quarter increased $28.7 million sequentially to $137.4 million. Excluding Bridge from the prior quarter, the net interest income was up $3 million and is up 14% over the prior year, which is generally consistent with the rate of our organic loan growth. Non-interest income rose $2.9 million during the quarter to $8.5 million which is essentially all attributable to Bridge. The effect of the Durbin Amendment was to reduce our debit interchange revenue by $200,000 on a linked quarter basis.

Operating expenses increased $17.6 million during the quarter, all but $3 million of this increase was due to Bridge Bank. We also incurred a $1 million increase from higher FDIC fee as we are now a large institution for deposit insurance assessment purposes. No loan loss provision was again required this quarter as stable asset quality and net loan recoveries sufficiently covered the reserve needed for our higher loan balances. During the second quarter, we recognized a non-cash $7.7 million fair value debt valuation charge as spreads tightened on the $84 million of trust preferred debt that we owe. $5.3 million of this charge was reversed in the third quarter as credit spreads reversed and widened again.

Adding back the $800,000 merger charges, which we backed out of our pre-earnings, results in pretax income for the quarter of $78.3 million. Nonrecurring tax benefits reduced the rate from just over 27% to 24.5%. Income to common shareholders was $58.9 million with 101.5 million average diluted shares outstanding resulting in EPS of $0.58 or $0.53 on a run rate basis excluding the items that Robert enumerated.

The high cash position of the Bank at the end of the second quarter was largely deployed into securities purchases during July. These purchases increased the portfolio by $460 million on a net basis and drove down the yield to less than 3% as the new securities acquired yield in the mid to high 2%'s. Loan yield increased a quarter point to 5.31% which was attributable to the higher yield on Bridge's loans and discount accretion from purchase accounting. Without the Bridge acquisition, loan yield would have been 5.05%, essentially flat with the prior quarter.

Interest bearing deposit cost slipped 1 basis point from the second quarter to 30. If we include non-interest bearing deposits, funding costs declined by 3 basis points quarter-over-quarter to 28, which predominantly reflects Bridge's higher concentration of DDA.

Looking at the top graph, the margin increased 18 basis points during the quarter to 4.59%. The graph at the bottom has been modified from what we reviewed last quarter to back out all purchase accounting effects on the margin.

Prior to the third quarter, almost all of the margin impact was due to accretion of discounts on purchased credit impaired loans. It is now changed with the merger with Bridge as we recognize $4.7 million in the third quarter for non-PCI loans and $2.3 million for PCI discounts. Of this $7 million total, $1.3 million was due to early payoffs and acceleration of discounts.

The graph on the right quantifies the scheduled accretion for the next five quarters which shows the total benefit to the margin could decline from $7 million in the third quarter to $4 million in the fourth. However, this forecast does not include any additional accretion that could be realized from loan payoffs before contractual maturity. Bridge's loans are generally shorter lived than our earlier acquisitions and consequently the loan discounts are accreted over a shorter term.

Operating expense of $72.2 million was up $17.6 million during the quarter, while revenue increased $31.9 million. This resulted in a marginal efficiency ratio of 55% of the change. This efficiency ratio is lower than what Bridge's ratio was on a standalone basis. Despite the increase in the ratio from the second quarter to 46.8%, it is still below 47% as Robert mentioned a year ago.

FTE increased by 4 during the quarter to 1,415. However, this total obscures the significant reallocation of resources that occurred from administrative and operations functions to business development as relationship officers and managers were up by 17 during the quarter.

Pre-pre ROA held steady to last quarter at 2.16% which drove pre-pre income to $73.3 million on our larger asset base. ROA was 1.73% for the quarter and 1.58% excluding the $5 million in nonrecurring benefits which is about the same level as the second quarter when adjusted for one-time items as well.

Reflecting the strong loan growth, total assets grew to just under $14 billion during the quarter. The allowance increased from continued loan recoveries, our asset growth was funded by a combination of deposits and borrowings while our capital was up $69 million from retained earnings and improved valuation of available for sale securities. Tangible common equity was $1.21 billion at quarter end or $11.86 on a per share basis.

For the quarter loan growth was strong in all major product categories with increases in commercial and industrial, commercial real estate and construction. Both WAL and Bridge growth momentum continued as the $427 million third quarter increase was split roughly 70/30 on a pre-merger basis. Geographically, each region contributed to growth except for Nevada which was essentially flat.

Among the central business lines, technology, nonprofit and municipal had the strongest growth, while mortgage warehouse declined as we continue to trim outstandings as pricing pressures remained firm in that category. DDA balances increased $150 million during the quarter, taking non-interest bearing deposits to over 35% of the total. CDs were up $89 million, offsetting a modest decline in money market accounts.

Deposit growth was strongest in Arizona and in our homeowners associations central business line while declining in Northern California. Asset quality was fairly flat during the quarter as a decline in non-performing loans was offset by an increase in special mention or criticized assets.

During the past year, total adversely graded assets from our own originations as well as acquisitions rose from $333 million to $367 million, but declined by 1/5 as a percentage of total assets from 3.24% to 2.6% as the balance sheet rose significantly from September 30 due to organic growth as well as the acquisition of Bridge. We believe the $103 million of acquired adversely graded assets is well reserved since it is already net of $28 million in credit discounts to contractual balances.

Gross loan charge-offs were $1.1 million during the quarter or only 4 basis points of total loans annualized. Offsetting these losses were recoveries of $3.1 million, resulting in a net recovery rate of 8 basis points, our seventh consecutive net recovery quarter. As a result of these recoveries, no loan loss provision was required. While the allowance has increased from $109 million to $117 million during the quarter, credit discounts on acquired loans have doubled from $13 million to $26 million.

Since both of these amounts are resources to cover potential bad debts, we think the aggregation of them better represents the reserves available for adverse credit developments. On a combined basis, the aggregate of these reserves has declined from 1.54% of total loans a year ago to 1.32% at the end of the third quarter. This allowance analysis shows two ways to compute an aggregate reserve ratio which we think improves comparability to other banks that have not conducted mergers or acquisitions.

In the first analysis, the allowance of $117 million is divided by loans held for investment of $10.8 billion to derive the allowance ratio of1.09. Pulling out the total discounted loans that were acquired of $1.8 billion, results in loans the reserve is supposed to support of $8.9 billion or a ratio of 1.31.

The second computation leaves the acquired loans in but adds the total loans and the allowance, the $26 million credit discounts that have been taken. With an adjusted allowance of $143 million and loans of $10.8 billion the ratio would be 132 as shown on the previous page. Again, our balance sheet growth was matched by increasing capital as each ratio remains strong.

Reported return on tangible common equity for the last quarter was 20.1%, and adjusting this ratio for trust preferred gains and merger charges, our ROTC has been about 18% for each of the past five quarters. One of our key goals has been to boost our tangible book value per share which during the past year has risen from $9.53 to just under $12, an increase of 24%.

Looking forward for the remainder of the year, our Bridge integration is proceeding extremely well as the number of operational functions were fully integrated during the third quarter. You should see some expense savings related to the integration in the fourth quarter as we'll pick up an entire quarter of these benefits.

From now, there will not be much change for the Bridge operation until our systems conversion which we expect to be completed at the end of 2016 or early 2017. We are ahead of schedule on expense savings and expect to be modestly exceeding our $10 million annual run rate that we targeted when we put the deal together.

We reiterate our guidance on loan and deposit growth at $1.4 billion annual run rate, that's organic. Or $350 million per quarter as our business development pipelines remain strong. Net increase of 17 FTEs of business development officers in the quarter should bode well for continued balance sheet growth. We are moving a little greater percentage of those into deposit area and are expecting a pretty good quarter on the deposit growth for the fourth quarter.

Excluding purchase accounting entries, our margin rose 9 basis points during the quarter, largely due to the higher loan yield from Bridge, while competitive pricing pressures remain unabated, the third quarter did not reflect the full benefit of lower cash balances and higher security investments that were not in place at the beginning of July. In addition, our 10% senior debt was not paid off until September 1, and our ending loan balances were $260 million higher than the average balance for the quarter. So due to these items, we expect our core margin to increase modestly in the fourth quarter.

We expect operating expenses to decline about $2 million in the fourth quarter from the third. It is a full quarter benefit is realized from the initiation of efficiency savings from Bridge. This lower cost base coupled with an expanding core margin should result in the resumption of our improving efficiency ratio trend into the fourth quarter.

Obviously, we've been in a net recovery position for quite some time. Although there is no crystal ball to predict how long that will continue, we do continue to have a list of recoveries coming in through the Company, primarily from the Nevada franchise, and to date have been fortunate that we haven't had any single loan losses over $2 million for the last four years.

So at this time I'd like to open it up for your questions, please.

We will now begin the question-and-answer session.

(Operator Instructions)

And our first question comes from Joe Morford of RBC Capital.

Good morning. RBC. I guess I was curious on if loan growth side, any color on why Arizona was so strong this quarter and also last quarter you deliberately exited about $100 million of thinly priced credits. Did you do any more of that this quarter as well.

We did about $50 million this quarter in terms of some of the more thinly priced assets. Actually, overall it was pretty well distributed in terms of loan growth. We had a few larger credits in Arizona due to a big shopping center with good credit tenant anchor here on Camelback near 24th street, couple other home builder deals. We had another company that did a major expansion that fights fires with airplanes. And then on top of that, we had probably a little less payoffs over there than typical.

Joe, we also had a little bit of a transfer. So in our equipment finance area, we've moved some of those loans to Arizona. That explains half of that growth. So outside of that it was fairly typical or consistent with prior quarters. So part of that is a transfer and not actually new loans in Arizona.

Did that come from the CBL book, too, Dale?

It did.

That's helpful. That was going to be my other question there. Any comment on deposit growth at Bridge and how you feel about that going forward?

I think it's going to be pretty strong. In addition, we just started a new division, a life sciences division that will be run through Bridge. We just hired a team to get started on that. And that business, the deposits are two to three to one of the loans. So I think that's pretty strong.

We are kind of beefing up our marketing efforts on the deposit side, trying to get a little more out of our branch infrastructure in terms of deposits for local businesses around there, and I think the fourth quarter we're going to have pretty good quarter on the deposit side. So we've got a pretty strong pipeline there. But it's definitely more of a priority and a necessity for us to keep our growth rate going.

Okay. Thanks very much.

Thanks.

The next question will come from Brad Milsaps of Sandler O'Neill.

Good morning. Robert, you touched on a little bit with the life sciences group, but any additional new hires that you've made in the quarter that you would consider significant or maybe the number that you guys added during the quarter?

Well, they're all pretty significant, I guess. I wouldn't want to call any insignificant. But as I said, we did set up a life science group, and we added a couple people in there, kind of get that group running. Originally starting out based in San Diego, but we just hired some people back east there. We are building a new office in downtown San Francisco, a big commercial office, so we're beginning to hire there. We hired a couple people in capital finance. We hired a couple people in municipal finance. And then the balance were really more just traditional C&I relationship managers.

Got it. And then now that you've got a quarter of Bridge under your belt, I know you commented last quarter that you had some confidence, a lot of deal activity out there, maybe you could see something else from you guys the next 6 to 12 months. Any change to that or kind of your view on the M&A environment would be great.

That deal's working good. I think from a people standpoint that's probably what I'm most excited about is all the good people are excited. The Company actually grew. Most times after an acquisition the first few quarters are a little sloppy, and you're having trouble keeping some people and some clients and stuff.

But the Company's actually growing. I've been around most all the offices. I've met the people. I'm really encouraged with the sophistication. I'm going to DC to make some calls on Wednesday. That's the last office I haven't been to.

And just overall in terms of the integration, I think it's been really good. So it's everything we hoped for. So I'm real positive from that standpoint.

We continue to look at other acquisition opportunities on a selective basis, and we'll continue to do that obviously with our currency which is pretty strong, given our results. But we have a fair amount organically in the pipeline too, so we don't want to lose sight of that.

And the reality is, if you can grow organically, and then you can grow through strategic acquisitions, which themselves can grow organically, to me that's more of a preferred means than just kind of buying things that will begin to shrink after you buy them over time, because the fit and the people and everything just aren't the best match. So I think that's kind of how we look at the business.

We don't need to buy anything to grow. We can grow our EPS at numbers that exceed our peers without buying anything.

That's great. Thank you.

Next we have a question from Brian Klock of Keefe Bruyette Woods.

Good morning, guys.

Hey, Brian.

So the other guys asked all the good questions on the loan growth. It's a strong quarter from both Bridge and organic growth out of WAL. Everything was pretty good, pretty positive versus my numbers.

The only question I have is your credit quality's been great. You mentioned recoveries have been out there for seven consecutive quarters. I guess can you talk about this quarter the increase again, a little bit of an increase again in the classifieds and the accruing classifieds and the special mention loans and maybe what was in there, what was driving it and what -- is there a risk of any migration in the near term from those credits?

Maybe a little bit, but I don't think a lot because they're kind of concentrated in a couple deals. So we did a good job in kind of moving some of our credits either out of the Bank or credits that could be upgraded because of Company performance. But where we slipped back was two credits totaling about $32 million. One for $25 million that went to sub and special mention and one for $7 million that went to sub. And the big one that went to special mention, I think we're in pretty good shape.

The Company's got good cash flow coverage. It's got a couple other issues. We think that will get resolved probably in the first quarter of next year, but maybe in the fourth quarter. So we feel good about that credit. The other credit is a business that is probably going to be going through a wind down but we're heavily collateralized, and it should be happening pretty quickly.

One of the things I was stressing on our employee call this morning, because we have a call with all 1400 employees, before we talk to you guys is now that the economy's doing really well, it's really more time to get aggressive in terms of trying to manage out a few of these weaker credits and also to be more vigilant in being out with your customers. So listen, we know we're going to have some credits over time that are going to migrate down. That's just the way our business works.

But we're focused to do a better job of while business is good now trying to get that list a little bit lower. But it was really just a couple credits, and we don't see any loss in either one of those credits, and we think they'll eventually get either in one case kind of liquidated and paid off and in the other case back to a pass category within the next six months.

Great. Thanks for that, Robert. And on the past dues the 30 to 89 was there anything -- any resolution to that post quarter or is that something that --

At the end of the day, those are just like really small balances compared to -- kind of looks big when you go like 7 to 19 but the end of the day out of $10 billion it's -- I don't know, I wouldn't worry about that.

Great. Hey. Thanks for taking my questions and nice quarter with Bridge.

Yes, thanks.

The next question comes from Brett Rabatin of Piper Jaffray.

Good morning.

Hi.

Nice results. I wanted to ask just going back you mentioned you let $50 million go. Robert, do you anticipate doing any more of that? Are you seeing any other potential piece of the portfolio where you might see some larger banks come in and compete too aggressively on price?

We do see some of it, and we just -- that's one of the reasons we have a lot of different types of products and types of loans we can do. I think I mentioned before it's like these franchised finance loans now, the market's out there, 3.5% or whatever, we were doing 5.5%, 6%, we just won't do them. We're seeing a little more in terms of overall basic C&I competition, but where you get into the types of businesses where the Company really wants to speak to someone who has some expertise in their industry, maybe it's medical, maybe it's legal, maybe they're a mortgage Company, maybe it's a municipality.

So there's things like that. There's still a lot of niches that we're in that we're pretty good and smart in that we're able to grow our business, and that's really the main thing that separates us from the typical large community bank or in some cases many regional banks.

They're competing against too many commodity based credit products, and that's why our margin's better. I really don't think it's related to credit risk. I think it's just related to we're picking niches where we've got strong expertise and clients will pay money for it.

Okay. That's great color. The other thing I was curious about, just want to make sure I understood. You mentioned the $2 million reduction in expenses from Bridge. Want to make sure if I understood that properly. That's a net reduction from them, but you might have other expense growth as you're doing other things to grow the franchise.

Probably not a lot. I was looking through some of the earnings of some of these other -- we were one of the few banks that wasn't emptying the cupboards to try to figure out how to squeeze their numbers to beat -- to make their estimates by a penny.

We think total --

We're in pretty good shape on expenses.

Okay. Great. Thanks for the color.

And our next question comes from Casey Haire of Jefferies.

On some of those expenses too we had to pick up some new stuff that hurts us a little bit like the FDIC assessment. Now we're over the -- we're in the big bank category. That went up. This Durbin Amendment hit us. We staffed up our group for DFAST. We're pretty loaded there on expenses.

Good morning, guys. Casey Haire. Also wanted to follow up on expenses. The $2 million redux is that versus the operating number of $72.2 million?

We expect operating expenses to decline sequentially in the fourth quarter. We alluded to this in kind of the comments. We had a great quarter. Our bonus pool, we had to fund those up. That's now kind of loaded to close to the maximum. So that should ease off a little bit in the fourth quarter. We'll see some of the efficiencies we talked about on Bridge as well. We're looking for a sequential decline in operating cost.

Okay. And can you give us -- sounds like you guys are feeling pretty good about doing better than that $10 million cost save number from Bridge. Can you give us an update of how much of that $10 million you've gotten thus far. I think you said it's going to be barbelled. So probably got a decent chunk in the back half of this year, another chunk coming in the back half of 2016.

Right. So we got most of that $10 million is going to be in for the fourth quarter on an annual -- the $10 million is an annual number. Most of it will be in the fourth quarter. Then when we do the system conversion, we actually got some better pricing than we thought, so we're going to pick up some more. We'll pick up a few million on an annual basis when that happens.

Got you. And that will be a second half 2016 event.

At the earliest.

The end of 2016. Fourth quarter 2016, first quarter 2017.

Okay. All right. And then just switching to credit. Just wondering what is the -- on new loan production, I know you guys have a lot of different products and obviously different LLRs on each of them. But on a blended basis what is the incremental LLR percentage versus that 1, 3, 2 adjusted that you guys are reporting.

It's coming in around 1%, maybe a tad over.

Okay. Great. And then just one last housekeeping. The go forward tax rate sounds like there was some benefits this quarter. What is the -- what's a good go forward rate going forward.

I'd take that rate up a couple of percent anyway, maybe to 27%, 26.5%, in there.

Okay. Great. Thanks, guys.

You're welcome.

The next question is from John Moran of Macquarie.

Hi, how's it going?

Good.

Good. Just a real quick question on deposits. I notice that they were down in both Southern California and Northern California. Anything going on there or seasonality in Bridge's business that sort of impacted things? I know that you alluded to some you new hires that are kind of focused on the deposit side. Any additional color you could give us there?

On the deposit side, no we don't see anything that gives us pause in terms of what our growth trajectory is. I would say that Bridge's deposit clients have an average balance that is higher than what Western Alliance has been. And so consequently they have more volatility on their balances and I think you're just seeing that in terms of dollars. We look at the Bridge pipeline for deposits, and it looks good and proportionate relative to the whole enterprise. So as Robert mentioned, our fourth quarter pipeline for deposits we say to us appears really quite strong, and we think we're well positioned.

Great. And then the new hires that's focused more on Treasury management? You referenced sort of life sciences and a really good deposit opportunity there. Is there anything else in terms of the hires?

Yes, treasury management would be the other one that you mentioned. We brought up life science as unlike -- when we do traditional or commercial real estate lending, the amount of deposits we get from a borrower is a small fraction of the lending opportunity, say about seven to one. So $7 in loans per dollar of deposits.

When you look at life sciences, it's maybe two to one or three to one the other way because we hold all the funds from the venture capital that's supporting that business on our balance sheet as they build out their intellectual property. And so you get -- it's a good complement to what we were doing previously in terms of these technology based loans that skew toward higher deposits. You obviously see that with Silicon Valley particularly.

Sure. Got it. Thanks. That's helpful. Then the only other one that I had is kind of ticky tack. On the fee, line other ran up I presume on Bridge. I know those guys had warrant income from time to time and some kickers and things like that on the loans. Anything like that this quarter and an outlook there.

They do have warrant income. They had warrant income in the third quarter. They also have some SBA gains. We're talking about maybe we'll provide a little more specificity or breakout on that prospectively, what that might look like. So yes, again, that's a little bit volatile but their numbers were not outsized in terms of what that looks like.

We had kind of the $3 million increase. That's net of a $400,000 reduction from the Durbin Amendment that we mentioned. But overall, we'll give a little more color, but they do have those items. And they also have foreign exchange which is basically currency translation, and so that's where that growth has come from. But we see that as consistent as well.

It wasn't a (multiple speakers) No, it wasn't.

It wasn't a lumpy, big quarter.

Perfect. Good stuff. Thanks.

Next we have a question from Gary Tenner of DA Davidson.

Good morning.

Good morning.

Had just a couple questions on Bridge. With the new line of business announcements you've made over the past month, month and-a-half, especially on the equity fund resources group, do you think of getting involved there in terms of venture capital and PE funds as a prelude to doing more in the way of early stage lending, something that Bridge hadn't really done a lot of in the past?

A little, but we're not jumping in heavy right now in it.

I want to keep that in perspective also. If you look at Bridge's technology loans, it was about 40% of their total loans and then they're about one-sixth of our size. In total they are about 7% of our loans are now technology loans and then with our movement into these potential areas, for that to even get to be 1% of our loans I think is going to take a little bit a while. It's not going to -- it's not moving toward a concentration or anything like that.

Also, the majority of their technology loans are not on an asset based lending. They're companies that actually have collateral and receivables.

Exactly which is why I was asking if you were going in a different direction.

No, not in a different direction. We're just -- we're trying to provide some more services to these venture capital companies in terms of some subscription lines, and they carry good deposits and -- it is an entree to help us get a little more business because right now most of the business we get there comes from the management side, the relationships with the CEOs and the CFOs in that space. But we're not just jumping in full speed into early start-ups.

Okay. And then also on Bridge, I think you had footnoted their loan growth this quarter was $130 million some odd which seems like that was a decent jump from what we had seen from Bridge standalone over the past couple years prior to the deal. Do you think -- has anything changed there in terms of how -- under Western Alliance, kind of the growth dynamic or the -- maybe being more aggressive or something in the (multiple speakers)

Not really more aggressive, it's just that Bridge given the size of its capital and its entire balance sheet had to kind of measure the growth of their technology business so it wasn't too high a percentage of their entire loan book. And so they kind of had a governor on them, and that's one of the reasons they were excited to find a partner like us who could allow them to keep doing what they're doing, but do more of it because our balance sheet's bigger, and we could absorb it.

Okay. So a little more of a capacity issue than anything else.

Exactly, yes.

That's helpful. Thank you.

At this time this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Yes. Appreciate you calling in and listening. I think we'll be off to a good fourth quarter. Of course, this is the only quarter in the last three years Dale's predicted the margin to go up instead of down, so hopefully.

I've been wrong all the other times.

He's been wrong for three years. (laughter) Hopefully he's not wrong this quarter. Business is good here. We're pretty excited. But it is a tough business so we're continuing to work hard and -- but there's a lot of opportunity for us right now. So we're feeling pretty good. Thanks for your interest and participation in the call, and we'll talk to you next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.