Texas Capital Bancshares, Inc. (TCBI) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the first quarter Texas Capital BancShares earnings conference call. My name is Philip, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Myrna Vance, Director of Investor Relations. Please proceed, ma'am.

Thank you, Philip, and thank all of you for joining us today for our first quarter earnings conference call. As you all know, I'm available for any kind of questions after the call. So if you have something you want to add, be sure to call. Now before we get into discussion, let me read the following statement. Certain matters discussed on this call may contain forward-looking statements, which are subject to risks and uncertainties and are based on Texas Capital's current estimates or expectations of future events or future results. Texas Capital is under no obligation and expressly disclaims such obligation to update, alter or revise these forward-looking statements, whether as a result of new information, future events or otherwise. A number of factors, many of which are beyond Texas Capital's control, could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These risks and uncertainties include the risk of adverse impacts from general economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in the prospectus supplement, the annual report on Form 10-K and other filings made by Texas Capital with the Securities and Exchange Commission. All right, let's begin our discussion. With me on the call today are George Jones, our CEO; and Peter Bartholow, our CFO. And after a few prepared remarks, our operator, Philip, will facilitate our Q&A session. Let me turn the call over to George.

Thank you, Myrna. Good afternoon, everyone, and welcome to our first quarter conference call. I'm pleased to report another strong record quarter for Texas Capital, $33 million in net income and $0.80 in earnings per share. Our credit trends and returns are quite good in spite of a very competitive environment. We experienced an expected seasonal decline in loans held for sale, which does not change our expectations for the year. We have a strong capital position, having raised an additional $150 million in preferred stock. This raise gives us an additional $150 million and gives us the resources and potential to continue our growth. Net income increased 5% on a linked quarter basis and 22% from the first quarter of 2012. Demand deposits increased 4% linked quarter and grew 50% year-over-year from first quarter of 2012. Loans held for investment grew 3% linked quarter, but our loans held for sale were down 11% as expected. However, year-over-year, loans held for investment were up 19%, and the loans held for sale were up 16%. Loans held for sale, as you know, our mortgage warehouse unit performed exceedingly well in a weak mortgage quarter. The national warehouse market and many of our competitors were down between 25% and 35% in Q1, while our decline was less than 1/2 of that number at 11%. We continue to believe that we will end 2013 at approximately the same level on an average basis as 2012. Our strategy, and we've discussed it numerous times, of customer acquisition and increasing availability of financing for our best customers while remaining the preferred lender in 80% of existing relationships is working extremely well in a weak mortgage market, keeping us well ahead of the competition in maintaining volume and outstanding loan balances. The mortgage warehouse unit also is responsible for providing $850 million in deposit balances in March, of which $750 million are non-interest-bearing. Margin held firm at 4.27%, equal to the fourth quarter 2012 and only 9 basis points below Q3 2012. Loans -- on loans held for investment declined only 2 basis points linked quarter, and loans held for sale yields were down 7 basis points. Our capital position was enhanced with the successful addition of $150 million of preferred stock. This capital, along with approximately $200 million raised in third quarter of 2012, strengthens our ability to grow. With that, I'll turn it to Peter for some additional information, and I'll come back after his concludes.

Thank you, George. As George mentioned, we had strong year-over-year growth and net revenue, operating net income and EPS. We did experience a linked quarter reduction of 4% in net revenue due to the day differences, which represented $2.2 million, and of course to seasonal reduction in warehouse volumes and fees that George mentioned. We did have year-over-year net revenue growth of 12% with a 4% reduction in linked quarter due to the Q1 factors. But then net income increased 22% with a 14% increase in earnings per share. That difference resulted from the effect of the equity offering in Q3 2012. You remember that we had a charge of $4 million or $0.06 a share for the settlement of the Oklahoma litigation in Q4. That permitted linked quarter increase in reported EPS of 5%, but a 2% reduction in EPS presented on an operating basis. We did have, in terms of quarter earnings power, a very strong first quarter, seasonally weak quarter, but, as what I described as Q1 factors, was a total of pretax $3.6 million. That's the 2 days difference between Q1 and Q4. And the FICA charges and related aspects of accounting that were an additional $1.4 million. Net interest income was down 5%, only 5% actually, despite an 11% reduction in loans held for sale. The Q1 impact in -- from seasonal factors in loans held for sale, which have already been mentioned, and loans held for investment but still grew 3% linked quarter. As expected, the balances in held for sale remained well above Q1 2012 and our full year average in 2012 of $2.3 billion, consistent with our view that the business can sustain high levels of volume and profitability relative to that competitive position. Noninterest income was down seasonally. In terms of…

Thanks, Peter. If you move to Slide 13, you'll remember it's familiar to you. It shows our loan breakdown by collateral on the left, and it shows little change from Q4 2012. While nonaccrual assets continue to come down, as shown on the column to your right, we returned one large nonaccrual loan to accrual status, and it's sold various ORE properties, reducing our nonperforming asset ratio to under 1% or 0.83%. This is down from 1.06% in Q4 2012. Moving to Slide 14, recaps the credit quality with all measurements improving each quarter. And Q1 2013 is no exception. Total credit costs were over 50% less than Q4 2012. And all nonperforming assets were down $14 million on a linked quarter basis. Slide 15 graphs net charge-offs to average loans, as Peter mentioned, at 7 basis points in Q1 2013. Our reserve to nonaccrual loans was 1.7x, and the NPA ratio was the lowest since before the recession in 2008. As always, I'd like to leave you with a few thoughts. We had strong core earnings and organic growth that will continue throughout the year. We see our return on average assets, our return on equity and growth in our loans held for investment portfolio continuing to outpace most all of our regional peers. We expect our credit costs in 2013 to be slightly lower than 2012. And we have a strong loans held for investment pipeline, and new commitments present opportunities for growth. Our loans held for sale balances should stay high and could grow modestly with increased market share and our participation programs. As we've mentioned, we've successfully completed both an equity offering and a debt issuance during 2012, raising $200 million. Then in Q1, we raised $150 million with our preferred stock offering. We raised the additional capital to maintain a strong capital position, even with the prospect of having to increase the risk weight applied to the warehouse business. Pending resolution of the matter, we have adopted 100% risk-weighted approach with regard to capital supporting the mortgage warehouse. We are continuing to pursue alternatives, which include trying to demonstrate to the OCC that our program has been properly risk weighted in the past. In case we're not successful in that effort, we are evaluating changes to restructure our program that would fit the current 50% risk weight category. This is a very profitable business for us and one we are committed to continuing to grow. Regardless of the outcome of the risk weight matter, we have sufficient capital to execute our program and continue to pursue additional mortgage and commercial relationships in all our lines of business. We're pleased with the results we reported this quarter and look forward to another strong year. These are all of our prepared remarks today. And now, Myrna, I'll turn it back to you for questions.

Great. Operator, I think we're ready to start our Q&A period if you would, please.

[Operator Instructions] Your first question comes from the line from Brady Gailey. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: So the risk weighting issue with the OCC, any idea when -- any idea on timing as far as when OCC will get back to you on if they think there's a change that's mandated here? And to follow up, would be if the OCC comes back and says, "Hey, something has to change here, either you up it to 100% risk weighting or you slightly alter the way that you do this business going from purchasing and 99% participation to 100%." If you did move to a purchasing 100% of the loan, would that satisfy the OCC on the risk weighting issue?

Well, we don't. Brady, this is Peter. The simple answer is we really don't know on either question. We're working on structural issues and will develop what we think should be a valid approach, a reasonable approach, but we got to do that consistent with our own views, very, very, tight views of risk and on an operating as well as put back on other bases. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. All right, and then moving on to held for investment loan growth. If you look at it on an end-of-period basis, you all grew loans 22% last year. That slowed to around 8% annualized this quarter, and, obviously, some of that is a seasonal slowdown. But is there any reason to think that you guys wouldn't be that far off from the 22% last year this year?

No. What we said -- and I think we said earlier in the conversation that we expect a high-teens ability to perform this year. We might get to 20 or 21. We get a little tailwind behind us, but we're looking at the high teens, and we think that's very achievable. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then last question. What were the outstanding syndicated loan balances as of the end of March?

It was down about $100,000 -- $100 million to $1.2 billion from $1.3 billion at the end of December.

Let me add to that. We have already experienced in the month of April more growth than we had in the fourth -- in the first quarter. So we are coming very strongly out of the seasonally weak quarter.

And, Brady, this is LHI. This is the held for investment, not syndicated.

Held for investment, yes. All right.

Your next question comes from the line from Michael Rose of Raymond James. Michael Rose - Raymond James & Associates, Inc., Research Division: I just wanted to get a sense on the warehouse. It looks like, as far as I understand, you usually have a spike at the end of the quarter, but when I look at average versus period end in the held for sale, it looks like it was down. So have you, since the end of the quarter, have you seen the pipeline start to rebuild in held for sale?

Yes. Let me talk about what we're doing. Frankly, the short answer is yes, we're seeing a lot of activity in that area. But as far as color is concerned, we're doing a couple of things that we haven't been doing as aggressively in the past. One is customer acquisition. We have our representatives very much active in the marketplace. We actually slowed them a little bit just because of the activity last year, but we've turned them loose, and we're seeing really good improvement in bringing business that we can do and we can approve to the company. So we see that working extremely well. Secondly, again, as I mentioned, we're still the preferred lender. We believe we can maintain, and that's why we were down only 11% when the market was down 30% in terms of the warehouse side. Participations, we are beginning to buy a few of those back. We haven't -- we've got a 90-day period, as you know, so we've had to wait 90 days to buy some of that back. But that 90 days is about up, so we'll be doing some of that. And as importantly as anything, we are increasing lines to our best clients. These are the largest, most well-capitalized highly liquid mortgage customers we have who will use these lines. And -- so we've gone back and selectively increased lines to these best clients. We think, Michael, all of that taken together over the course of this year can increase outstandings $800 million. Okay. And the customer base still stands at around $160 million if I remember correctly?

That's exactly right. Michael Rose - Raymond James & Associates, Inc., Research Division: Okay. And then George, one more for you just on credit. Is there anything going on in substandard or classified, I noticed the 90-plus day was up. I didn't know what 30-day to 89-day did, but if I remember correctly, last quarter substandard and classifieds were operational.

30 to 89 is up a little bit. It's around 65. I don't see any big issues there at all. At this point in time, by the end of March, we're renewing a lot of lines. We're trying to get financial statements in to get that done. Sometimes it takes a little bit longer and some of these things run into the past due category. I don't see any real issues. If you look at classifieds to capital today, they're as low as they've been in a long time since I can remember. There's really in the over 90 days no problem. One of those in the over 90 days is one particular loan that a property is sold under contract, and we expect that to leave quickly. So I would tell you that credit is about as strong as we've seen it in a long time.

Your next question comes from the line of Matthew Clark from Crédit Suisse. Matthew T. Clark - Crédit Suisse AG, Research Division: Can you talk to the margin and the resilience of those loans yields still? I know you guys have floors in place and that's held those yields up well down to the 2 ticks and the margins staying flat. I guess what's your -- how do you feel about the margin going forward? I assume we'd start to see some pressure maybe resume just maybe because of day count, but just curious on how you think about yields going forward in the overall margin.

Matt, the day count really won't affect it because of the way those rates are computed. What we do expect is a weakening that results from rebuilding the warehouse. Our spreads there are 375 or so, obviously below our margin. So the more growth we get there, the more pressure on margin just from that line of business. On the other side, we are entering the beginning in the second quarter and third quarter in the line renewal period. And we expect to have pressure there. Nothing that would surprise anybody in terms of trends, but between that and competition in the marketplace, unquestionably we'll have pressure. And unfortunately, the more growth, the lower the margin, but the better the net interest income. Matthew T. Clark - Crédit Suisse AG, Research Division: Okay. And then on the loan growth front, and it sounds like there was some seasonality in HFI, just curious as to what else may have contributed to a more muted growth in the first quarter? If you could just talk to the sources.

You just if you have $100 million -- the issue we've addressed in the past with the SNC portfolio is those loans fund and pay down when they do. And with $100 million reduction in that balance plus the seasonality, you're talking about 200 -- really $275 million worth of growth, $250 million to $275 million. Matthew T. Clark - Crédit Suisse AG, Research Division: Okay. and then on the SNC portfolio, can you just update us on the amount that where you're the lead agent and then the amount of nonperformers in there?

Yes. Virtually no nonperformers in the portfolio. In fact, the one I mentioned where we reduced nonperformers by a large amount, that came out of the SNC portfolio. It happened to be one and we were agenting, by the way. But it was a $17 million number and that came out of the nonperforming. So that was the only nonperformer in the SNC portfolio that we had, and today it's back on accrual -- oh agenting, excuse me. We agent about $320 million of that $1.2 billion.

Our next question comes from the line from John Pancari from Evercore Partners.

Can you talk just a bit, just remind us what is the -- your latest update in terms of the bottom line profitability of the mortgage warehouse business for -- at least for the first quarter?

John, it's exactly the same it's always been. It's a very profitable business. It's more profitable when the volumes are very high. There is a, obviously, a fixed cost component to that business with the infrastructure and the staffing. There's also a variable component related to commissions, fees, labor related to the production -- high production levels.

Okay. And then the other question would be on the rate capital ratio, I'm not sure if you said this in your prepared remarks, but they didn't provide them with the release this time. Do you have what the regulatory capital ratios were for the quarter?

Yes. We're actually just -- we're doing that but the tier 1 common to risk weighted is just below 8. Tier 1 capital to risk weighted, 10, a little over 10. And total capital to risk weight, 12.

Okay. All right, great. And then lastly, you mentioned competition when you were talking about the margin there, can you give us a little bit more color in terms of where you're seeing the most competition by type and then who's it coming from and then lastly maybe if you have any color on what's a good average new money yields you're seeing on certain types of C&I and other types of loans?

Well, we certainly see, as we said before, John, pricing coming down, being very competitive, and that's all over the place. That's in every market we're in. If it's a high-quality credit, it's incredibly price competitive. And we are being very competitive, certainly to keep the business that we have, but more to the prospect that's out there also. We're trying to get our fair share, and we're having pretty good success in doing so. One thing I see it's really, really unusual, certainly at this time of the cycle, is commercial real estate. Commercial real estate seems to be, quite frankly, more price competitive, especially multifamily than a number of other types of businesses. And we've also seen the structure in commercial real estate become very, very, I don't want to say weak, but I'll say not as strong as it should be. We've actually seen some fully spec office buildings in our marketplaces, which is quite, quite troubling, I might say. Yields, our commercial yields are down just slightly. Someone else mentioned we did have floors on 6 -- 50% or so of the floating rate portfolio. We still do. Those rates have come down some but we've been able to hold it on about half of those particular loans. We've seen it come down in the mortgage side too a little bit more. But actually, if you look at where we stand today and where we were, I feel really good, frankly, about our yields on the portfolio. I think they're holding in quite well.

The next question comes from the line of Brett Rabatin from Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: I wanted to -- I didn't hear it if you gave it, just the mix purchase versus refi for the warehouse during the quarter. And then also asked the decision to go to the 100% risk weighting, kind of why you guys decided to do that in front of what the OCC may end up making a decision? Why you guys ended up doing it before they made, I guess, an announcement?

On the refi, one thing that you'll find about our program is very different than most other programs is that our refi is much less than most others. I heard one this morning that was on 80-20, 80% refi, 20% purchase money. We're at 58% refi and the balance being purchase money. So that's very important in a market like we're in today when the refi is going away. And we've said on this call numerous times that we target not refi shops, but we target originators that actually specialize in first-time mortgages. And that's who the majority of our customers represent.

We've -- we really, on the call with our prepared remarks, said about all we can say right now on the 100% risk weight issue. We thought we raised capital in the past to be sure that if we decided to move to 100% risk weighting that we would have, certainly have the capital to do so, and we're just going to have to wait and see what happens. We hope it can be resolved in a very timely manner, but the main point to remember is that we got plenty of capital to support it. And certainly on a go-forward basis, we are prepared to do so.

Okay. And then just as a follow-up, the off balance sheet paper, how much of that was maybe outstanding during the quarter on average versus the fourth quarter?

You're talking about the participation program in the warehouse?

Right.

$352 million. We had commitments to sell $604 million, but we sold $352 million, and we'll be bringing, unless volume picks up dramatically, we'll be bringing some of that back to the support -- support our outstandings on our balance sheet.

It's $352 million at quarter end and $350 million for the quarterly average.

Your next question comes from the line of Brad Milsaps from Sandler O'Neill. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Peter, just a question on expenses. I appreciate the color on the seasonality related to the first quarter, but I guess generally your expenses have been up kind of 15% to 17% the last couple of years. Anything sort of hanging out there that you feel like you could back off that run rate a little bit? I know you got some relief in the first quarter from legal professionals, some things like that. But just kind of curious on your thoughts on sort of expenses on a go-forward basis?

It's really just a function of what we do in the hiring and build-out. There are no major problems in front of us that are going to upset the trends. I think we feel very good about where we are. Obviously, being down as much as we were from the fourth quarter was a plus. The credit and related cost are just so much lower, legal and collection, and getting rid of the major losses in the fourth quarter obviously was a huge, huge driver of the improvement. Brad J. Milsaps - Sandler O'Neill + Partners, L.P., Research Division: Okay. And George, can you talk a little bit about anyone you did hire in the first quarter and sort of what you see coming down the pipe in terms of potential new lending teams?

Yes. We're continuing to look for teams, Brad, as you might imagine. Well, they are focused on Houston and Dallas. We have also hired and will be making formal announcement soon a president of our private bank. A very senior individual from industry that will really assist us, we believe, in kicking off our wealth management area stronger than we've had before. So that's a real positive. We have one group that we're looking at right now, and again we're continuing to selectively add to the Houston market and the Dallas market primarily.

Your next question comes from the line of Jennifer Demba from SunTrust Robinson Humphrey.

Two questions. Following up on the expense question from Brad. So Peter, is it fair to say like Brad pointed out, you guys grew expenses 15%, 16% over the last couple of years. Is it fair to say that your expense growth over the next couple of years should be much less, given credit costs have come down so much and legal cost and you're not hiring at the pace you had been in the last few years? And then I have a follow-up question --

Unfortunately, as you know about the pace of hiring, we just never really know. The outlook is pretty damn positive in that regard. We just don't know when and how many would affect in a particular quarter. Given the larger asset size, the larger base, we would expect that rate to come down year-over-year going forward. It's a little obviously hard to predict. We've acknowledged in the past that regulatory costs are going to increase. But again, not as -- no step function up or anything that would be particularly troubling.

Okay. And my other question is related to loan growth during the quarter. I'm just curious as to how much of the growth was related to energy lending?

Quite a bit of it was energy, Jennifer. We saw Houston being quite active. It was up 1 of the 3 top producers of loans in Q1. Houston was up dramatically. Our BankDirect Capital Finance was up on a secondary basis and energy was third. So those 3 areas promoted most of the loan growth.

Okay. And what are your energy outstandings as of the end of the quarter.

That at $1 billion.

Your next question comes from the line of Dave Rochester from Deutsche Bank.

Those capital ratios you guys gave earlier, that includes 100% risk weighting of the warehouse book?

That is correct.

Great. I know you mentioned the regulators have been comfortable with your considering that portfolio to be your liquidity portfolio. I just wondering, I want to get your thoughts on if there are any potential issues when Basel III eventually kicks in, if you think you'll still be able to count that towards your liquidity coverage ratio or if you might have to build the securities portfolio to help with that.

That's another question for which we have to say we really don't know, but there's no indication at this time that, that would be a major factor.

Okay, great. And one last and real quick. I was just wondering if the average warehouse balance was impacted at all by the number of days the loans were on the books? I know you've been trending around that upper end of your 12 to 20-day range. Was just curious if that had come in at all this quarter.

It's coming down somewhat, Dave. As you know, as volume slowed down a little bit, they're able, the investors were able to process faster. And so they're able to take those loans off the financing for our originators faster so the days -- it absolutely does matter on both sides of the coin. When the volume is really high, they're going to stay in the line longer. When the volumes are down, they're going to be taken off much quicker. So it does have an effect.

So if there were a pickup in refi activity, you would see that even more in the balances?

If there was pickup in refi, you'd see probably those days stretch out a little bit and the outstanding stretch out.

Your next question coming from the line of Michael Teladana[ph from GGHC.

Sorry if you said this already but the -- so the reasons the -- in the loans held for investment portfolio, why you're kind of guiding to high teens growth versus the low-20s growth that we've seen in the past couple of years. Is it competitive? Is competitive the #1 reason why for the slight slowdown or is it something else?

No. I'd say that competition is a big part of that. We continued to follow the same model that we followed since inception of the company. We're hiring great teams of bankers and they bring their business with them. It is competitive. And in the past and up to this point, it's also been credit quality too because we have a lot of companies coming off the recession. It's simply aren't as strong as they have been, and we have not been able to finance them. So I'd say competition and credit quality. But we'll be very happy, I believe, if we see high-teens growth. And certainly in the warehouse, if it stays flat to slightly up.

Your next question comes from the line from Matthew Keating from Barclays.

It's Matthew Keating. Just one quick question on bringing back the warehouse participation loans back on balance sheet. I guess that only encompasses those the $352 million or so of those that are outstanding now. You mentioned there's a lag of 90 days or so. As for the financial impact I guess, you see lowered -- plenty lower broker loan fees, but is there any other impact from buying back those participations?

Well, we get those loan fees for everything, not only the participations but the one that we keep on balance sheet too. So that wouldn't -- that shouldn't have too much effect. We plan to bring back maybe up to $100 million of -- or a little bit more of the participations. We have relationships with a number of those purchasers of those participations so we want to be good stewards of that so we're not going to take all of them back at this point in time. But it does give us an opportunity to bring some back and to increase our outstanding somewhat.

[Operator Instructions] And our next question is coming from the line from Scott Valentin of FBR Capital Markets. Scott Valentin - FBR Capital Markets & Co., Research Division: Just a quick question, as you consider alternatives if the OCC comes back and says, "Yes, you must 100% risk weight," and you guys mentioned there might be some alternative ways to restructure the business to avoid that, is there any, I guess, in terms of changing the profitability of the business, would there be any negative impact by maybe any of the changes you're thinking about?

Should not be of any consequence assuming we can get there. Scott Valentin - FBR Capital Markets & Co., Research Division: So is it based on what you're kind of planning right now in terms of changing the business model, shouldn't be any real material impact on the profitability?

Should not be significant.

Our next question comes from the line of Brady Gailey from KBW. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: George, I just wanted to clarify a comment that you made, you were talking about the 3 things that you could do to help grow the warehouse market share business. And then you mentioned an increase, an $800 million in outstanding. Can you just clarify what you were talking about there, the increase of $800 million?

Sure. Really a couple of things that we can do. One is customer acquisition. As I mentioned before, we are stepping up our calling in customer acquisition process on a nationwide basis. So we're going to see the customer acquisition process speed up. Consolidation, again, in the marketplace is benefiting our customer. We see a lot of our larger regional mortgage companies gobbling up these smaller mortgage companies and providing more volume and they need additional availabilities. So one is customer acquisitions. Secondly, we've taken our larger, more profitable, highly liquid, high net worth of good credit quality mortgage companies and increased their line, only if they'll use it. So if we give them an increase, and remember these lines aren't committed, these are not formally committed, but we'll give them more availability if they commit to use it. And these larger companies that are buying other companies need that kind of availability. And we believe, too, that since we're financing the originator that's not focusing necessarily on the refi business, home buying is, in Texas particularly, a lot stronger. And we see a nationwide pickup in the second and third quarters. So we see some natural volume that we think our customers will pick up and need to warehouse with us. And again, the last thing I've mentioned is we still are the preferred line in about 80% of our customers. So we get more usage from our customers than typically some of the other competitors. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Okay. And then specific to the $800 million comment, are you basically saying that those 3 actions will help increase the business by $800 million?

Yes. I remember I said that's over a year and that's not to happen over next quarter. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Okay.

These are things that are going to going to take 3 quarters, maybe even 4 quarters to get there. But it should happen within a year. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And this increase of $800 million, you're guiding to average balance is basically flat 2012 and 2013. So I guess this increase in $800 million will just help offset some volume decline?

Sure. That's obviously right because that's origination. We're talking about average volumes. And if they don't stay on the line but 10 or 11 days, they're going to turn 3x times a month. So that's just fundings. It won't stay on the line that long. Brady Gailey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Okay. And then finally, the actual risk weighting of the warehouse at the end of March. I know that and the end of fourth quarter was around, I think it was 40% or a little under 40%. Did that change materially as of the end of March?

No.

[Audio Gap] the question-and-answer session of today's conference. I would now like to turn the call back over to George Jones.

Thank you, Philip. With no other questions, we'll move on. I want to thank everyone for taking time out of their schedule today to listen to our call. We want to assure you that we're working hard and we'll keep you updated on our progress. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.