Ameris Bancorp (ABCB) 2015 Q3 法說會逐字稿

Good day and welcome to the Ameris Bancorp third quarter 2015 financial results conference call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Mr. Dennis Zember, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Fawn, and thank you all for joining us today on the call. During the call, we'll be referencing the slides and the press release that are available on the Investor Relations section of our website at amerisbank.com and also on the SEC website in the 8-K that we filed this morning. Ed Hortman, President and CEO, and myself will be the presenters and available after our prepared comments to answer any specific questions you might have.

Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risk and uncertainty. The actual results could vary materially. We list some of the factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any of the forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law.

Also during the call, we will discuss certain non-GAAP financial measures in reference to the Company's performance. We've got a reconciliation of these measures and our GAAP financial measures in the appendix to our presentation.

And now I'll turn it over to Ed Hortman.

Thank you, Dennis, and good morning, everyone, and thank you for joining our third-quarter earnings call. I'm going to review the highlights of our quarterly results, then give an update on our recent acquisitions and make a few comments about M&A in general.

First, on the results front, we reported operating earnings per share of $0.49, which is up 13% from the $0.43 per share we reported in the same quarter in 2014. Total operating earnings for the quarter totaled $15.9 million, which is an increase of 35% from the third quarter of last year. Of course, earnings per share growth is less than the growth in nominal earnings because of the additional 5.3 million shares we issued in the first quarter of this year.

Our operating results practically mirror the actual results. We're only excluding a net amount of $209,000 from actual earnings, which includes the combination of investment security gains and some merger conversion-related costs that we incurred. Actual earnings for the quarter came in at $15.6 million compared to $11.7 million in the same quarter last year.

Our operating return on average assets for the third quarter was 1.22%, up one basis point from where we were a year ago. Operating return on tangible capital was 16.3%, which is down from 17% in the third quarter last year. Our return on tangible equity is lower in the current period, obviously due to additional tangible equity compared to the year-ago period.

For the third quarter, we reported an increase in tax equivalent spread income of about $8.5 million, or 21.5% when compared to the same quarter in 2014. We picked up about $800 million of liquidity when we closed the two acquisitions in the second quarter, and we're about two-thirds of the way through the initial efforts at deploying those funds. We will complete the deployment of funds by the end of the year and expect to be on a full run rate with spread income as we start 2016. Dennis will discuss in a little more detail where we're at on this strategy in a few minutes as well as provide some color on the net interest margin. But suffice it to say we're right on track with where we thought we'd be on yields and margins heading into the fourth quarter and into 2016.

Non-interest income for the quarter was very strong, coming in at $25 million, up 40% from the third quarter of last year and up 21% from the previous quarter this year. We continue to build non-interest income from multiple sources. The level of diversification we've achieved between spread income and non-interest income is noteworthy, especially in light of the fact that we're less focused on volume in those businesses than we are just on pure profitability.

One item of interest being expressed by some investors is the level of revenue on the recent acquisitions and to what extent our forecasts were interrupted by the decline in deposit balances prior to the acquisition. In our initial forecast back in January, we announced the two transactions in full cast and incremental pickup and service charges of $4 million per quarter. The pickup this quarter came in at $4.35 million. The additional revenue we earned from not being subject to the Durbin Amendment more than made up for the higher level in runoff in deposits that we experienced. In our opinion, it's really good news and gives us confidence about our expectations going forward.

Our mortgage revenues were strong during the third quarter, and that's normally our best quarter. Total revenue in the retail mortgage division came in at $12.3 million compared to $8.6 million a year ago. Warehouse lending revenue was up 70% compared to the third quarter last year in net income, and this produced an increase to about $845,000 for the quarter.

SBA revenues and profitability there were down slightly from where we were a year ago, but our pipeline going into this quarter is strong, and we've made several good hires in the third quarter that will move the needle, we think, in the next few quarters.

On the expense side, we had about $48.4 million of operating expense compared to $38.6 million in the same quarter a year ago. Of course, the main reason for the increase is the growth in total assets from the two acquisitions we closed in the second quarter of this year, as well as the increase in revenue from our commission-oriented businesses. Dennis will cover this in more detail, but we have about $2 million in quarterly operating expenses that we expect to remove with branch closures and the final integration of the two transactions. And we expect the vast majority of that to be prior to year end.

Credit quality expense is another item that's received a lot of attention. Our higher level of credit quality expense over the last couple of years, and especially the last few quarters, has caused too much noise for investors to appreciate the kind of progress we've made building our real core earnings machine. We took a credit charge in the second quarter of this year to accelerate the movement of nonperformers and to allow us to achieve a normal level of credit expense going forward. For the quarter, we reported $2.1 million of credit expense, which compares very favorably to all previous quarters. We had forecasted our run rate would be in the $2.5 million range going forward, and we're still confident in that level.

On the balance sheet, we have steady asset levels of about $5.2 billion, which is what we expected. Total loans, including loans held for sale, increased by $204 million over the linked quarter, and we're up $825 million against the same quarter in 2014.

On just the organic side, when we exclude covered loans and purchased pool loans, we saw an increase of about $78.2 million, or 10.5%. For the year we've grown organic loans about $300 million, which is tracking to about a 12% growth rate. We'd really like to see that a little higher to be able to deploy the cash flows off the mortgage loan pools and the traditional commercial assets.

We continue to see good momentum on the deposit side, although non-interest-bearing was slightly lower in the quarter. I expect a rebound in the fourth quarter, as we normally see a transition from ag loans to checking accounts in the fourth quarter, as well as some inflows from our municipal customers.

I was really pleased to see a great quarter of capital build. Tangible book value grew by $0.50 during the quarter to $12.31, and our tangible common equity to tangible assets increased to just over 7.75%, one quarter after we completed the two transactions. I like where our Company is situated with respect to capital ratios, and especially with the capital build I expect over the next few quarters.

Before I turn it over to Dennis, let me update you on the M&A activity. We completed the conversion of M&S Bank in Gainesville, Florida, at the end of September, and that went smoothly. We're on track to get the cost savings we had outlined on both that transaction and the branch acquisition, with back-office integration and branch closures and our revenues coming in just where we had planned them to.

We announced earlier this month the deal in Jacksonville, Florida, where we would be acquiring Jacksonville Bancorp. The investor presentation was filed on October the first and can be found on the SEC's website. Jacksonville Bank is about a $100 million bank in Jacksonville, Florida, and we believe a very strategic deal for us and one that has meaningful potential upside. The deal is neutral to tangible book value and the capital ratios and is very modestly accretive to earnings. We expect the deal to close some time in the first quarter, and then we would expect the conversion before the end of the second quarter of 2016.

We always get asked about M&A and what the current situation is there. And I would just say that we're still having conversations, as we always are. But our focus, our number-one focus, is on our operating results for 2016, closing and integrating the Jacksonville bank transaction and delivering the operating results we've been talking about.

So with that, Dennis, I'll stop and I'll turn it over to you to provide some more details.

Okay, thank you, Ed. I'm going to add just a few comments about our results. And again, I'll be referencing the slides that we published this morning. Ed covered most of our operating results through page 5 of the presentation, so let's move to slide 6 concerning total revenue for the quarter.

Total revenue for the quarter, excluding accretion, came in at $69.7 million. We're excluding about $3 million of accretion in the third quarter of this year, which is almost exactly what it was in the same quarter a year ago. Against the first quarter of this year before there was any impact from the two acquisitions, this is about a $15.9 million quarterly increase in total revenue, or about 30%. Approximately $10.7 million of that increase relates to the increase in revenue from the two deals that spread and non-interest income, so $10.7 million per quarter. There's about $2.5 million per quarter that relates to the stronger mortgage results, which is what we expect in the third quarter, especially relative to the first quarter of the year. And $1.9 million is the net improvement we've had in our core bank revenues, which includes about $800,000 in lower covered loan revenue.

We're showing another pickup in the fourth quarter total revenue to $72.1 million, and again, most of that is just from what Ed mentioned in our ability to finish the deployment of the liquidity we picked up in those two deals. Mortgage normally does flow in the fourth quarter. We expect that to happen, but we expect slightly higher commercial loan fees as well as a slightly better quarter with SBA gains.

Regarding our net interest margin, we came in at 3.81% in the quarter when you exclude accretion income, which is down six basis points from the previous quarter. Our deployment strategy is going to help that ratio, but we do expect an influx of seasonal liquidity we get in the fourth quarter -- Ed mentioned that -- on the deposit side. I think that that's going to probably keep us in the 3.80% to 3.85% range, at least for the next quarter, and probably into the first quarter of 2016. As we go into 2016, if we're successful remixing the cash flows off the mortgage pools into traditional commercial assets, we could see a pickup in net interest margins, regardless of what happens or doesn't happen with interest rates.

Ed covered non-interest income improvements, so let's skip ahead to slide 8, or operating expenses. For the quarter, we showed higher total expenses of about $9.8 million compared to the same quarter in 2014. Against the first quarter of this year -- again, before any of the acquisition activity -- we showed higher bank-level operating expenses of $7.5 million per quarter. Our recent announcement concerning branch closures, as well as the remaining integration savings we expect from Merchants & Southern, should reduce quarterly operating expenses by about $2 million per quarter that we expect to start first quarter of 2016.

We do have other expense initiatives that we're working on that we're not ready to discuss that we're targeting for the first half of 2016 that we believe are necessary to slow the growth of operating expenses and ensure that we hit our targets on efficiency and overhead ratios.

On the line of business side, we do expect some additional investment in both mortgage and SBA -- not as much, really, in the fourth quarter, but as we move into 2016 and we continue to scale both of those businesses, really about the same pace that we expect the rest of our operations to grow.

Skipping ahead to slide 10 on loans, some of this I'll repeat some of what Ed said, but there are several moving parts here. First, we did increase our position in the purchased mortgage pools to approximately $410 million. That's up from $269 million, where we ended the second quarter. In the third quarter -- excuse me, in the fourth quarter -- we do expect to see another improvement, maybe at about that same level we had in the third quarter in those pools until we come into the first quarter, when we expect to remix those assets.

We had covered loan runoff of about $18.6 million, so covered loans ended the quarter at about $191 million, or only about 5% of total loans. Organic growth in loans, which for us we include legacy loan growth net of purchased loan runoff, came in at $78.2 million for the quarter, about 10.5% annualized. Like Ed said, that was a little slower than what we were looking for. But still a positive trend here is the amount of internal growth we've had this year relative to covered loan runoff.

In all of -- to some perspective -- in all of 2014, covered loan runoff negated about 51% of our organic growth in loans and closer to 70% of our incremental revenue. For the year-to-date period in 2015, covered loan runoff has only been 26% of our internal growth. And when we look forward to 2016, we're forecasting only 12% to 15% of our organic growth to be replacement or covered loan runoff. The treadmill we've been on replacing covered loans and covered loan revenues is waning, and we're looking forward to seeing real improvement in spread income and total outstandings in the coming quarters.

One last slide before I turn it back for Q&A is slide 13, regarding credit quality. In the quarter, we moved about $9.7 million of nonperformers, and we're going into the fourth quarter with another $11 million that are either under contract or have some form of resolution in hand. With this, I just wanted to reiterate our confidence level on achieving the 1% target on nonperformers to total assets by the end of 2015.

So with that, I will turn it back to Fawn for question and answers.

(Operator Instructions.) Brady Gailey, KBW.

So I'll start with SBAs. There's been a lot of talk about that this quarter, just as results have come in a little weaker than I think the street had forecast. I know that you-all's gain on sale margin was down a little bit -- nothing huge, but 100 basis points. Can you just comment on that business and what you're seeing as far as demand to buy that paper and gain-on-sale spreads?

Yes, Brady. We're not seeing, really, any pullback in the gain-on-sale levels. For us, it was just not getting enough loans sold. I mean, we show on one of our slides we sold $8.8 million. We've produced a good bit of loans that are not fully funded, so we've been building a pipeline of SBA loans that we're waiting to be fully funded before we can sell. And that's, again, why we think fourth quarter will be better.

For us, this year we'll probably be somewhere closer to $65 million to $75 million in total production. And we think each business development officer ought to be doing somewhere in the $10 million range. So again, for us, this business just hinges on recruiting the right people. And we're doing that, but it just -- we're pretty selective on both the loan officer and the credits we're putting on.

Okay. All right, and then so the purchase of the pooled ARMs -- I think I'm reading you right, that it will be done by the end of the year, and that book should max out at about $550 million at year end. And then from there on out, the plan is to transition that into the regular loan book? Is that the right way to think about that?

Yes. And I'm at $550 million. It may be a little higher than that. In the two deals, we picked up $1 billion and $50 million of earning assets. Some portion of that we wanted -- well, $195 million of that was in loans, so it really left us with, call it $850 million of real liquidity to invest. And we're debating internally, and we like the purchased mortgage pools a little better than we thought we would. The cash flows are more reliable, actually faster than what we thought. The yields are better relative to bonds. But I think somewhere between $500 million and $600 million is probably the right level.

Okay. And then the guidance for the core margin to be that 3.80% to 3.85%. You add the accretion to that to get your reported margin. Accretion's been running around $3 million a quarter year to date. Do you think that's ballpark, kind of the right number over the next year or so? And once JAXB comes online, will that quarterly accretion number tick up at all, or will it stay pretty much the same?

On JAX, we have a pretty conservative credit market, just under 5% higher than their loan loss reserves. There could be some non-accretable debts that flow over from that, but we're not as much -- we understand investor angst with the level of accretion. And again, Ed and I have said several times that we're serious about book value, so where in the past we might have traded some book value in an M&A deal for a good credit mark, we're not doing that as much. I don't think you'll see as much accretion coming off the JAX bank deal as you have the others.

$3 million? I'd say it's somewhere $2.5 million to $3 million a quarter. Maybe 20 basis points is what I would add for the pickup from accretion.

Okay, great. Congrats on the quarter and congrats on getting the stock in the 30s. Well done.

Thank you.

Tyler Stafford, Stephens, Incorporated.

Just to follow up on Brady's question on the purchased mortgage portfolio, how much cash flow should that throw off in 2016?

At $500 million, we had forecasted about $150 million a year. So if we, say we take it to $600 million, that's maybe $200 million a year.

Okay. And then with the remix that you guys are doing over the next couple of quarters, and absent the impact from JAXB, how much actual earning asset growth will we see in 2016, roughly?

We're probably something in the 5% range. And again, that's going to be -- we're not wanting to stand still on the deposit side, but we're not going to be aggressive, given where we are on the mix of earning assets. So 5% or so.

Okay.

Sorry. It goes back to one thing, what Ed had mentioned about the kind of capital build we expect. A lot of that comes from -- not a lot of growth in total assets; just more of a remix.

Yes, okay, no, that's helpful. Did you guys recognize any of the previously discussed cost saves in 3Q, or should all that be coming over the next couple of quarters?

There was some. There was about probably $300,000 of the cost saves from Merchants & Southern. So on an annual basis, it's about $1.2 million out of Merchants & Southern. The rest of it is personnel systems. Most of that's being realized this month, so probably have a full run rate going into the first quarter.

Got it, got it, okay. So with everything you guys are doing on the expense side and the earning assets side, remixing that, clearly going to make some good progress on the profitability and the efficiency ratio here in the next few quarters. Any commentary or thoughts on where profitability and efficiency could trend as we get through this remix and cost cuts by year end, call it?

Well, our efficiency ratio is 60%, and forecasting when we get that is difficult. But between these cost savings and the additional pickup on revenue -- and the way we're getting the revenue, really, is not, there's no new expense load for that. It's probably second or third quarter that we get closer to that.

Profitability ratio's, I think, probably all the way into 1.25% to 1.30% range. And with the capital build, we're probably not going to be doing 17% and 18% return on tangible capital, but 15% or so is, long term, I guess, what we would forecast. What we did this quarter from an ROA standpoint, we feel pretty comfortable with. Obviously, it will pick up some with what you said, the cost savings and the additional revenue. But probably 1.25% to 1.30%.

Okay, great. And maybe one last one if I could sneak it in. Do you happen to have the new purchase refi mix within mortgage this quarter?

I don't have it for the whole quarter, but one of the months was 91% purchased, 9% refi. And I can't remember; it was either July or August. But I don't have it for the whole quarter, but I'll get that and email it to you. Again, what it's been for quite a while, as driven with off of construction lending, with brokers -- excuse me, with construction firms or with real estate brokers or real estate agents. It's not really focused at all on refi.

Great, thanks. Congrats on the good quarter, guys.

Christopher Marinac, FIG Partners.

Dennis and Ed, I wanted to ask you about the risk management team and what you have in place prior to the JAXB merger and what you have to do in addition to that just to either meet standards or just bring them onboard. Do you need a lot of additional team for that?

Chris, we have a really strong risk management team. We don't need any build there, but I'll tell you, there's some -- every transaction we've anticipated, we've had a concerted effort to have the resources in place prior to seeking approval for those. And so in that vein, I think over the next six months or so, 12 months, you'll see us building a little in compliance, particularly in IT security areas that are not real gaps. But I think as we continue to grow, we'll need more expertise. So from the risk management perspective with Jacksonville Bank, we're in good shape. We don't need any deal there at all.

Okay, very good. And Ed, would you envision, as Jacksonville gets integrated next year, that you'd consider additional external moves? Or will 2006 (sic) be more of an organic-focused year?

If you look at our history, you can just assume that we're going to continue M&A. There's still plenty of targets that would meet our criteria. But I'll reiterate what I already said -- our focus, our number-one focus, is going to be delivering 2016 results and making sure our core machine is running smoothly and we're making the progress we need to make on expense control disciplines. So I guess the short answer to your question is yes, but that's a 1A strategy as opposed to a 1 strategy.

Great. Thanks for the background on that. And just one last question. Just want to delve a little bit more to your growth here in Atlanta. From the standpoint of what you're seeing here, have you been pleased with the growth there? And I guess just elaborate on the opportunity here locally.

We're very pleased with our production there. As we look around and see where opportunities are, that market is clearly an opportunity market. But with our wide footprint, we've got similar opportunities in other markets. Atlanta's clearly the biggest market, and we'll continue to look at opportunities there.

Great. Thanks, Ed. Appreciate the color this morning.

Peyton Green, Piper Jaffray.

Certainly, congratulations on a very fine quarter. I just wondered, maybe, Dennis, if you could comment a little bit more, as we get out into the middle of 2016, and what your thoughts are. I mean, if we look at the bank, separating out mortgage and SBA -- I mean, certainly, the mortgage and SBA businesses have been doing very, very well -- the bank is still operating with an efficiency ratio of around 70%. Now, I know the cost save initiatives that you've highlighted really don't kick in until 2016. But what is the core goal from an efficiency perspective for the bank? What's the business model perspective of where you think the Company should be as a $5-plus billion asset entity business model going forward?

All right, Peyton, thank you. There's several. I'll give you several initiatives that we're working on and highlight what you've mentioned in the core bank. And we've made a big deal internally about the fact that we've been getting all of our growth, really, from M&A and from -- from M&A and from what you mentioned, the non-interest income lines of business. And really, our core bank that's still 80% has been struggling with economic situations. There's a lot of refinance business, and it's hard to keep assets on your balance sheet. A lot of banks are dealing with that.

But for us additionally, it's the covered loan runoff, or replacing that. 2014 was 70% of our incremental revenue, and this year it will probably be about 35% of our incremental revenue. Going forward, I made the point I don't think that's going to be the case. And remixing these earning assets from purchased mortgage pools into commercial assets, there's a real pickup in the Company on production goals and production standards and fee income and fee income standards. And that we believe we're in the right economic period to be a little more aggressive.

If you look at deposits, we've been growing non-interest-bearing deposits in our Company at way more than 20% organically, and then probably another 20% through M&A. So we've built a really nice book of non-interest-bearing deposits. But when you look at the rest of our deposit portfolio, we're down or flat. And so total growth in deposits, without M&A, is really in the single digits. And so that's not made our branches look as efficient as we want them to. We've got initiatives to change that, to see internal growth on the deposit side to be better -- like I was telling someone earlier, at least 5%.

So I think some of the growth initiatives that we're expecting in the core bank is something that we've not seen -- growth in core bank revenues and at least a standstill on core bank operating expenses. When you back out the operating expense pickup that we've had from M&A, and you look at just what the bank's done, it's really not been that much. I mean, there is some discipline on operating expenses in the core bank, and most of that's just been because of more of a flat line on core bank revenues. I think that's going to change.

So if we looked at year over year and we saw a $9 million increase in revenue and a $7-and-change million increase in expenses, that's not what you're talking about. I mean, you're really talking about keeping expenses flat but revenue growing.

I mean, at least I would -- those ought to be increasing. I mean, revenue ought to be increasing. if we're increasing revenue at $9 million, we ought to see maybe $4.5 million or $5 million increase in expenses -- something that's more closer to our 60% target, maybe even a little accretive to that.

Okay, perfect. Thank you very much. That helps a ton.

Jennifer Demba, SunTrust.

Hi, this is Michael Young on for Jennifer. Dennis and Ed, I was just curious -- with all the liquidity on the balance sheet, if we do get a rate hike, say, at the end of the year, what could we expect to see you all do differently with that liquidity or even elsewhere within the franchise if we start to see rates rise like that?

I think, Michael, if we see rates rise, I don't know that there's -- well, if we see rates rise the 25 or even 50 basis points that's been talked about, I don't know that that would cause a change in our business plan. I think what it might do is it would, hopefully, increase -- there would be some increase in, say, five- or ten-year Treasuries and LIBOR spreads that would slow down the pace of refinance activity in commercial assets and probably see more of our production hitting the balance sheet in a net fashion. If that were the case, maybe we, where right now we're looking for 12% to 15% growth in our organic loan book, maybe we'd be more comfortable with staying at the top end of that range.

Okay, appreciate that. And also, just as we look out to next year, what areas, maybe excluding SBA and mortgage, but on the lender side, what geographies or product types are you targeting maybe more hiring or growth in?

Right now, we've only got about $75 million of residential construction. That's outstanding, and then we've got lines that are obviously larger than that. But for a loan portfolio that's tracking to $4 billion, we feel like we could stand a little more concentration there. So probably the residential construction book is something we'd be looking at.

And as far as markets, our top five markets are what they have been -- Atlanta, Jacksonville, Savannah, Charleston, Columbia. With our M&S deal, we're in Gainesville, Florida. Really, that's a pretty good market. We're in Greenville, South Carolina. I believe that could be a good market for us as well. Did that answer your question?

Sure. But any specific targeted plans on hiring in any of those markets specifically?

We're definitely looking to -- I'd say we're looking to hire, really, in all those markets. If we get an opportunity at the right lender, absolutely; we'd look in all of those markets for a new hire.

Okay, thanks.

Peyton Green, Piper Jaffray.

Yes, Dennis, I wanted to ask the interest rate question the other way. If Fed funds is flat through 2016 and the loan income's down, how would that effect the margin gains?

It may be probably five to ten basis points lower. It just -- if the 10-year were to come down, say, into the 1.75% range, I guess is what you're asking. If the 10-year were to come down and we were to see, what we would see is even faster payoffs and refinance activity in the commercial assets. And we would, given how much we want new commercial assets, we would probably track that even lower. So I'd say probably -- I'd say five to ten basis points.

Okay, so the core (inaudible) set at 3.80% to 3.85% would be 3.65% through 3.70%, somewhere in there. Okay, great. Thank you.

Nancy Bush, NAB Research.

I'm looking at your last slide, and I'm looking at it as somebody who's new to your stock, so maybe I can take a fresh perspective here. When you talk about the discount to your peer group and the reasons for it, the overhangs causing the discounted PE, and you know that lower volatility in earnings will drive higher multiples. And yet you've got the Jacksonville conversion and acquisition coming up. And you're talking about conversations with companies in Atlanta. And I guess my question would be, are you at that point of lower volatility, and can you handle these announced acquisitions and ones that may be announced in the future without an added element of volatility that's going to keep your valuation low?

Nancy, that's a good question. I would just say that we've done quite a lot of M&A. I guess we've averaged two transactions a year for the last seven years, so we really understand how to manage that and what it takes to be successful and the potholes to avoid and how to manage through that. But -- I lost my train of thought.

But I'd say we are at a point, especially doing the smaller deals. We've got to a point where, with Merchants & Southern, we announced the deal, we closed it, we got approval and closed it in about 100 days, did a conversion in the same quarter. So I think we can definitely, on the smaller deals, announce one, integrate it -- sales, risk management and all that -- and get the results.

The other piece, I think, to the question is the discounted valuation. When you look at the deals we've done, the last three or four deals we did were diluted to book value. So as revenue and as earnings has wrapped up, we're priced much differently on earnings than we are on book value. So I think we're being discounted because we diluted book value. So going forward, what we've said for the last year or so is we're not going to do any transactions that dilute the book value. We want to build book value back, and we're seeing that come back.

So that will clearly have -- the other overhang, I believe, is credit cost and the volatility of credit. And we've said in the second quarter that the large charge we did should help volatility there. And we came in less than that guidance number for the third quarter. But we think $2.5 million is still a good number, going forward. So if we can remove those two overhangs, it will clearly help us.

Okay, thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dennis Zember for any closing remarks.

All right, no closing remarks. If you have any other questions or comments, you can call Ed or I directly. And with that, we'll say goodbye, and have a good weekend.

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